Some further thoughts on the industry reaction to Trade Me Property new pricing

Today has been a flurry of calls and chats about this NZ Herald article citing an agent rebellion to the new pricing being implemented by Trade Me Property. I feel I presented a balanced and insightful article earlier and that has been ratified by the calls I have received. 

Those calls have also further reinforced my view and at the same time added some extra thoughts that I thought I would share here.

The article states that there is a belief that agents failing to promote Trade Me Property as part of the marketing campaign for a property will result in less listing on Trade Me Property which will see viewing numbers decline and thereby result in less private sellers. Lets examine this in more detail.

Real estate is a business carried out by c.10,000 self employed contractors who day to day pound the streets prospecting for listings, having secured an appointment to present a proposal competitively pitched against probably 2 other agents, you have to ask yourself which agent is going to dare say in the presentation when asked by the seller how they will market the property “well, you see, we as Company Y do not believe that it is best to advertise your property on Trade Me Property because we think that their decision to increase their fees to us from $1,000 a month for all our listings to $159 per listing is fair!”

How do you think sellers are going to react to this statement, here are my view of the optional responses from vendors:

Option1 - Your petty squabble with Trade Me is of no interest to me - I just want to be on Trade Me 

Option 2 - OK so you don’t think there is value in Trade Me to justify a fee of $159 to advertise my house - yet you want to charge me $17,000 - next agent please!

Option3 - OK you can waste your time squabbling amongst yourself and Trade Me over which website to use in the meantime I will with my own credit card list my house tonight on Trade Me and I will simply deduct the $399 from your commission

Option 4 - Can I please speak to an intelligent agent who understands that with a daily audience of 120,000 buyers and viewers there is really no logic for not advertising on Trade Me Property - next agent please!

Option 5 - the smart agent adds “Now what I have just told you is the corporate line - but I am independent and I am concerned to ensure your property is marketed in the best way and therefore I will make sure your property is on Trade Me Property and I will pay this out of my own pocket” - vendor response - great, you’re the kind of agent I want to have sell my house, where do I sign!

The industry in this situation is not in control for as much as the corporate heads of Harcourts and Bayleys, Ray White and Barfoot & Thompson and others believe they can collectively boycott Trade Me. They cannot. The people who pay the fees to Trade Me are the franchisees of the corporates who actually run the offices in the high street and they pay the current subscription, but even they don’t hold the decision, as the real decision rests with those individual agents whose interests are best served when they do not have to overcome objections, especially ones that make no sense and come from “corporate”.

Now just taking this a bit further, the logic that a boycott if effective would diminish listings - could be possible. The problem is that buyers don't actually know what comprehensive listings look like - is it 14 in this suburb or 12 or 18 ?? Add to this the belief that viewers will somehow disappear. Not likely Trade Me remember is the only site with private listings which amount to around 18% of all listings - those listings are not on Realesatate.co.nz (and nor will they ever be!) so Trade Me still retains that relevance to comprehensive content.

My main fear is that this issue is a major distraction to the real estate industry. It does nothing to bolster professional credibility and worse it makes the industry look cheap - justifying commission rates that result in people paying $17,000 to sell a house and at the same time focusing on whether to pay $159!

Related articles:

Agents to boycott Trade Me - I don't think so

Trade Me Property solidifies status as property marketing powerhouse

Trade Me makes radical change to real estate agent fees

Agents to boycott Trade Me - I don't think so

The news headline from the NZ Herald: "Agents shun Trade Me after listings fee surge" is as ever an engaging headline but largely incorrect and unlikely to come true. As yet real estate agents have not shunned Trade Me Property and as the article goes on to suggest, I suspect that by February when they propose to recharge for these fees, this story will be history.

The fact is this resentment by real estate agents to accept a new fee structure from Trade Me Property is totally out of context to the true value of the service that Trade Me deliver. The context is this. To sell a house in NZ using one of the many name brand franchise real estate companies costs for an average house $17,000. The advertising budget for that house has to include online and has to include Trade Me. Now an agent may tell you that you need to spend upwards of $5,000 for a comprehensive marketing budget and it should include this advert and that full page and this flyer and that insert. The fact is you don't. There is Trade Me and that's it (add in professional photos and a sign board as well). The cost of that advert which promotes that property to an audience in excess of 120,000 visitors a day to NZ'ers and a global audience is just $399. Just $399 to sell a $500,000 property for which an agent charges close to $20,000. Oh and by the way an agent can get this $399 advert for just $159 + GST.

Now agents are up in arms because they used to be charged up to $1,000 a month to list all their properties, which for an average office which had 10 listings of property for sale a month was $100 per listing, now they are being charged $159 + GST per listing. Now certainly for a larger office which say lists 50 properties a month the cost will rise more significantly but you could argue the larger offices were paying far too little for the value of the service.

Trade Me Property have been explicit in their communication of this increase which they fore-shadowed back in September to recommend that agents pass on the cost to the sellers as sellers are well aware of the value of Trade Me Property and also well aware of what it costs to advertise on Trade Me.

So agents are up in arms - revolting at what they see as "astronomical" increases, Harcourts New Zealand chief executive Hayden Duncan stated the increases at Trade Me "unreasonable" and "nothing short of price gouging". He said if Harcourts' 181 branches absorbed the new fees it would cost tens of millions of dollars each year. This statement is very interesting - Harcourts have around 21% share of the NZ property market and are the market leading company. Each year they would list around 28,000 properties for sale based on the Trade me fee of $159 that totals $4.4million, hardly "tens of millions of dollars" and set against around $235 million in commission fees the $4.4m pales into insignificance.

The Bayleys Waikato regional manager Stephen Shale quoted in the article, predicted Trade Me listings in Hamilton would be "decimated" by February.

"Trade Me will have virtually no stock in Hamilton," Mr Shale said. "And the viewings will diminish if the stock isn't there to look at. If there's nothing to compare your property to, the private seller is the one who'll pay because you're not going to have the eyeballs on the site and the industry site won't allow private sellers."

What he fails to appreciate is that even if his agents tell vendors that they personally, and his office do not support Trade Me the vendors will simply go onto Trade Me and list their property themselves. Added to which it is hardly professional for an agent to state that they are boycotting the leading marketing platform over $159!

Real estate agents seem to have short memories. Back in 2007 the industry believed it could hold out and stem the rise of Trade Me. At the time Barfoot & Thompson as well as Harcourts refused to allow their listings on Trade Me - they supported and believed their own industry owned website Realesate.co.nz was the best place for listings. However gradually one by one, office by office the industry crumbled, as vendors listed their property on Trade Me themselves or switched to an agent who would list on Trade Me. Six years later Trade Me has only strengthened its position as the de-facto marketing for all property in NZ and now the industry believe that they can boycott Trade Me Property - I don't think so!

As was posted on Twitter - maybe vendors should boycott agents that won't advertise on Trade Me Property

@alistairnz @nzherald Maybe sellers should boycott agents like Harcourts who say the Trademe listing fee isn't cost effective for clients?

— Paul Spain (@PaulSpain) November 28, 2013

If the real estate industry believe that their future lies in an industry owned property portal rather than a well established specialist marketing service that attracts the lion's share of viewers then they should know they are in good company - their colleagues in the UK and Australia share their views and frustration over what they see as a gorilla like site they have helped establish now charging heavy fees. The problem is their aspiration to divert traffic and boycott the leading site is a pipe dream. Have a read of an article I wrote earlier this year on Property Portal Watch titled "Industry Owned Portals - the Aspiration"

Related articles:

Some further thoughts on the industry reaction to Trade Me Property new pricing

Trade Me Property solidifies status as property marketing powerhouse

Trade Me makes radical change to real estate agent fees

Access to ultra fast broadband is a critical aspect of a property for sale

This question was asked on twitter this week as to whether this property advert was the first in NZ to feature the proposal to be 'Gigatown-ready'? - it got me thinking about Ultra Fast Broadband int he context of property marketing. 

@ChorusNZ is this New Zealand's first 'Gigatown-ready' real estate ad? http://t.co/huMbjtK5Q1 #GigatownNapier

— ryan (@ryaninnz) November 10, 2013

Now Gigatown, if you did not know it is a competition organised by Chorus, which over the next year looks to decide which NZ town becomes the lucky recipient of one gigabit per second internet connection.

Think about it - 1 Gigabit per second - currently copper based broadband is around 10 Megabits per second, that's barely one hundred's the speed, even fibre only gets to 100 Megabits - a tenth of the speed, and poor old dial up modems struggled to get just 56 kilobits per second. Put that in context, an episode of 'Breaking Bad' on iTunes is 1.5Gb in HD - so if you had a gigabit/sec download speed, just a couple of blinks and and its downloaded, but on a dial up modem you would be best to start downloading before heading to bed, as it would take 7 hours and 26 minutes!

Now the property for sale highlighted in the tweet was not as yet, the lucky recipient of one gigabit per second broadband speed, but clearly the agent selling the house Colleen Schofield of Bayleys in the Hawkes Bay was smart enough to recognise the value of marketing a property featuring the fast current broadband access of 100 megabits per second. 

This is a trend we are more likely to see in the future and something I think the real estate industry needs to incorporate into the component dataset of facilities in a property for sale. For just as important as the proximity to shops and transport as well as orientation on the section should be the current accessibility of broadband as ADSL or ADSL2 or fibre. 

Judging by the current selection of property on the market searching through Trade Me's listing, the real estate industry is not focussing on internet speed as a core component of facilities at properties. There are just 42 properties which include the search term 'ultra fast' on Trade Me Property today. More than half of these are actually future development properties, with just 19 being existing properties. 

From the latest government data there are now just under 10,000 homes connected to ultra fast broadband under the initiative which seeks to connect 75% of NZ to such access by 2019 - currently up to around 170,000 premises. On average of the more than 1.7 million properties in NZ around 3% are on the market at any one time - 50,000 properties.

If that ratio of 3% was applied to the number of houses with ultra fast broadband we should see around 290 homes for sale in NZ which have UFB - but we appear to have 19 - something is not right! 

The real estate industry needs to ensure that every property listed by an agent has details of the internet connectivity as standard - it is as important as the other utility services and in the case of UFB it is a selling point! 

Living with greater transparency - the challenge for real estate

Two articles this week prompted my thoughts about the challenge that greater transparency plays in our lives and the impact it will have on the real estate market. I have commented in the past as to the use of obfuscation by some commentators from within the real estate industry when talking about the market, a behaviour that I sense will have no part in the future.

The first article that caught my eye was a tweet which came into my stream as a retweet from a person I do not know but the content certainly made me sit up! 

A person using social media to reach out to as wide a community as possible to ask a question - a very relevant question as to the condition of a rental property. A question they could have asked the letting agent or the landlord, however they chose to reach out to an open audience to see if anyone could answer the question. This 'reaching-out' to people's connections whether on Twitter or on Facebook or any other medium is what the internet allows us all to do. Rather than historically relying on controlled channels we can look for trusted connections to help us evaluate products and services.

The lesson for the real estate industry from such examples is be open, be ready to engage and answer all such questions and better still, be proactive and provide as much relevant information as possible. If as the case in this example there really is a water-tightness issue with the property (and I have no idea) then take steps to discuss with the landlord to be ready to answer any such question, after all the agent is just that, the agent, not the owner. 

The second article was actually a link I saw to a random listing in the US on Zillow. A house that had been on the market for a couple of months. Now; with well over 2 million homes on the market this house is not remarkable in anyway. What is remarkable, and it is not for the first time that I have seen this, but in the context of this issue of greater transparency this property caught my eye because of the richness of valuable information available on the property that we would never see on a property in NZ.

Let me highlight these insights and in so doing provide an explanation of why I think we are being short-changed in regard to valuable property information, not so much from the real estate industry but from at heart the property data industry.

1. Sale Price - this property much like most in the US and in fact most countries has an asking price. Not a sticker price, but a price which based on comparable local sales would indicate that it should be worth as judged by the listing agent, thereby providing prospective buyers with a guide. This property may sell for more than the $339,500 if there is sufficient demand just as would be the case for property in Auckland at the moment. To put a price on a property, every property for sale in NZ would not be extra work for real estate agents, it would not diminish their role or devalue the sale price, it would though I think build respect and openness!

2. Last Sale Price - this property sold for $390,000 just over 3 years ago - FACT. A fact that is true of all houses in NZ, yet we are not given open access to this information, it is locked away behind payment walls by government entities (local/ national) - it is public record and should be openly accessible to assist the property process. 

3.  Days on the market - valuable information, thankfully we do have this insight on both Trade Me Property and Realestate.co.nz in the form of a listed date; although somehow this data structure seems more telling.

4. Estimated valuation - in this case the proprietary Zestimate. A complex dynamic algorithm developed by Zillow to place an up- to-date estimate on every property in the US. Now in NZ you can buy such an estimate from QV for $50, but in the US the data is free, dynamic and referenced as to when it was last updated. QV is joint venture between the Government owned entity Quotable Value Ltd and the US company Core Logic. It's NZ public record data being managed through a US technology company's algorithm to be sold back to us at $50 at a time!

It is interesting to see that QV report an accuracy of 10% variance of sale price to estimate 65% of the time and 20% variance of sale price to estimate 93% of the time, Zillow goes further by reporting 5% / 10% and 20% variance by major city with accuracies of up to 73% at 10% variance and 93% for 20%. So the data model of QV is good - we just have to pay the government and the US company for the pleasure.

5. Price History - not only do property buyers in the US have an asking price and a 'last sale' price they also have an incredible insight into the historical price movements of both sale and asking price as cited by this example.  Here we can see the historical transaction record (a bleak picture in this case as the US property market tumbled and continues to struggle). Two public record sale prices together with details of when the property was listed at what price and price changes as well as by which agency.

I can sense a loud cry from the real estate industry about this data, that it should not be exposed as to do so would be to diminish the appeal of the property. However if all property was laid bare with the true facts, buyer could make informed choices. Property transactions would not collapse. Quite possibly we might not have the rampant property speculation and price bubbles built off the back of sketchy information and hyped frenetic auctions. Maybe, just maybe this greater transparency like sunlight could help us all better understand and operate with greater confidence in the property market!

It's all change at Trade Me Property

Trade Me Property is the most important component of property marketing in NZ. As I have written before, without Trade Me Property, a house on the market for sale or rent is effectively not being marketed as the vast majority of buyers (and sellers) rely on Trade Me Property to provide the definitive picture of the property market. No other medium has as comprehensive a selection, nor an audience of its scale.

This pedestal though is being tested effective the 1st November by the implementation of a new pricing structure applicable to real estate offices detailed in an earlier article I wrote. The news has certainly been a wake-up call to real estate offices who have up until now absorbed the costs of subscription based listings on Trade Me.

In the article I wrote, I included a quick poll asking readers to let me know if these new charges should be passed on by real estate agents to vendors as an advertising cost of around $200 or if the cost should be absorbed by the real estate agents.

Over the past month I have been collating these responses. Now the survey is hardly statistically valid as in total I have had 53 responses but the results have been to my mind surprising. 

An overriding majority of readers who have contributed with their vote (for which I appreciate the response) have proposed that the industry should recharge the costs of Trade Me advertising, just as with other advertising costs! 

I would interpret this response more as a demonstration of the value and criticality of Trade Me as the advertising platform of choice for all sellers than as a reflection of the principle of vendor-paid-marketing on top of the commission fees. This would somewhat seem to somewhat fly in the face of the comment made by the CEO of the Real Estate Institute who commenting on the Trade Me fee increase described the outcome as likely to result in Trade Me becoming "an 'added extra' for vendors, rather than automatic when signing up with an agent"

Change of leadership at Realestate.co.nz

The other big news from Trade Me Property last week was the very surprising announcement that Brendon Skipper, the Head of Trade Me Property since 2006 was leaving to become the General Manager of Realestate.co.nz. 

The board of Realestate.co.nz made the announcement ending a period of more than a year since I left the company as CEO in September of 2012. During this period the leadership of the company had been undertaken initially by the Chairman and then by Philip Dunn who assumed the role as acting CEO from his role of COO.

I must admit I am very surprised by this decision and have fielded a number of calls from within the industry also expressing surprise. Brendon is a very capable person who I have known over the years and he has overseen the significant growth in Trade Me's role and relevance within the real estate industry from being a little trusted challenger to the industry to being a much trusted and highly valued part of the marketing portfolio for the industry.

Why then with this success would he leave the No.1 online business in NZ - a company valued at over $1.7billion, with a property business which commands an audience 5 times that of its competitor, to take up the role running a much smaller business. A business which is not a listed company and in many ways not a true commercial entity given its shareholding securely locked between the Real Estate Institute and 5 of the large real estate companies. A company which from all reports is solidly focused on cost control and tighter integration with the Institute as a member benefit rather than an ambitious consumer focused property service business.

I wish Brendon well and hope we may see more innovation from Realestate.co.nz as a result of his new position. Realestate.co.nz is in my judgement a true specialist property portal rather than a horizontal retail marketing portal with a property section, however being defined as something does not make it that way or prove its value to its target audience, that has to be earned through the value judgment of its customers and consumers.