How come the internet has not killed off real estate agents?

Properazzi

Alistair Helm

Alistair Helm

This seems to me to be a commonly voiced question. Whether you read the local New Zealand concern voiced as part of a recent REINZ research report “that questions the ‘you’re doomed’ view of tech” or listen to the renowned team at Freakonomics respond to the question ‘How has the internet not killed the market for Realtors yet?’ as part of their FREAK-quently Asked Questions

The fact is the internet has been around long enough now that doomsayers forecasting that real estate agents would go the way of travel agents and taxi drivers are clearly wrong. Here in New Zealand as well as many other countries, we have not seen massive, significant or even modest disruption of the role of real estate agents in the real estate process as a function of technology.

I recall the quote I used for many years in industry presentations as a wake-up call to agents to embrace technology rather than fear it:

“Agents will not be replaced by technology, they will be replaced by agents with technology." — Peter Williams, CEO Deloitte Digital 2007.

It has long been my view that technology has a lot to offer the real estate transaction process but will not wholly replace the role of the agent. Forget it. It is not going to happen.

As to why, the simple answer is well wrapped up in this summation that speaks to the true role of an agent:

The transaction process for a residential property is for the majority of people a highly infrequent event. It’s a lengthy and complex process. 

It’s a deeply emotional event. 

It’s an event that commits people to significant financial liability and most importantly it lies at the very core of Maslow’s hierarchy of needs. 

That is why people entering the process want and need the support of a real person, someone on hand, someone they can trust, someone who is proficient with the process and will be their guide, their confidant, their confessor and their advisor

Let me unpack this statement so as to provide clarity, as to why, when you look at the component parts, technology can improve and has improved efficiency and brought greater transparency to the whole process but, when seen as a whole, the process, particularly when it comes to selling a property is far too much to allow disintermediation through technology to completely replace the agent of the process.

It is important at this stage to clearly define the real estate process in the New Zealand context as a seller-side service, as is the case in similar markets like Australia and the UK. It is also fair to say the buyer side has been significantly affected by technology – easier access to inventory and democratisation of property data, both of which have empowered buyers.

As an aside the US is a quite different market, with both buyer-side and seller-side agent services, which makes the transaction far more expensive and complex as it supports twice as many agents, as selling agents cannot advise buyers and visa versa. Added to which the US system still heavily relies on an archaic listing database structure – the less said about this the better!

Let me now share my thoughts on those key components of the process – both real and emotional – and thereby better demonstrate the influence of technology as an enabler but not a disrupter.


Infrequent

It is not unheard of for people to live in the same house for decades – equally some people seem to move every few years. For me, I’ve moved 10 times in my adult life which averages out to just under every four years. I understand the average is somewhere between eight and 12 years. This infrequency leads to a lack of 'learned experience' for the majority of buyers and sellers. The fact is they seldom get to develop skills and experience into the process of selling a property, which often leads to a sense of uncertainty and that nagging doubt “that something's changed since the last time we moved?”

 

Lengthy

For most people selling a property is inextricably linked to buying a property. The elapsed time for a completed move of house is generally measured in months rather than days or weeks. Often people start to consider moving six to nine months before actually physically moving. This protracted process means people often become distracted by everyday matters especially as the process builds up a head of steam as the critical decision-making date of putting a house on the market has a habit of creeping up on you. So, just when you thought you had the time to manage everything yourself, you more than ever need someone to offload onto.

 

Complex

Buying and selling property is complex. It needs to be. Property rights are at the core of modern democracies. It is the land and the legal rights pertaining to owning land that underpin the property-owning process and ensures that you alone own the land upon which the property sits, whether that be a clear freehold title, a more complex unit title, cross-lease or leasehold title. The appropriate correctly documented filings need to be executed correctly and legally. Certainly, digital documentation processes and potentially a blockchain structure will ensure greater surety and efficiency but this will only be as an aside to the overall process. We are blessed in New Zealand with one of the most digitally developed systems of land registry, which means searching titles and recording title changes is measured in minutes. Many countries suffer from fragmented and un-digitised systems that lead to what is termed “the closing” process commonly taking weeks.

 

Financial

Property has always been a very large financial transaction, more so these days where typical property prices are up to 10 times the average salary and often far more in the major cities. Such financial transactions are still largely underpinned by mortgages that obligate buyers to 20 years or more of repayments. Certainly, digitised systems and artificial intelligence has and will, ever more in the future, change the process of mortgage origination to the point when applying for a mortgage or changing a mortgage term will be as easy as a PayWave transaction.

 

Real person

Sure, we are being better served by bots and voice-activated artificial intelligence when it comes to booking an Uber or checking on the delivery of a courier but we are humans not robots and we crave the ability to look eye to eye with a person we empower and trust to represent us. Someone who has shown their credentials and who through recommendations and referrals we believe has our best interests at heart to see the process through to the end, surmounting any obstacles that may appear on the way – that person is the local real estate agents we select. Someone who is part of the local community part of whom we know, someone who will be there now and in the future.

 

On hand

It is staggering how human-like the latest artificial intelligence human interface is in answering questions – another five years and we will be easily convinced we will be talking to a real person on a screen or even in a hologram. This will be great for shopping and informing our everyday lives but, when it comes to property purchasing, I suspect it will not be until we actually trust AI to transact with another AI, in a very distant future world where every action is AI driven, then we will see the gradual replacement of agents. Until then I think regardless of tech-savviness or age, people selling property want to look deep into the eyes of the local agent who sits in front of them and tells them how this process works and how they will be in good hands.

 

Trust

That indefinable quality that often tops people’s list of real values we seek in people we want to work with and be with. Real estate agents sadly often fail to reach even halfway to the likes of doctors and engineers or police on trust ranking professions but you have to ask yourself what erodes that trust in agents? Is it the experience of you or your friends, or is it a perception created through the media of the few bad apples who certainly damage the reputation of the many thousands of agents that day-to-day support thousands of customers? Sure, if the industry can’t keep working to eradicate the bad-apples, then trust will continue to be eroded but would you trust an artificial intelligence at the end of a phone line or online interface, more than a real person?

 

Process

The process of property transaction often seems easy when viewed from the outside. Stick an advert online and in print, host an open home or two, and wait for people to make an offer. Shuttle back and forth between buyer and seller working toward a compromised price and bang. A couple of hours work for c.3% of the selling price. How hard can it be – surely a piece of software can bring the buyer and seller together?

Well, the perception and reality could not be further from the truth.

Firstly any business offering the service of real estate for a fee requires it to comply with the Real Estate Agents Act 2008 – all parties in the role need to be licensed which requires significant initial training to reach qualification and then continuing training. The property transaction process starts far before any property advert is posted anywhere and requires a deep understanding of legal obligations and background investigations on the property as an agent is acting as a representative of the seller with all the legal implications that can entail with personal and professional liability.

The process of identifying and facilitating the prospective buyers and guiding them through the process has professional obligations as well, and such matters are complex and demanding, with the agent at all times seeking the best outcome for their client (the seller) while recognising the professional responsibility to the buyer.

 

Guide

An agent is a critical guide to the process helping all parties understand what happens and when. This requires experience and coordination. Certainly software systems have and will continue to manage and visualise the critical timeline and the path needed to be taken with appropriate notifications and critical-path planning. However, as we all know diary alerts and notifications are simply that, notifications. If you don’t have someone overseeing them and acting upon them, they will get ignored or forgotten and the process of real estate transaction needs to be a well-choreographed process guided by a dedicated person with experience.

 

Confidant and confessor

Emotions cannot be wholly removed from the real estate transaction and, as such, you need someone to share your deep concerns with, whether you set out with this intention or not. As the seller you have in your agent a professional who has an obligation of client confidentiality which allows them to help you to succeed in the sale whilst appreciating the possible emotional challenges that lie behind the reasons for the sale, many of which may be the last thing you need or ever would want potential buyers discovering. However, agents cannot abdicate their professional responsibility to buyers. They have to truthfully, accurately and honestly represent all the facts pertaining to the property they are acting as agent for – any misrepresentation and they are personally liable.

 

Adviser

An agent is clearly an adviser in the property process and more than ever technology plays a large part in improving the analysis and representation of property data to better inform all parties, especially when it comes to initial listing price expectation and then on through the process. However, no algorithm, no matter how sophisticated, could advise a seller on the options available at the time of, say, a tender submission when the unique circumstances and market conditions influenced day-to-day by impending and actual transactions of prospective buyers change a market by the actions of these self-same participants as ruled by their head and their heart. The fact is artificial intelligence and algorithms are powerful tools that are incredibly effective at crunching masses of data at scale – think of millions of property records and thousands of property sales to come up with automated valuation models but, when it comes down to a couple of properties and a handful of buyers in a local area, no algorithm will be able to advise a seller or buyer in a way that creates confidence and facilitates outcomes that get people to where they want to go with their lives and the houses they want to live in.

A smart professional real estate agent is a role that is made up of a multiplicity of individual roles. Technology can be a powerful enabler to better support many of these roles but replace them all in one unified system to facilitate property transactions end to end? No way. The best agents need to embrace technology and let it be their differentiator.

No country anywhere in the world has yet experienced a radical or significant disintermediation. This is not because the market is not attractive for investors nor so opaque that innovators cannot dissect the roles and processes and seek to reinvent them. The core fact is that real estate is not a global market that has liquidity and substitutional homogeneity. Every real estate transaction happens in a hyper-local environment that involves a tiny subset of customers and every transaction is in some ways ephemeral – never to be repeated or modelled for future. At its heart and to use the language of tech start-ups 'real estate transactions don't scale as a process'. Real estate companies can and do scale but that is not the same thing and maybe the subject of a future article.

Alistair Helm is the former chief executive of Realestate.co.nz and former head of product at Trade Me Property. He has just restarted his independent Properazzi blog after a three-year break.


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26 Comments & Questions

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The number of travel agents halved in the first few years of the net but has remained constant since , and many like HoT and Flight Centre among others are doing very nicely thank you ..for the same reasons in the article applying to real estate

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Because as sentient beings by enlarge we enjoy human interaction

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Any dummy knows that Real Estate salespeople never die. They just go out of commission.

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Its quite a job really, stand at the door for 3 weeks and then see what offers come in - and when they stuff up they hide behind the REAA / READT which is a body set up to cover their mistakes.

A little known fact is that a real estate agent can say anything they like about a person, and then under the guise of "doing real estate work" they can escape any kind of censure.

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Aptly named My Lord!!

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It is an extremely difficult career as a Realestate salesman and most earn less than minimum wages.

I worked for a large realestate firm and although I worked hard got many deals together and listings. After one hard year slog I earnt nothing $0!

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Not sure how Mark managed to do all that work and not be paid. As for Lord Donkey...foolish talk clearly has not a clue , or common sense, but can hide behind his name

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It is tough dealing with very arrogant sellers and shifty buyers who would ripp off their Mothers before offerring half price and then pull out the next day.

Humanity in all its glory. A real nightmare job with all work and no pay !

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Really ? Hmm well we will see

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Most human beings like interacting with other human beings. Always have always will. The current talk of robots taking over jobs reminds me when I started working in an office in 1970 that we would see the paperless office in a few years. The company had just bought an IBM 34 occupied a whole room with sprung floor halon gas fire protection the works.
Well its 2018 and Im still waiting to see the paperless office.

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In reference to commercial and rural real estate Alister could be correct but in terms of residential realestate he is sadly behind the times. Already traditional real estate companies like Savills have disrupted the market in the UK and Australia and parts of the USA with new Internet AI based real estate selling programs. ie www.yopa.co.uk and www.purplebricks.com.au. Many other look alike systems have joined them and have proved successful.

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one aspect missed is that under evolving law and the REA a buyer and seller have now a very near transaction guarantor situation absorbed by the licensed agent which is not available to the parties in a sale effected by non licensed parties and that includes private sale vendors and buyers.If you dont believe it talk to your lawyer as agents are the latest feeding trough for legal fees.Small agencies are numbered as they simply arent big enough for the fight and the big ones are seen as a scource of ready compensation who dont want the litigation fuss.

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Targeted advertising will eventually supersede nice suits, slick audis and a cheesy grin at open homes. Real Estate agents are taking exorbitant cuts for work that can be programmed. The company REX Real Estate in California is already doing a good job at this.

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Realestate is about people not houses ! The agent is working with two aggogant parties. Buyer wants to steal it and a Seller who does not want to sell or move.
Imagine trying to get a deal on the internet.
Good Luck .... No Deal !

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I’ve sold my last 3 houses over ~ 15 yrs privately on the web. Always got more than the top figure estimated by an agent and paid zero commission - which on a 7 figure transaction is considerable!!!! It’s a no brainer for anyone with a bit of nouse!!

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Lucky you, buy a lotto ticket. Most people selling privately sit on the market for years.

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Rubbish. Most are selling in a month or so.

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"nouse"? ...Perhaps the nous of a self-centered mouse.

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Accurate observation I would say

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They're a good option for the desperate, or the too busy, but if you want to save an absolute fortune in commission then sell your home privately. It's a bit more work, but the savings are immense. Unless you can negotiate down the commission with one of these agents to a realistic and fair amount, then sell it yourself. They really aren't doing anything that you can't do.

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The big change will come about with online real estate agents; as is happening in the UK.

Fixed, and low, commission and all of the benefits of using a real estate agent. A friend of mine just sold their GBP500k house through one for GBP2,500 - a 0.5% commission. It also went for more than their local agent valued it at when they were deciding who to go with.

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He would say that wouldn't he.
I have never sold through a real estate agency.
You can employ the likes of Home Sell who will take care of signage, advertise in Trade Me ( the 'go to' on-line advertising site ), give you
advice on how to conduct your own open homes, and arrange an auctioneer if required. You can work in with your solicitor if 'legal'
problems arise, after all solicitors can themselves act as real estate agents.
This is precisely the procedure that a neighbour across the road (Epsom) used to sell just before Christmas and he got a top price. He told me virtually all his potential buyers came from Trade Me and one or two off the sign.
His complete cost of selling was just over $2000 dollars which
included $800 odd dollars for a very experienced and top-notch
free lance auctioneer.
He reckons that he saved himself about $40,000 dollars in agency fees
and marketing.
I have never used Home Sell myself but it cost me $200 to sell my last house in Manukau ( about nine years ago ); I just had a street sign made up by Speedy printers where I supplied the digital photos.
It does involve a little research of the market to give you some idea
of a target price; however this is made easy today with the likes of
Trade Me and Interest.co.nz providing prices of recent indivdual sales
in your area.
Real Estate Agents' commissions are just far too high in NZ; in UK they
hover around the 1% mark.

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Good all round advice for anyone thinking of selling their own home themselves. I'm seeing a lot of Home Sell signs around the place now actually.

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As they aay, you pay for what you get.

Real estate selling and purchasing is all about negotiating, and this is a skill that some are better than others.

There's no doubt experience counts in bucket loads. If I was picking an agent, it would be someone with high energy who has a proven track record in negotiations.

If you have those qualities, a private sale in a market short of competing listings is likely to be your best option.

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Interesting article and comments afterwards.

I am a real estate salesperson and yes I did charge 4% plus a $600 administration fee (no one could ever answer to me what that was for). I was good at selling , damn good. I wrote a book on negotiating, spoke at numerous conferences in NZ and 3 states in Australia.

But, I must agree with both the writer and many of the comments made by the readers.

I agree real estate commissions are TOO HIGH.

I guess I saw the light and changed company to Tall Poppy where I believe we charge a fair flat fee.
We now charge on average $10,000, do the same service as we did for the “big named companies” , many a time $10,000 for us and $30,000 for other companies.
I believe for high dollar value transactions like property and having a third party to negotiate for our client, THE VENDOR, and having where possible, buyers fighting for a property and raising the sale price is crucial to any sale.

Yes, some vendors will sell privately, congrats.

From experience, many who have and then turned to a true real estate corporate athlete has achieved a far superior sale price.
Now before I’m hung drawn and quartered, I can provide many testimonials from very happy vendors praising our results for our fair fee.

Lastly, salespeople win some and lose some.
Yes they have a fiduciary responsibility to the client
They have a duty of care to the buyer
THEY ARE LIABLE 100%.
And if they don’t sell they don’t eat.
Some make it
Many don’t
Some are worth their weight in SOLD

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Upper Hutt houses sell themselves at the moment, due to being at bargain prices compared to Wgtons sky-high prices. Having a real-estate agent there is a waste of time and money. Many sales are home sells.

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