With all the talk of Purplebricks being an Uber-like disruption to the Australian real estate industry (haha!), I want to focus on a less flattering analogy.
In 2006, one of my first client projects – for a marketing agency – was conducting a profit analysis. They had about 80 active clients, so we had the owner rate each of them on a feelings level (up/neutral/down) and then compared with a more detailed revenue analysis.
Hot tip for business owners who can’t handle the numbers – the intuitive feeling assessment matched the hard dollar analysis almost perfectly. Don’t over think it!
Anyway, there was a clump of about 15 clients who were all ‘big down energy’ and had seen cost overruns and write-offs galore. Most had actually cost the business money to look after. I asked what they all had in common – what characteristics of this group could we identify to avoid taking on more like them in the future?
What characteristics of this group could we identify to avoid taking on more like them in the future?
Turned out every single one of them had either:
- Come from an advertisement in the Yellow Pages, or
- Been referred by someone who came from an ad in the Yellow Pages.
Looking at the Up and Neutral clients, NONE came from the Yellow Pages. So worse than losing money on all the dud clients, the business owner was paying $6,000 per annum to attract more of them. Ouch!
I saw this pattern play out in other businesses in other industries as well. Prospects using the Yellow Pages to source suppliers were almost invariably making a decision based on one factor: cost.
Not value. Not expertise. Not better product, service, or outcomes. Just ‘how much will this cost?’.
Worse still, these ‘low cost’ clients are usually harder work and have higher expectations than clients with a different criteria. Being forced to run a low-cost / high-service business model is a losing proposition for
most every company.
Fast forward to 2016, and I’m hearing similar grumblings in regards to the plethora of online Agent Rating (and referral) comparison services. You know the ones:
I almost built Rate My Agent
And there’s a big difference between ‘almost’ and ‘did’, so let’s not take away from these talented teams that executed.
Back in 2010 a friend approached me with an idea: an online website that gave home owners transparency around their local real estate agents. Who was actually selling what, five star client reviews like eBay etc.
We killed our plans (and neither of us are connected with any that were built) for two reasons:
- I identified that a large cash warchest would be required to advertise to homeowners. We would have required funding, which in the middle of the GFC would have been difficult, and
- We struggled to source consistently reliable data – CoreLogic RP Data was often a little out of date, and scraping Realestate.com.au against their terms of service didn’t seem a winning plan. In a rising market, plenty of deals and details don’t make either, and of course “self-reporting” would have ruined credibility. I don’t know how the companies who proceeded solved this problem – or even if they solved this problem, as data quality is a common complaint from real estate principals I speak with.
Now our business purpose was demonstrating to homeowners the good agents from the cowboys. We both knew plenty of great real estate agents achieving excellent client results, yet being beaten to listings by wankers buying listings. We believed in comprehensive accurate data, because we wanted to show buyers and sellers that when Agent X listed a property for $600,000 she normally sold it for $600,000 … or $550,000 … or $500,000, or not at all. Service would be rated by clients, and the hard data results would speak for themselves.
What we had no interest in creating was a race to the bottom on fees.
Race to the Bottom
And yet that seems to be what’s happening with these ratings websites, especially those that publish fees. After all, it’s hard for a good agent charging 2.5% or 3%+ commission to explain in a snapshot online why they are so much more valuable than an agent charging 1.8% inc advertising. So they don’t even get the face to face opportunity.
(I’m glossing over, but aware, that there are some good agents at fixed price agencies and some terrible real estate agents charging full whack.)
Feedback from one of my current real estate clients in particular, who has received several leads from one of these websites by virtue of having the highest marketshare in his area: they were all duds. Specifically, every one of them was interviewing 3 or more agents, and their first question wasn’t “what process do you use to maximise my sale price” it was “will you match this other agency who’ll do it for 1.8% including advertising”.
Heck, Local Agent Finder even promotes the 1.8% fee in their tv advertising and the giant image on their homepage! Way to normalise that ‘cheap is best’.
My client walked away from those listings (well, sticking to his value conversation he probably wouldn’t have won them anyway). And based on my experience of price-focused clients being the most demanding, I think he dodged a few bullets.
So there you have it. Ten years ago I used to tell my clients to seriously investigate whether their Yellow Pages ad was actually bringing them good business. Now I can’t think of the last time I met a client who had a Yellow Pages ad – it turned out good business owners were unwilling to spend good money attracting prospects only interested in lowest price.
Unless you’re competing with other real estate agents based primarily on price, not service, I’d be wary of any referrals that come via these comparison websites. Build your own community and web presence and attract the right kind of clients.
This is me taking some anecdotal feedback and connecting it to an existing business pattern, so I also want to hear more feedback. If you’ve had a different experience as an agent winning work, or agree with my assessment, please let me and the readers know in the comments below.
I’ll leave with an extra note about industry consolidation. Today I count 6 of these real estate agent comparison websites. They’re trying to create a marketplace, an opportunity created by the general lack of trust Australians have in real estate agents.
It’s a reasonable need, but there’s not a market for six (or more) marketplaces. Not all will be here in 2 years time. In particular, those portals who are encouraging sellers to shop based on price (and then charging the agent) will find the agents are as keen to be involved with them as they are to buy full colour Yellow Pages advertising.
I also suspect that their target homeowner clients – the ones shopping around on price – will soon start going directly to the imported “local property expert instructed to sell for $4,500 including gst including advertising” option who will be advertising heavily.
That’s right: Purplebricks could well mean more disruption for comparison sites than on quality real estate agents!
PS: If you arrived here wondering which real estate agent comparison website to use when selling your home, I’d encourage you to think about maximising your sale price rather than minimising your cost. A good agent – ask your friends and neighbours for referrals, look at the volume of sold signs nearby – will cost you an extra ten grand but sell your house for an extra twenty five. And because they win clients from successful referrals, you won’t find them in the Yellow Pages or on comparison websites anyway.
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Now I know who the brainy one is, I’ll keep looking for your posts.
The biggest problem with these comparison sites is the huge fees that they charge to the real estate agents all at the same time as they asking what does the agent do for their commission.