Online estate agents may have permanently changed the way in which vendors think about how they pay to sell their home, but traditional agents can still hit back by halving their fee and charging it upfront.
That’s the claim from a specialist property analyst, who has been comparing the way in which the model of traditional estate agencies and that of their online counterparts differ.
Andrew Stanton, of Estate Agency Insights and Strategies, has produced a lengthy report that examines how estate agencies both modern and traditional make (or in some cases don’t make) their money.
The millions that online agents have spent on advertising thanks to generous financial backing — EYE revealed yesterday that the top ten online/hybrid agents have raised £250m between them — has resulted in a change in the way consumers think, Stanton claims.
He said: “The onliners and especially Purplebricks are definitely the new housing market disruptors but more in the sense that they have, in less than three years, disrupted the psyche of the vendors and rewritten the sacred principle upon which traditional agency is based: no sale, no fee.
“This is absolute brilliance, [generating] positive cash flow from each instruction and no pressure to sell, as you already have your fee.”
However, Stanton claims he can see a way for traditional agents to hit back by duplicating the model, and that the “real future” of estate agency lies with what he calls the “medium charging agent” (MCA).
He pointed to the fact that Purplebricks’s chairman Michael Bruce indicated last year that Purplebricks’ average selling price was £240,000.
Stanton said: “This is not much use to the tens of thousands of vendors with a property worth considerably more.
“So this means the traditional estate agent, who caters for property across the broad spectrum of property sale prices, still has the majority of the marketplace.”
He said so-called MCAs would profit from having a highly skilled sales team, would be able not just to rely on Zoopla and Rightmove to find a buyer, have a physical presence in a small office and a fee large enough to make a “reasonable profit”.
He added: “Just as the online agents have re-educated vendors almost overnight … could the traditional agents not hit back and duplicate this model? Get vendors to pay upfront?
“So, the traditional estate agent goes to the vendor and says ‘here is our menu of services that we are going to use, all the things the onliners have plus a real office and a dedicated sales team who form a 60% part of our overheads but who we think are essential in getting you sold’.”
Stanton proposes that instead of charging a typical of 1.5% on a £360,000 property plus VAT, which works out at £3,960 plus VAT on completion, the traditional agent should instead charge a fixed upfront fee of £1,980 + VAT — half its usual fee.
He predicted that the vendor would “bite the agent’s arm off”.
He added: “For this equitable solution to work, all it takes is for the non-online agents to disrupt that collective vendor psyche just a little bit more.
“Maybe a sustained television and multimedia advertising campaign, re-educating the vendor public to accept the fairness of a system where paying upfront for all means lower estate agency fees for all.”
But he doesn’t make any suggestions as to how such a campaign would be paid for.
Stanton contends that his idea stands up to the inevitable criticism that traditional agents would lose out by charging less.
He said: “If we use the original model that a new traditional agent’s break-even is £18,000 a month, and in an area where their average sale price is £360,000 and their average fee is 1.1% plus VAT, that is a fee of £3,960 plus VAT.
“So they need to exchange on four and a half properties a month to break even and to do this means they need to list nine, as they only sell half.
“On the ‘old’ no sale, no fee model, they list nine vendors’ properties at a fee of 1.1% + VAT, or £3,960 plus VAT (on a £360,000 sale price), so that is 9 x £3,960 = potentially £35,640 of fees. They fail to sell every second property they list, [as per the] national average, so they exchange and receive fees on four and a half sales, or £17,820.
“On the new MCA charging system, they list nine vendors’ properties at a fixed upfront fee of 0.55% plus VAT against a sale price of £360,000, so £1,980 + VAT per property. So, 9 x £1,980 = £17,820, an identical revenue flow, and it is instant revenue, rather than waiting 16-18 weeks, the average time that it takes for a property to complete.
“It hinges on traditional agents charging half their normal fee, which in some cases will be higher or lower than the £1,980 plus VAT quoted, depending on established fee levels in the area.”
“Also, it would mean vendors would be more realistic about asking prices as inflated prices mean higher fees, basing fees against initial asking prices.
“Lastly, if the vendor has put his or her hand in her pocket upfront, then they are not going to switch agents – which means that as the vendor is chained to the agent, and they are in it for the long haul together, then it is likely that this business partnership may be stronger and more motivational for both sides.”