Residential: hybrid estate agency model
There’s room for both of us
7 June 2017
Andy Jones maintains that a hybrid estate agency model is the way to go
The rise of the online estate agency had plenty of exposure in 2016, with various much-publicised – and sometimes amusing – references to the demise of high-street agents. But I do not think it is all over, because traditional agents still have a lot to offer.
Since 2004, the number of high-street estate agents has nearly tripled to about 19,300. As a result, the average number of sales has dropped to just over 60 per branch per year, 73% lower than 10 years ago. With online agents now vying for market share, the competition is increasingly tough.
To add another dynamic to an already changing market, ‘build to rent’ has emerged as a new asset class. The first specifically constructed build-to-rent blocks are now being completed, and I believe a hybrid model that combines the efficiencies of an online business with the personal service of traditional agents will be the most effective way to make such schemes a success.
The impact of the internet
Though met with suspicion by some at first, it is hardly surprising that online estate agency has flourished. The internet has revolutionised the way we live and work, and on average, 94% of buyers or tenants now go online to source property. Changes in market behaviour and the move towards online services are having a significant impact on high streets. Household names are dwindling as banks, travel agents and other retailers are being forced to rethink their business models, as are consultancies such as estate agencies.
Consumers are more internet-savvy than ever, and it does not take them long to become experts on something. However, anyone who has tried to diagnose an illness online and been faced with a terrifying list of potential ailments will know that Google research can be dangerous, which is why most people still go to the doctor. Similarly, most homeowners, whether they are selling or letting, instinctively turn to the internet to research the worth of their property. But there is still a risk involved with valuation in this way as price data online lacks context and does not take into account a variety of influences.
A home is many people’s largest asset, and an accurate and suitable valuation by a qualified expert is absolutely vital to the marketing strategy of a property. Overvalue it and you could turn buyers off; undervalue, and they may wonder what’s wrong with it. It is just as important for those letting a property, as you need to know the potential demand, comparative prices being achieved in the area and the kind of tenants who might be interested before you decide on the rental value.
Technology has made it easier for estate agents to set up and compete, but any good agent worth their salt has an in-depth understanding of the market – from the prices to the people – that cannot be underestimated. The argument in favour of high-street agents is their local knowledge and ability to value properties for sale or rent based on experience, rather than the desktop valuations of their online rivals.
Unencumbered by overheads, online agents are clearly driving prices down, but are their services comparable with those on the high street? The menu offered by online agents is certainly pretty extensive – you can choose to draft your own property details, conduct viewings and negotiate offers, or you can opt for a service where everything is included. This gives customers choice and enables them to be more engaged with the process – an element of control that is especially pertinent given the perception that high-street agents do not do much for their fees.
The high street fights back
However, the death knell of the traditional estate agent is premature, as entrepreneurial agents are taking steps to future-proof their business. The challenge they face is to make their service a valued alternative to the online options.
Despite the growth in online shopping and services, there is evidence of a high-street revival in some places. The popularity of local butchers, greengrocers and independent shops is pushing property prices up, as the well-heeled head to rural or urban villages seeking bespoke product and service offerings.
There are a number of critical success factors that an estate agent needs in today’s marketplace. To remain competitive, agents must demonstrate that they have better knowledge and offer a better service. Optimising marketing budget, offering better marketing strategies and reporting information that provides value for clients are all essential.
However, estate agency is still – and always will be – a people business. The focus should remain on relationships and adding value by understanding the needs of buyers and sellers or landlords and tenants, and finding off-market and bespoke opportunities, and these are particular strengths of the high-street agent.
Although it is challenging for younger generations to get on the housing ladder, the demographic of homeowners will change, fuelling demand for slick, efficient and technologically advanced products and services that suit their lifestyles.
Getting letting right
The emerging build-to-rent sector, which targets just such a younger demographic, has changed the market dynamics. This build-to-rent sector represents a new, high-quality residential asset class and a major opportunity for investors. But the viability of such schemes is vital to their efficiency. This is why Allsop has invested in an online lettings service to simplify and professionalise the process of finding and reserving a property on the internet, making it as straightforward as possible for “generation rent” and saving time and energy in the evaluation and filtering period.
Modern renting is driven by location, amenities, transport links, space, timings and price. As it is not a long-term commitment, people tend to have more confidence in online lettings, which means the market can become more commoditised as less emphasis is put on bespoke advice. The virtual platform allows clients to search online confidentially, take 3D virtual tours, book viewings and reserve a property.
Letting build-to-rent developments online also reduces the overheads that can have an adverse impact on the net profit of the asset. It is a common misconception that each building needs an expensive and comprehensive on-site lettings team, because some of this can be managed centrally by experts on the virtual platform. Staff who have local knowledge and expertise for leasing processes and promoting robust marketing incentives are critical for each development’s success, while administration and legal processes can be centralised for cost efficiency, enabling high-density blocks to benefit from economies of scale.
With a dedicated concierge or general manager for each project, the technology is also complemented by a personal service. Like a traditional estate agent, the concierge has the advantage of local knowledge and can conduct interviews and viewing services to find the right residents for the right property. This is particularly important for build-to-rent developments, creating communities that people want to join, and ultimately increases an investor’s returns.
The principle is the same whether letting a large-scale block of apartments or selling or letting an individual property. The future of successful agency lies in combining the efficiency of technology with a team of skilled people who can provide excellent customer service.
Best of both worlds
High-street agents cannot continue to operate as they have done, and need to adapt to attract new customers. To bridge the gap between the needs and expectations of different generations, a hybrid business model is the best solution. High-street agencies are personally engaged with the community and have an intimate knowledge of their local area. Similarly, online agents cannot be expected to know why people need to upsize or downsize, and the challenge for them will be to develop such understanding.
The main obstacle for traditional agents is balancing the cost of overheads with downward pressure on fees driven by competitive agency prices. Pricing is likely to readjust across the board, with traditional agents dropping their fees to compete while online agents increase theirs for the customer who wants a comprehensive service.
Most traditional agents already make use of good technology, although this relies heavily on the input of staff sitting in high-street offices, which are expensive to run and maintain. Online agency instead relies on the customer having access to such technology, so the trick is providing them with interfaces that can support them through local networks.
The challenge is not just price – it is also about the growing appetite for engagement and transparency. Customers want to feel more in control than they do now in the selling, buying or renting process, whether online or on the high street.
Andy Jones is Managing Director of Letting & Management at Allsop