Some of the largest estate agents have formed a new online property portal called onthemarket.com to combat the dominance of Zoopla and Rightmove. This is a classic move to defend against the shift online, but it raises the question, how have estate agents survived the internet so far? And is this about to change?
Before the internet estate agents had a clear role. If you wanted to sell your house, you needed to place it with an estate agent who would have a list of potential buyers and could provide a valuation. Matching buyers and sellers in this way was only possible with a high street office and adverts in local newspapers. However with the internet potential buyers scour online property sites. As long as your home is on one of these, all buyers will see it. You can also find extensive data on historical sales to decide what valuation is appropriate. The role of expensive high street estate agents appears less clear.
Therefore estate agents would seem to be a prime candidate for the low-cost disruption of the internet; that they should follow in the footsteps of music shops, newspaper classifieds and travel agents. But there is little sign of this happening as there are still almost 12,000 estate agent offices across the UK.
Estate agents are also still able to charge hefty fees. The average estate agent fee for selling a property is 1.5%, the average property price is just over £270,000, and therefore on the average sale an estate agent will make £4,000. In the UK in 2014 there were just over 1.2 million residential properties bought and sold. Hence with a simple calculation this implies estate agents are charging £4.8 billion each year for selling homes.
The lure of such high fees has attracted a number of low-cost online alternatives, but these have failed to make a dent. Online services typically charge a flat fee of £500 to sell a property which includes everything other than showing people around your home. However most people prefer high-street estate agents, selling your home remains one of the biggest decisions people make, therefore most of us prefer the familiarity of a traditional agent.
This may be partly because people sell properties later in life, therefore those making the decision whether to sell online or with a traditional high-street estate agent are typically older than average. The average second time buyer is 42 years old and hence is probably less comfortable selling things online, especially their home.
Another reason is that you cannot place adverts directly onto property portals such as Rightmove, making the possibility of selling online less apparent. This is perhaps because Rightmove was started by a group of estate agents (who have subsequently sold out) and also because the business model is based on being paid by estate agents. No business chooses to bite the hand that feeds it.
This brings us back to the new property portal onthemarket.com started by the largest estate agents. To ensure the success of this portal members can only place adverts with one other online portal, hence estate agents using onthemarket.com will need to choose between Zoopla, Rightmove or another portal. This is quite a bold move, as many sellers will not be happy if their home is not on all online portals. This shows estate agents realise the need to defend against the online portals, and the good fortune they have enjoyed so far in escaping the disruptive clutches of the internet.
Estate agents starting their own portal may help delay the shift to low-cost online alternatives, but not indefinitely. Selling your home is one of the biggest decisions you can make, hence people have erred on the side of caution and familiarity. However it is only a matter of time before we get used to selling houses online, and in the process saving a big chunk of the current £4.8bn spent on estate agent sale fees each year.