Three ways the real estate industry could change over the next decade
Friday, October 26, 2018/
The world of real estate has changed drastically since the turn of the century.
Back then, property investment as a wealth creation strategy was really only in its infancy, but now more and more Australians are interested in property.
And while interest was growing, the role of real estate agents changed as well.
In the past, agents held much more power.
They had access to data such as past property sales and local values, as well as all the details about properties for sale. Remember agents usually just advertised listings in newspapers and their shop windows.
Within a few short years, property listing portals were commonplace, and that meant the balance of power changed with potential buyers having easy access to data.
Also, the days of agents driving prospective buyers to properties soon came to be a relic of a bygone era.
So, with so much change in such a short period of time, what does the next decade herald for the real estate sector?
1. Agent value
While there is no doubt the role of sales agents has changed dramatically, that doesn’t mean an agent’s intrinsic value in a transaction has disappeared.
You see, the main value selling agents have always brought to the table is their ability to negotiate between the seller and the buyer.
Because they are not emotionally attached to the property as the sellers are, they are able to suggest a price both parties can be happy with and bring a protracted negotiation to a conclusion.
Whereas left to their own devices, private sellers generally struggle to accept buyers don’t view their property as a castle as they do.
While agents will communicate with both buyers and sellers differently in the future, for example, through social media, videos and virtual tours, I believe a good agent will continue to help both buyers and sellers achieve the results they desire.
2. Cut-price commissions
Over the past decade or more, the era of cut-price sales commissions has entered the real estate industry.
We’ve seen agencies like Go Gecko and now Purple Bricks set up shop offering a reduced sales commission for a reduced level of service.
There will always be sellers who are motivated by price and this means these types of agencies will likely always exist.
But remember the old saying: price is what you pay, value is what you get.
You see, the cheapest agent is the one who gets you the best price, not the one with the lowest commission and who likely works on a quantity over quality model.
Sellers who seek out cheaper prices lose out in a number of ways.
I’ve found these cut-price agents are less motivated to get their vendors the top price.
And many of these cut-price fees include a non-refundable levy that must be paid regardless of whether they sell the property or not.
That is contrary to the standard commission structure that is only paid when a successful sale has been completed.
At the end of the day, while cut-price agencies might grow in number because of technological advances, most vendors that use them will probably end up with a cut-price result.
3. Free data
One of the biggest changes in the property investment space in the past 20 years has been the rise of data.
When I first started out, there was very little available to help investors research markets.
Today, there is more ‘free’ online data than you can poke a stick at, but much of it is inaccurate.
It’s too easy to stumble into the wrong information.
Take the online property ‘valuation’ reports. These are generally inaccurate (as often on the upside as on they are on the downside) as they have no idea of the condition of the property in question.
Similarly, sellers can be misled by those ‘find the best agent in your area’ websites, which make their money, and therefore we can assume their recommendations, based on commissions paid to them by agents looking for listings.
While the volume of available free data has skyrocketed, the one thing that hasn’t changed much is the ability to analyse it correctly.
Most buyers lack the expertise to understand what the numbers in front of them are really saying and how best to interpret them.
To be blunt, they lack the perspective to know what’s important and what’s not.
This is most obvious when lists of ‘best performing’ suburbs are released, which some people confuse with signposts of where they should invest next.
My strategy is buying investment-grade properties that will continually outperform averages and this strategy doesn’t change to suit short-term changes in the market.
I only invest in the type of property and location that has always worked rather than looking for what works now (in other words, the next hotspot or get-rich-quick scheme).
My research involves analysing leading indicators (signs of what will happen in the future) rather than the type of content freely available on the internet which tends to be based on lagging indicators (a record of what’s already happened).
So what’s ahead?
It is no secret we’re in an age of rapid technological change that is having a significant impact on the types of jobs that people do.
The continual evolution of the internet, social media and technology will clearly cause disruption in many industries, including the property industry.
- Buyers will have more power to search and research properties and loans online.
- More buyers will use buyers agents to protect their interests, just like vendors will have selling agents on their side.
- Electronic conveyancing networks will become the norm.
- How we handle our money and online banking is going to evolve. The day of cheques being written for deposits will soon disappear and it is possible cryptocurrency will play a role in future property transactions.
However, I don’t see real estate agent jobs being replaced by artificial intelligence any time soon. And I’m not even going to go down the route of making a joke about the level of real estate agent intelligence!
You see, I believe that while the sector will evolve and change, the buying and selling of property will always remain a skillset that requires the expertise and knowledge of experienced professionals.
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