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Opinion: The real estate industry has a lot more to lose than Trade Me

Posted in Opinion

By David Hargreaves

The pragmatists among us would argue that someone should never take part in a fight unless they know they will win it.

Essential to this philosophy is for each party to know their own strengths and weaknesses and to be able to see when they are in a good position and when they are not.

With that in mind, the actions of some real estate companies in pulling out of listing on the Trade Me website, look at best rather speculative and at worst downright risky - not just for the few companies involved but the whole real estate industry as it currently exists.

I would argue that any war the real estate industry in its current form chooses to wage with Trade Me is not one the real estate industry can win. Real estate agents risk hastening their own demise. Yes, I'm talking about the 'death' of an industry.

Well, is that a bit extreme?

I don't think so.

It's human nature that we all like to think that we do well in our jobs and that the job and industry we are in are valuable, even essential ones. But are they?

One lesson that surely nobody needs to learn now is that with the explosion of global communications the world changed. This meant that jobs, the way of doing jobs, and whole industries changed. And some have disappeared. More will.

No job, no career, no industry has a 'right' to exist. Because things have been done one way in the past there's no reason to suppose they will be done that way in future.

One career that I watched 'die' from close quarters was that of the newspaper printer.

A confused mess

When I first started working in journalism, newspapers were still put together in a rather confused jumble of 'hot' and 'cold' metal. Journalists wrote their articles on little pieces of paper with the assistance of manual typewriters. That's where 'the printers' came in. One set of them took the pieces of paper and entered the articles into a computer, which then belched out a printed version of the article, which was then cut by scalpel and arranged on a dummy page by another set of printers, and the dummy page was then photographed and the image of the photograph then etched on to the metal plate, which was then put on the printing press and, voila, a newspaper was produced.

The printers were very powerful. They were the hammer that knocked the nail in. The physical producers of the paper. The heavily unionised workforce could decide at a whim (and it often seemed to be a whim) whether the paper would be produced that day.

They had muscle and they used it.

When I worked on a newspaper in London during the mid-1990s I worked alongside a delightful chap called Greg who had retrained from being a printer in the 1980s and had become a more-than-capable page layout sub-editor.

How much do you get?

I once had the temerity to ask Greg what he earned when he was a printer, and to my surprise he told me. In his last full year of being a printer in 1986-87 Greg earned £57,000 gross. At the time, in mid-1995, I was earning £24,000 working for the same organisation as a journalist.

But it gets better. Due to long service and negotiated terms Greg was down to working just three days a week, for which he was on £57,000 a year. And there's more still. I've got no way of verifying whether the following is true or not, but Greg said he was earning more than the editor. Nice work if you can get it.

The fact is, although they would not want to put it in such terms, the printing industry held the newspaper industry to ransom. High wages and benefits were the price that had to be paid by the newspaper barons just to get their paper on the street every day. That is of course until one of these barons, by the name of Murdoch, managed to cut a deal with other unions in 1986 that enabled production of papers without the printers. That basically killed the newspaper printers off. Death of an industry.

Nobody likes you

I doubt whether newspaper printers actually ever realised how unpopular they were. Everybody (and that includes unfortunate journalists who had to interact with them on a daily basis) treated them as a necessary evil. "We need you, but we don't like you."

Now, I would not seek to argue that real estate agents are as unpopular as the newspaper printers were.

But I would pose the question: Do real estate agents realise how much the general public resent the fees agents charge for selling their houses? No, do they really realise just how much these fees are resented?

It goes back to the central proposition of how people involved in a job always think they're doing a good and worthwhile job. No doubt real estate agents think that too. No doubt they think they provide a valuable service and that they are necessary and that other people outside of their industry think that about them too.

Well, not so. The way the fee structure works for selling a house, with the agent receiving x% of the total price paid regardless of how much work he or she has put in is a recipe for resentment. Arguably the recent drive of, particularly Auckland agents, to use auctions as the principal method of sale, has promoted more resentment.

Arguably also, it has helped to demonstrate to people that, hey, maybe we don't need somebody else to sell the house?

That's how it was

People have used real estate agents because that's always been how you sold a house. So, the fee charged was most probably always resented, but it was seen as a necessary evil. That expression again.

But still necessary?

The success of particularly Trade Me as a means of marketing houses is a clear pointer ahead. The internet is a fantastic marketing tool. People overseas can and do virtually decide on buying a house in New Zealand based on what they see on the internet.

By taking on Trade Me, the real estate agents risk really alienating themselves. A big part of Trade Me's success has been in the way it built, not a business in the traditional sense, but an online community. People felt a sense of being part of Trade Me. They empathised. They loved the idea of throwing some goods up on the site and having them being bought by someone somewhere in the country.

As the ease of doing that has caught on then so the ever-wider implications. Well, why not just chuck your house on there? And do you really need to be signed up with a real estate agent?

It seems to me the real estate industry is playing power games right at the time it is losing power. The industry is on the verge of being replaced and yet it is flexing muscle as though it still thinks it is essential.

Uneasy relationship

How long the uneasy relationship between Trade Me and the real estate agents could have gone on in any case is a moot point. Individuals would, I suggest, have more and more been tempted to simply market their own homes through the internet anyway without assistance.

But by seemingly getting aggressive, the real estate industry as it is, is surely pushing its own demise. The industry is picking a fight with someone stronger. And, worse, it is picking a fight with someone that holds public sympathy while it does not.

The real estate industry will do itself a lot of favours if it resolves this battle with Trade Me quickly, while there is still a real estate industry.

And just as a final word, don't take it that I think Trade Me will be around forever either. But it seems pretty clear the internet will be around for a while and if Trade Me isn't the website of choice forever, then you can say with every confidence there will be something else that replaces it.

Will anything replace real estate agents? The best answer is probably another question: Will we need to replace them?

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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20 Comments

The real-estate industry

The real-estate industry surely has to get out of trade-me wholesale to survive.
 
If i were them i would, through REINZ or similar umbrella orgainisation, execute a full-scale pull out from trademe.  The listing fees saved can pay for blanket marketing of realestate.co.nz
 
It's all about the network effect, sellers list on trademe becuase the buyers are there, buyers look there because that's where the listings are.  This opens the door to private sellers.  Private sellers can market their property on an equal footing with the agents.
 
If realestate agents pull out wholesale, the buyers will stop looking at trademe and start looking at realestate.co.nz.  Then the private buyer is at the agents mercy.  The agents own the marketplace and will refuse private listings.  If you want to be listed where the buyers are looking, then you need to go through an agent.
 
I'm amazed, given that trademe is the primary form of marketing, along with 2 or 3 weekends of open homes, that more people don't sell their own houses.  A couple hours work on each of the weekends, in exchange for 30K fees saved.

you do understand about

you do understand about internet search engines? If I type in something along the lines of 'house for sale in suburb blah blah', I get everything. Real estate websites, bank websites, open2view, trademe. It's all there. Or maybe real estate agencies are going to use vendor money to get better rankings with google etc.?
 
Real estate agents might sign up the vendor to some sort of exclusivity. But not buyers as far as I'm aware. If you're trying to sell, you only need to get to the motivated buyer(s). Real estate agents don't really add much more value to the transaction past that do they?

Seriously, when you are

Seriously, when you are searching properties you use google, and don't go direct to a specialised listing site like trademe or realestate.co.nz?
 
the search and notification facilities of google et al. are nothing on the likes of trademe and realestate.co.nz.  They don't let me browse a map and see all open homes this weekend and take me to details with one click, they don't email me new listings daily. 
Most of the houses that pop up directly in google are to properties that have already sold.  When properties are being marketed for 3 weeks only, timing is everything.  At best google is just gives you links to listing sites, then you use those sites directly.
 
If it were really as easy as you speculate, trademe would not be the billion dollar juggernaught it is today, buyers would have migrated long ago to site with more reasonable fees. 
 
Would love to see the number of people you get through a house using e.g. homesell only and not trademe.
 
I think the only value real-estate agents add is the initial market apprasal. 

If I don't know the region

If I don't know the region and which agencies work there, then yes, I'm going to start with a general internet search and work from there. If I'm local, then I already know who's operating in the region and probably already have an idea of where to start looking and what's available.
 
I though estate agents initial market appraisal was about hooking in the vendor with some fat number, then once they're locked in milk them for a bit of advertising revenue and slowly grind them down till they drop their price to what it was actually going to sell for all along. Still get the commission at the end of the day.
 
If I was selling or buying, I'd be doing my own research on recent property sales in the area to get a feel for turnover and value. Or if I was high end, I'd be going to a actual valuer who has no vested interest in the sale or not of the property.

FYI the Commerce Commission

FYI the Commerce Commission would be watching very closely at any collusive activity by agents on that front.
cheers
Bernard

But the agents are doing it

But the agents are doing it already, they have realestate.co.nz and it's not open to private sellers.  Why aren't the commerce commission investigating?  If realestate.co.nz is open, why hasn't homesell etc joined up?  The commerce commission would investigate the agents for deciding not to list on trademe?  Doesn't seem likely to me.

David Hargreaves. Interesting

David Hargreaves. Interesting story. What you dont describe is how newspaper proprietors, in order to introduce cold-type photo-composition had to agree to parallel ongoing bogus hot-metal composition for some years. I knew of one instance where the hot-metal chapel boys doing the bogus composition had a backlog of 5 months work.
 
Bogus composition was where the same work was re-produced using hot-metal methods and then thrown away. As staff retired or just gave up, they werent replaced. Took a while to shut them down.

David Hargreaves argues that

David Hargreaves argues that any war the real estate industry in its current form chooses to wage with Trade Me is not one the real estate industry can win. Real estate agents risk hastening their own demise. Yes, I'm talking about the 'death' of an industry. Well, is that a bit extreme? I don't think so.
 
Have to disagree.
 
I'm of the view that Trademe are potentially cutting their own throat. In the same way that supermarkets exercise monopoly power over suppliers and growers and producers by screwing down the price paid to those suppliers because they own the shelf space, the real estate industry has its own shelves and could (and I only say could) collectively take their bucket and spade, beef up their own web-site and advertise exclusively on their own web-site. It would simply require the RE industry to act as a collective. They have the power to inflict enormous damage on Trademe.
 
Trademe have gone for the killer knock-out blow. Yes, it's a war over a one-tonne-nugget of gold. Except they should have gone about it gently, slowly, over time and do the frog-in-the-boiling-pot thing. I think they have gone about it the wrong way. But hey, you only get once chance at looking good in this game.

I also have to disagree with

I also have to disagree with David.

Trademe's fees have sky rocketed. That might work if they were a monopoly, but there are many players in the property market. Realestate.co.nz is largely a free service to both buyers and sellers. Agencies have their own websites and they too are free. So, sellers have a clear choice. In my experience, people don't want to pay for something that they can get for free.

By they way, how does TM justify its massive fee hike when it's website has remained largely the same for Years?

The list is almost endless,

The list is almost endless, printers are mentioned above, railways, coastal shipping, shorthand typists, clerks, telephone operators, yada yada...., improved technology wiped them all out.
Some saw it coming many did not, some moved on swiftly, some jawboned, blustered and big-noted it to the bitter end. I laughed my ass off when they shut down Longburn meatworks in the 80's after so many strikes, the bemused workers cries were pitiful, the unions went quiet.
Arrogant denial by those riding the gravy train to oblivion and their wailing as they sail over the cliff is entertainment of the highest order.
Bon Voyage.

Good start David but the real

Good start David but the real estate industry is a small fish in the bigger scheme of things.
 
If you really want to stir things along how about applying similar analysis to the big fish of the FIRE sector - finance and insurance?

General marketing of your

General marketing of your house yourself is fine, however when it comes down to preparing & signing contracts it's not so easy. Buyers are not that confident in buying directly from the vendor sometimes. Buyers feel uncomfortable voicing feedback on aspects of the house etc.
And as someone else said a good agent may get you a higher price thus nullifying your "saving" of the commission.  
You need to have paper contracts ready to go, & prepare your own solicitor etc.
But 4% +GST of $500,000 is a lot of money to pay for what can often be a straight-forward transaction.   Add a fixed rate break fee from the bank!   Then $1500 - 2000 from the solicitor (sell/buy), Physical moving costs.....  etc etc

The likes of homesell will

The likes of homesell will help you will allot of that, even run an auction for you, all for fixed fees.

I'm surprised that nobody in

I'm surprised that nobody in New Zealand has yet just put together a better New Zealand specific website for buying and selling property with much lower fees to provide a little competition.

Run it for free for a year to build listings. It's not rocket science in this day and age.

Realestate.co.nz? Agents only and feels clunky and dated.

They have.  Tonnes of them,

They have.  Tonnes of them, but nobody uses them.  Listings sites are a natural monopoly.  First we had trade and exchange, now we have trademe.
e.g.
http://www.sella.co.nz/property/residential/for-sale/house/north-island/
http://www.wheedle.co.nz/Residential/For-Sale

If auction sites were easy

If auction sites were easy then there'd be many.
Wasn't there one called Zoomba or something - died at birth

This is not a battle agents

This is not a battle agents can, or will win. Trademe has the brand equity to keep eyeballs on the site. If agents insist on listing elsewhere, then they are missing potential viewers. Agents are also seriously under estimating inertia. Why would someone bother going elsewhere to look at property when they have always used trademe.
The print bias in RE advertising is a sad reflection of its lack of foresight, or ability to change. Wheres the banner campaigns, the FB advertising, all cheaper and much more targetted than print. 

I don't know they exact

I don't know they exact figures, but imagine close to 90% of properties are sold via agents.  
 
Buyers will very quickly bother looking somewhere else for property if trademe has only the 10% of the market that is private sales.

What is to stop Trade Me

What is to stop Trade Me setting up their own real estate company? If things get bitter they can just stop agents altogether and set up "Trade Me Premium Real Estate." Yes they will need feet on the ground but in the same way new airlines can undercut the old national carriers the commission given to agents will tumble. Nothing stays the same.
Trade Me has this potential. This is a battle agents can not win. The internet does not cause evolution - it brings revolution to the status quo.

Crazy talk. Punters go to

Crazy talk.
Punters go to Trademe. That won't change.
Pulling adverts from Trademe will be suicidal to Realestate companies and the vendors.
I can freely sell and buy properties via Trademe and all it costs are Trademe and solicitor fees.
Win-Win for buyers and sellers.
Real Estate agents need to come up with real reasons for exhorbitant fees.
Computer savvy people are now doing that role perfectly fine.