Real estate needs to catch up with the rest of the world

There is a big difference between renting a place to live and buying the new Stephen King or Danielle Steel hardback. But when it comes to making that all-important transaction, letting agents could take a leaf out of Amazon’s book. As I have said before, Amazon wasn’t founded in order to let customers check a particular was in stock before they trekked out to the book store. It was created to bring the entire shopping experience online, from browsing through to purchase, and in doing so it disrupted the way retailers do business forever.

Why, then, are other sectors so slow to catch on? Real estate in particular has proven deeply reluctant to embrace change; while 97% of property searches begin online, a visit to an agent’s office is usually required to take any real steps towards buying or letting a home. And many lettings agents are keen for this prehistoric process to continue, because adopting new technologies means providing a greater degree of transparency to landlords and tenants – transparency which could spell the end for unintelligible tenancy contracts and seemingly groundless agent fees.

Agencies are driven by volume, but limited by geography: they have to hit a certain number of instructions and completed transactions each year to be solvent, but they typically operate within a very narrow circumference of their office, and within that circumference there are a finite number of instructions and transactions, for which a number of agents compete.

For agents, physical shops are also expensive, and so is marketing. A landlord can cost a high street agent anything up to a few hundred pounds to acquire. The roof over their head, once a necessity and now a relic from a bygone era, costs thousands. It’s why Foxtons pays most of its workforce £10,000 + 10% commission: if you aren’t getting results, the overheads are huge. These expenses are also why estate agents have a culture of overcharging rental tenants, who are usually worse off than homeowners. A credit check costs us circa £0.14 at Rentify. For a high street agent they certainly don’t cost more than a few pounds. But they regularly bill them to tenants, wrapped up in the infamous ‘admin fees’ moniker, for hundreds of pounds.

All around us, we see the symptoms of an unregulated market which could be improved with technology. How many of the properties on RightMove at this very moment are no longer available, but still being displayed as such? Where can customers go to compare agent fees before making a decision? And why oh why can’t agents ever quantify their assertion that ‘local knowledge’ is an important part of what they do? Isn’t everything in this market about proxies for demand? It doesn’t matter if the objective rental value of the property is £1,400, if the ratio of supply and demand is anything other than 1:1, then price fluctuates from an objective value to one determined by the dominant force in the market. Is a guy in a pink tie who speaks to 300 landlords a year really the best guy to tell me what’s going on with demand across an entire market?

The primary reason I believe technology has been so slow to gain traction in the real estate sector is that this is an industry dominated by sales personnel who stand to lose out by moving with the times. They don’t understand technology, they understand the business model that currently makes them money. The risk here is that technology is securing an increasing foothold, albeit at a pretty chilled-out pace, and a great many agents run the risk of becoming obsolete by ignoring it.

To go back to the retail comparison, I’ll end on a question to letting agents. Who do you want to be; Amazon, or Blockbuster?

Modified from a Medium post. George Spencer is CEO at Rentify.