No more high property commissions
Start-ups such as Leadhome will force old-world estate agents to embrace the power of technology if they want to survive
For Deon Nobrega, the creation of property start-up Leadhome couldn’t have come at a better time. The Johannesburg resident wanted to sell his house and relocate to the Cape. But he dreaded having to deal with estate agencies.
In the end, he didn’t have to. Nobrega discovered Leadhome, which he describes as a "disruptor waiting to happen".
For far too long, agencies have made outrageous commission on the sale of homes, he says. And the service they provide does not warrant the size of their fees.
Leadhome is a new estate agency that operates primarily online, and with a different structure. It charges customers a flat fee of R30,000 to find a buyer for their home, which is generally substantially lower than the 6.5% or 7% average commission charged by traditional estate agents.
Technology has already affected allied industries such as hotel bookings and home rentals. One of the key disruptors in the accommodation market is Airbnb, which makes it easy for homeowners to rent to tourists.
Until recently the property industry has been safe. But it has also lagged in the adoption of new technology.
Leadhome, which has operated for about 18 months, describes itself as a hybrid real estate agency that uses traditional methods as well as technological advances to provide a better service.
Its agents advertise your home on major property portals.
One of the features that seems to appeal to customers is its system that lets potential buyers browse properties and schedule viewing appointments online for a time that suits them. It also gives sellers the profile of the potential buyer, which they have before the buyer enters their homes.
The sellers show potential buyers around the house, though Leadhome agents negotiate with them over price. Sellers are also able to monitor who had viewed their houses and what those people think about the property online.
Leadhome co-founder and CE Marcél du Toit says his business uses innovative technology that allows it to provide customers with a straightforward and real-time service, available at any time.
Leadhome only operates in Johannesburg and Pretoria and Du Toit will not disclose how many houses it has sold so far. It is working on developing a mobile app.
Du Toit says the company sold its first house on New Year’s Eve 2015 and word of mouth has been a crucial factor in promoting the business.
"If you look at global trends, it doesn’t matter what industry you are in, technology is core to any business and to customer experience," he says.
It isn’t the only start-up of its kind. Another company that has embraced technology is PropertyFox, which celebrated its first year last month. Like Leadhome, PropertyFox is undercutting traditional agency commissions aggressively. It charges a one-off upfront fee of R25,000 or 1.5% commission on the conclusion of the sale.
PropertyFox sold R96m worth of properties in its first year, saving customers around R5.5m in commission, calculated on average commission of 6.5%.
Estate agencies that use old methods of selling and buying property will have to review their business models.
Technology disruption goes beyond having an online presence, and includes services such as virtual reality.
With virtual reality, agents will let a potential buyer "walk" through the house and the street of a home they are interested in. It could also let them design a new development or virtually place their decor into a house.
In its report on commercial real estate, Deloitte says the industry will need to reinvent its strategies and drive innovation by partnering with start-ups.
It will also need to leverage technologies such as the Internet of Things, cloud computing, mobility, 3D printing and advanced analytics to remain relevant.
It says technological advancements are making commercial real estate data more ubiquitous and transparent.
"Traditional brokers should consider diversifying their core business focus to include consultative opportunities, invest in data and technology, and collaborate with start-ups to get ahead in the game," it says.
As digital disruptions continue, the fallout will inevitably change real estate, says Deloitte. "The key to surviving and thriving in this new order is to adapt to these disruptors while maintaining a core vision and developing a flexible approach that can withstand future volatility and drive growth."
For sellers such as Nobrega, the method is a no-brainer. "Leadhome has cut the business model to the bone. It has revolutionised the industry," he says.