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Full service versus hybrid or online real estate agents

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real estate agent meeting

There is no doubt that the Australian real estate scene is changing, and this is happening more rapidly than ever. Funds are being raised for new service offerings, overseas real estate companies are entering the Australian market, and established local brands are listing or considering listing on the stock exchange to access more and more funding.

To help make sense of the noise, we're breaking down the industry for sellers to understand what it all means.

Setting the scene for real estate "disruption"

Real estate represents one of the biggest industries that has not been 'disrupted' by technology anywhere in the world. Many industry commentators point out that the real estate industry has all of the ingredients of an industry just waiting to be disrupted, and have been forecasting real estate to soon have its 'uber moment'.

By this they mean that the number of consumers who are dissatisfied by their experience selling property (a CoreLogic survey reported 34% rated their experience as average or lower) is too high, and that the industry is not doing a good enough job of serving its customers.

Further weight has been given to this argument by technology investors supporting companies attempting to offer new ways of doing things in real estate. CB Insights estimates that the global funding into real estate technology has growth from around $25m in 2012 to more than $200m in 2015.

In the Australian context, the real estate landscape is changing rapidly. In late 2015, traditional real estate agency McGrath listed on the ASX and the first year of trading has been challenging amongst much commentary about the state of the Sydney property market, where McGrath is very strong. In early 2016 a for-sale-by-owner company called buymyplace listed on the ASX via a 'back-door listing' in order to raise growth funding and awareness for their services. Hello Real Estate, offering a 'fixed fee model' also marketed an ASX listing, but did not go through with it.

At OpenAgent we recently announced funding of $12m from ReInventure, Qualgro and Breakthrough Labs, taking our total funding in the last 3 years to $20m.

What do home sellers really want?

At OpenAgent we speak to more than 1,000 people every month, from all over Australia, who are thinking of selling their property. We also conduct extensive user-testing on concepts and ideas to understand what people really want when it comes to selling a property.

Based on conversations with real sellers, we believe that most people in Australia would not like to sell their own property. The vast majority (75%) of people do not feel that they could have done a better job than their agent when it comes to selling their most important asset. This insight is supported by the fact that in markets similar to Australia, like the UK, the 'for-sale-by-owner' model has not really taken off, it is has been stable and less than 10% in most markets we track for more than 10 years.

Read: Questions to ask before selling your home yourself

When we ask people what their view is about real estate agent commissions, the first insight is that a lot of people are not really sure how much it costs to sell a house using a real estate agent. To help with this problem we created a real estate commission calculator to bring transparency to the fees being charged by agents in suburbs all over Australia.

"When we ask people how to solve the problem of price, most people vote for more aligned incentives between the agent and the seller (70%). Only 23% say the commission should be lower."

Once people have learned about the average commission to sell a home (around $11,000 for the average property in Australia last year), there are differing opinions about whether this price is appropriate. Less than 20% of people think it is a 'good deal' or 'great value' but more than 40% think it is 'fair, given the importance of the transaction'. Another 40% think the price is either too expensive or a 'complete rip-off'. In this context, it is reasonable to think that lower priced real estate services would be a hit with at least 40% of people looking to sell.

Where things get more interesting is when we ask people to make trade-offs between using a more experienced agent with great customer reviews at a slightly higher price, or a less experienced agent without customer reviews at a lower price. Most people tend to gravitate towards an experienced agent and especially one with fully verified reviews from OpenAgent clients.

And when we ask people how to solve the problem of price, most people vote for more aligned incentives between the agent and the seller (70%). Only 23% say the commission should be lower, and a tiny 7% say people should sell their own house and cut the agent out altogether. To help people align their interests with their real estate agent, we advise using a tiered commission arrangement, and have built a tiered commission calculator to explain the concept here.

real estate agent meeting home seller

What are hybrid real estate agents?

In the last 5 years an interesting model has emerged in the UK. Purplebricks, and several other companies similar to Purplebricks in the UK ("Hybrid Estate Agents"), have grown quickly over the last 3-5 years. Other examples include Emoov, Yopa and House Simple. In total, it is estimated that these kinds of agents help around 5% of sellers in the UK, growing at about 50% per year.

The "hybrid agent" services tend to be quite similar. They offer an in-person appraisal appointment to take photos, do floor plans, and advise on a price to the seller. Beyond the initial appointment, the level of in-person assistance is typically very low. For example, they usually do not include open homes as is the most common practice in Australia with a traditional or full-service real estate agent.

In exchange for much less service, the hybrid model is much cheaper: based on Purplebricks launch pricing, around 60% cheaper than a traditional agent.

Read: OpenAgent Smart Sellers Guide

Full service real estate agents vs hybrid: side by side

So how do the two models stack up side-by-side? We have done a quick comparison table below to help explain the differences.

Purple Bricks vs Full Service Real Estate

What do we recommend to property sellers?

At OpenAgent we make it easy for you to sell your property, however you like. We are all for consumer choice and innovation and we like to see new real estate services enter the market, as competition forces everyone to lift their level of service to the consumer.

At this stage it is unproven whether hybrid agencies deliver great outcomes for sellers. They are certainly significantly cheaper than the traditional/full service real estate offering, but in our view there is no point hiring someone cheap to sell your house if it is not effective.

We are a bit worried about the incentive that comes with a service that is paid on listing, as there is not a great alignment with what the consumer really wants: to sell their house and for the best price possible with the least stress possible. We think most people value a bit of additional service through a property transaction, and are willing to pay for this so long as the service is accompanied by great results.

We'll be watching the innovation with interest to see whether there is a hybrid model that delivers better customer outcomes than the traditional real estate agent model.