Uber enters the NZ Real Estate market
Sorry, the heading was click bait. But like Uber disrupted the transport industry, the traditional real estate model has endured its fair share of attacks.
There’s no denying that real estate is a lucrative industry. And anytime large sums of money are at stake, there will be people looking for a slice of the pie. This month we look at some of the different attempts, both here and across the ditch, to disrupt a long-established business model.
Go Gecko was an Australian company which experienced mild success during the property boom of the 00’s. They operated a franchise business model with a fixed fee of $8950 on sale.
A little-known fact is that a real estate business is not a cheap one to operate, and low fee models such as this are reliant on a significant turnover of stock. Go Gecko held steady at approximately 5% market share for a period, but post the GFC an almost stagnant market saw this drop to 2%. An interesting observation from Phil Strong, Go Gecko’s CEO, was: that ‘vendors continued to list with higher-cost agents’ despite the significant ‘cost’ savings. For the general public, something to do with the ‘cost vs. value’ proposition didn’t add up, and with sales volumes too low to support the business model, the company withdrew from the New Zealand market in 2009.
The Jones’ was a New Zealand based fixed fee company that launched with plenty of fanfare. It had ambitious goals of listing on the stock exchange. Their pitch: “Flat fee – Not fat fee: Real Estate Reinvented”. The Jones’ chose to pay their staff a salary and incentivise based on customer service, seemingly a winning proposition for all concerned!
For the vendor, a fixed fee of $7795 (which later increased to $8995) included open home hosts, a call center and negotiators. Vendors did not deal directly with the agent who listed their home, but various individuals specialising in their cog of the wheel. But just like Go Gecko before them, The Jones’ became a victim of a slowing market. Their high overheads and insufficient revenue lead to the eventual demise of the company.
In 2016, after establishing themselves as a force to be reckoned with in the UK, Purple Bricks entered the Australian market with talks of expansion across the Tasman. But less than three years on it’s decided to shut up shop. With its tail between its legs, Purple Bricks has blamed a less than favorable market as the reason for its demise. Dig a little deeper and you’ll find a flawed model which placed little importance on service. So what was the problem?
Purple Bricks remunerated their agents to list property not actually sell them. The result? A large volume of properties on the market represented by agents who weren’t motivated to get the actual sale across the line. In addition, the upfront fee was paid regardless of whether the property sold or not. This led to several out of pocket vendors with a deep dissatisfaction in the service offered. Purple Bricks not only failed to understand the Australian property market; its model gave no consideration to the value the seller places on having their chosen agent support them through the process.
When Trade Me first launched its property division, much to the horror of many an agent, they took existing listings, loaded them up and advertised them on the site for free. Their primary concern? Vendors finally had a viable platform on which to market their property to the general public. Their fear? They would be out of a job! But this didn’t happen. In fact, since its inception the percentage of private sales has remained relatively stable. The reason? Selling a house isn’t as easy as it looks.
In a hot market, a private seller may experience relative success. Offers come in thick and fast with little consideration given by buyers to due diligence. Now when I say relative success, a successful sale may mean a commission savings in the region of $15,000 but there is no accounting for the value that an expert negotiator can bring to a transaction. Compare this scenario with a slowing market, where every house sale throws up a curveball. Here, getting a buyer to paper can seem like a mammoth feat! This is the exact scenario we are in now, where post an unsuccessful private campaign, sellers turn to the services of an agent. They may be unaware that at this stage the buying public, who may have once considered the property, are long gone.
So why do they fail?
To date, the most common approach has been a cut price model. But low sales volumes and small profit margins do not allow these companies to weather the real estate storm in a market downturn. In addition, often the only agents attracted to these kinds of companies are inexperienced and struggling to build a market presence. They’re therefore lured over by the promise of a regular income. These agents are unlikely to have had significant exposure to the numbers of transactions necessary to make anyone an expert in the field. Nor do they have a financial incentive motivating them to work around the clock.
At the end of the day, the selling public will decide which disrupter model will be the winner in the war for the Real Estate buck.
The Wellington Market
Listing stock remains steady with a couple of large-scale CBD developments dominating sales.
Numbers at open homes opens have dropped off their peak but, when compared with a long-term average, remain healthy.
Last month the reserve bank lowered the OCR making the cost of borrowing money the cheapest ever. Lower interested rates are likely to inject a bit more activity into the market as the cost of ownership and a balanced market make buying more attractive
WELLINGTON MARKET QUICK FACTS
Average sale price by Ward:
What’s on this June in Wellington:
Matariki ki Pōneke – Ahi Kā, Whairepo Lagoon, Frank Kitts Park, Wellington Waterfront, Wellington
Come down to Odlins Plaza and the Whairepo Lagoon on Wellington’s waterfront to experience our new event, Ahi Kā. Celebrate and learn about the Māori New Year with fire, food, friends and whānau.
See some of the nation’s finest Māori performers and storytellers, and experience a beautiful light parade featuring creative talent from local schools.
Hangi, toasted marshmallows, fire on the water, and a midwinter bonfire – there’s something for everyone at this family-friendly event.
West Side Story, The Opera House, 111 – 113 Manners Street, Wellington
One of the most celebrated musicals of all time, West Side Story will play a limited season at Wellington’s Opera House in 2019.
A modern retelling of Romeo and Juliet; this tragic love story tells the tale of two young people whose happiness is destroyed by the hate of two enemy camps in New York City’s urban jungle. The ‘Jets’, sons of previous immigrants to America, battle the new arrivals from Puerto Rico, the ‘Sharks’, for domination of the streets.
Wellington Jazz Festival 2019, Michael Fowler Centre, 111 Wakefield Street, Wellington
The annual Wellington Jazz Festival is the highlight of Aotearoa’s mid-winter music calendar, featuring some of the finest musicians from across New Zealand and around the globe.
Jazz aficionados and intrepid newcomers can explore more than 100 gigs across the city, with five days of serious play bringing the sounds and spirit of jazz to the capital’s streets, cafes, bars and live music venues.
If you, or anyone you know, could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always happy to help.