Online agents gaining media coverage because of their allegedly cheaper fees could actually cost sellers dearly.
The claim is from Cornish agent Chris Wood, who is calling on journalists and housing commentators to do their homework.
He says that 70% of vendors who put their homes on the market do not go on to sell, and they will have therefore wasted their money.
Wood, of PDQ Estates, said: “The hidden costs of putting your home up for sale with an online agent do not appear to have been calculated by many journalists or consumer champions, and have been conveniently left out of these agents ‘savings’ calculations in their advertising literature.
“Put simply, if online agents had every property currently up for sale on Rightmove (1.2m homes) and sold a typical percentage of that stock (average industry norm is circa 30% of stock) then the 70% of customers who didn’t go on to sell (all 840,000 of them) would have paid over £500,000,000 (half a billion pounds) to these firms for nothing.
“Not much of a saving for the vast majority of their customers, in my view.
“The traditional high-street agent, however, would have charged all those unsuccessful customers a cumulative total of around £0.00.”
Wood has based his figure of half a billion pounds assuming an upfront fee of £600.
He said: “Journalists and consumer champions, please do your sums before singing the virtues of these allegedly cheaper agents.”
His blog is here
Comments (30)
To use your figures Chris, '70% of vendors who put their homes on the market do not go on to sell' , “The traditional high-street agent, however, would have charged all those unsuccessful customers a cumulative total of around £0.00.”
So in the interest of the fairness you ask for in your reply to Aiden Branch at 12.00, it does have to be pointed out that the marketing costs of those 70% who are 'charged a cumulative total of £0.00' are met by the 30% that do.
Maybe an up front fee where you pay for the service you recieve is not such a bad idea, and is in fact fairer on the majority.
Hi Hound
As I've said above, I have no problem with the online, charging up-front model per-se (it's the way that traditional estate-agency used to operate before the corporates became involved in the mid-eighties, after all) however, depending on the ratios and fees charged etc, using the figures I've quoted above, there is not a great saving for the 'bet' taken – What follows is taken from a reply to a similar question on my original blog: http://bit.ly/1vZPDbE
"In effect, what customers are doing with both agency models is gambling.
With a high street agent, they are placing a free bet that the agent will sell their home and, if they don’t sell, they will have paid nothing for trying but, will pay a higher fee if they do sell**
With an online agent, the customer is placing a blind bet of several hundred pounds up-front with no published knowledge of the odds on the chances of actually selling against the potential for a saving* on the final commission – no online agents that I am aware of have published their annual ‘instruction to sold ratio’ – e.g. with my company, we have sold circa 80% of the amount of properties we have put up for sale this year to date whereas, with one online agent operating in my area, they have sold just 29%. Instruct that agent in my area this year and you would have a 71% chance of losing circa £600 and, not selling your home.
*assuming they achieve the correct market sale value and, there is some evidence to suggest that this may not be the case.
**though many agents, myself included, would argue with evidence to back up our argument, that the customers will achieve a better selling price due to local knowledge and trained negotiators working on behalf of the seller and, so, end up better off overall than they would have done by selling privately or with an online agent."
There is no logical reason why in a few years time there should be more then 3 or 4 very large on-line agents. Most will fail, but the ones that win will win big time. This trend can already be seen in on-line tenant find agents.
Trying to compare priced achieved etc is very hard as so much depends on the state of the property etc. The people I know personally that have used on-line selling agents, loved them, but they are landlords so are already skilled in doing their own viewings etc.
"There is no logical reason why in a few years time there should be more then 3 or 4 very large on-line agents"……Why? there is no evidence or trend showing that this will happen,,Online agents started over 10 years ago and have experienced little or no growth so far,
We all know that you can use statistics to put forward both sides of an argument…..The only accurate stats available are that only 2% of the selling public trust online agents enough to use them…..it's as simple as that. Online agencies have started closing down (in a good market) because they are unsustainable. Some may move towards taking a few more % in the next few years, but there is absolutely NO EVIDENCE at the moment that they are capable of any more, whichever slant is put on it.
Of all the nonsense written about online agents by the more foam-flecked of our brethren, this surely takes the biscuit. It's enough to make even Russell Quirk blush.
Well done Chris – couldn't agree more BUT what chance of getting any journalist off the "bash an agent" bandwagon.
Online agents are agents too. All I'm asking is that journalists treat both business models fairly and use proper, impartial, investigative journalism and use proper context.
£600 upfront fee seems awfully high as well. Obviously Chris has not shopped around enough.
If only there was a way to find out through Land Registry the average sale price achieved for properties sold through both the traditional model and through the online model. This for me would put an end to this whole debate in one fail swoop.
the only thing that will put an end to it is the constant TV programs on how good they meant to be how much you can save you never here off the people who carnt sell on there
Paul H
There is. If you have access to Zoopla's market intelligence tool, you can do a search for online agents in an area. You then look at their sold properties in a year and do a 'like for like' analysis of properties against a site such as Nethouseprices.com
I recently ran this exercise for 11 postcode 'out' codes in my area (the first four digits) 'TR13', 'TR18' etc. My findings showed that there were very few sales (low single digits) for the area for the year for all of the online agents combined, however, of the properties that had been sold that allowed a fair 'like for like' comparison (a standard detached estate type home in the case I found), the agent concerned appeared to have undersold the property by £25,000.
Chris…I believe i've just given you a steer as to what your next blog will be about!!;-)
Paul – what's the best way to contact you and go through research on exactly this point?
Sounds like a challenge to me.
online agents do sound like a good idea but its different to selling a car online if u don't like the car don't buy it if you do like it you can have it unlike a house if you like it and want it try for a mortgage and find out its way over valued why is this because they can who looses out the person looking to buy who can they get advise from nobody that's the online agents looking for the quick BUK just like BT British telecoms eventually the call centres will be to much to run in the uk so were now taking our call centre to Bangladesh haha home owner our purchaser calls up on hold for 30 mins someone answers and carnt understand you that's how I see online agents going hahahahaha all about the quick buk
what will the online agents do with out right move and zoopla??????
I blame right move and zoopla for letting online agents advertise on there the greedy b*******s what they goin to do if high street agents start closing and online agents do start taking over there right fees will start to go up just like zoopla said at the start were different yes ok that why your fees go up year on year when online agents fees go up the public will just loose more and you will start to waste ever ones time and money
Sorry Mr Wood, only 2% of properties marketed are sold by online agents so for every 100 you value only 2 will go on with an online agent. Only half of those will waste their money. I would concentrate on the fact that a vendor has only a 1:99 % chance of selling through an online agent ( Grand National punt because you like the name odds) than they do if they sell through you. Most vendors understand savings, they like saving money but most are sensible enough to work out their home isn't worth the gamble of a long odds bet.
Benay
With respect, you are missing my point. Online agents and many consumer journalists are stating 'savings' but, everyone who signs up with an online agent is a paying customer and, so, not all customers save.
Whether it is 25%, 50% or 75% of customers who eventually go on to actually sell (complete), the remaining customers have not saved and yet, their financial losses have not been included in the overall savings that are being claimed.
There are also some staggering claims that online agents sell customers homes for more money than with high street agents. There is no evidence to support this yet, journalists seem to have passed this by.
I have no problem with the online model, as long as it competes fairly, looks after its customers correctly and, does not make claims it cannot substantiate. The same goes for high street agents.
with respect Chris you are missing my point; 98% of vendors aren't stupid enough to instruct passive intermediaries, of those that do only 50% save any money.
Fair point; I've re-read what you said. My apologies
Making the point to vendors that after 20 years of internet selling not a single agency has broken new ground and become succesful is enough, without needing to knock competition too un-businesslike to run a profitable business, to explain to vendors that the pay to list model is a fee for being the greedy or stupid.
Chris, Firstly, where on earth is 30% come from? Ours sales completed ratio is more than double that. And I know the other online agents are around the same levels as us.
But secondly, what you don't seem to get, is that the customer is happy to pay for a service, which is what we are providing by going out, listing the house, putting it on Rightmove and Zoopla, etc.
The client is not therefore 'losing' money – they have paid for exactly that service, so see value in it. The service at that stage is to advertise the house. The public aren't stupid enough to think that anyone can guarantee a sale and they understand that this is part of the process of trying to achieve that sale and so therefore this part of the service needs to be paid for, as a means to giving them a chance of selling.
Estate agents pay Rightmove & Zoopla for a service, but they don't guarantee or indeed sell every house for you. You pay the newspaper for a service as well, and they too don't guarantee to sell your stock for you, but you still pay them, because you know that it is a route to giving you a chance to achieving that sale.
Why don't you publish all the money you 'lose' on advertising in newspapers, Rightmove, etc for your clients on houses that don't sell – that's the same really isn't it?? We're just removing that potential risk from a business point of view and passing that 'risk' on to the client, which is why we save clients an average of £4,000 when they do sell through us because everybody pays a little bit, rather than punishing those who do sell, with a giant fee to cover all the money you have lost from wasted advertising…
If you were to start estate agency again, I don't think any one in their right mind would say, "do you know what, let's do everything for free and risk all of our advertising budget, exposure, etc, etc on selling 30% (which is half of what we achieve, by the way) of all the ones we take on." It's a crazy business model and it just wouldn't happen if estate agency were invented again tomorrow.
But then I guess that's what we've been doing for the last 8 years – re-inventing estate agency…
Adam
As I've said above and in print on many occasions, I don't have a problem with online agents or their business model, it has a lot to commend it from a business point of view. What I find unethical, is the way that the 'savings' are portrayed without taking into account the losses made by those who don't sell. I believe it to be highly misleading to the public who generally aren't stupid but, need protection from misleading advertising such as employed by some online agents.
The number of instructions to sold ratio varies wildly between agents and I am well aware that some agents are more successful than others (ours is currently 80% Year to date but one agent operating in my area – an online agent, as it happens, is under 25%), however, whatever the figure involved, the losses must still be factored into calculations unlike 'high street agents who don't usually charge for not selling (forgive the double negative).
So, Adam, just to be clear: is Hatched a 'For Sale By Owner' advertising service, or an online estate agent?
We're an estate agent
Are you actually a member of the NAEA, or just someone who would qualify to join?
We're a member of the NAEA
Where does the 'only sell 30% of their stock' figure come from? T
Many people use online agents because they want to achieve a higher price, so if that means they shell out a few hundred quid then it's worth it, yes they generally don't sell it but no harm in trying.