Poor old real estate agents. A number of companies are eying their mouth-watering commissions for selling real estate and taking a whack at it.
When you consider an average agent's commission for selling a property is 2%, a $1 million property will attract $20,000 in selling fees. Some agents can charge up to 5% in commission. When you consider how many properties can be sold in a week or month, you can see why your real estate agent drives around in the latest Porsche or Lexus.
REA Group Ltd (ASX: REA) has repeatedly stated that it needs real estate agents – after all, they provide the company with its largest source of revenues through listings on realestate.com.au. The listed property advertiser has repeatedly taken advantage of its position to increase advertising prices and introduced new, higher fee products. Ditto Fairfax Media Limited's (ASX: FXJ) Domain.com.au.
While most of these are passed on to the property sellers, there may come a time when agents will have to wear some of those costs. Particularly as online sites begin offering many of the same services a real estate agent usually charges for.
Things like providing a list of comparable sales, an estimate for what your house might be worth and recommendations on how to improve your sale price, such as low-cost improvements.
Several websites already provide those services – many free of charge. Others, like Onthehouse Holdings Ltd (ASX: OTH) – owner of OntheHouse.com.au, offer property profile reports, history of sales, similar sales, suburb profiles and the list goes on.
Down the track, even buyer databases could be taken over by online players – after all, they are only lists. Auctions could be easily conducted online, so who needs an expensive auction marketing campaign?
Buy My Place
Now, another company is looking to take its own bite of the property market, eliminating real estate agents completely. In the US, around 20% of homes are sold without an agent and in Canada it's as high as 30%, but in Australia that figure is less than 2%.
Killara Resources Ltd (ASX: KRA), a tiny explorer, has agreed to buy BuyMyPlace.com.au and the company that owns it. BuyMyPlace.com.au allows property owners to sell their properties for just $650, potentially saving them many thousands of dollars.
Killara estimates that using a 2% commission rate and an average value of $525,000 for Australian houses, real estate agents rake in around $7 billion each year, not including the marketing and advertising that goes along with it.
When you consider REA Group has revenues of $523 million and Domain an estimated $200 million annually, there's substantial room for new players to take a larger piece of real estate agents' commissions.
Other targets
And it's not just property sales that disruptors are targeting. Property management is also under threat, with BuyMyPlace entering that market – following in the steps of Rent.com.au, REA Group and Domain offering landlords the ability to rent out their properties and bypass real estate agents.
Others like 1Form.com allow renters to apply for multiple properties without filling in applications for each real estate agency or property.
Rinse and repeat
Once, physical newspapers were the primary source of all things in the property market, but print real estate classifieds have virtually disappeared – taken over by the disruptors. Online stockbrokers have virtually replaced full-service brokers, and it would seem odd now to ring up a broker to make a trade unless you didn't have internet access. ATMs have mostly replaced bank tellers.
Jobs, cars, real estate, property rentals and even general classifieds are just some services that have been disrupted in a new digital world, but this revolution is ongoing.
Commercial television and Pay-TV is under threat too from the likes of subscription video on demand (SVOD) services such as Netflix, Stan and Presto.
Foolish takeaway
Consumers have never before had the wealth of information they do now, all just a few key presses of a smartphone away. We have been empowered by the digital revolution, and those industries that have traditionally relied on old consumer habits may be consigned to the history books.
A report by the Committee for Economic Development of Australia predicts close to 40% of existing jobs will disappear because of technological advancements, with real estate sales agents one of the highest risk professions. This new wave of property sector disruptors suggests their time may be approaching fast.
