Online or High Street? You get whatever you pay for
There has been a lot of discussion in the last 12-24 months or so about the rise of the online estate agencies, the nemesis of traditional estate agencies with an office on their local high street who better watch out as this new dawn of proptech could be their undoing. For the consumer it must be quite confusing, as propaganda from each side of the argument tends to focus on the failings of the other as opposed to the benefits of their own service or product, so who to believe? As a seller, which should you use?
As you might expect me to say it is not quite as simple as that but let us first deal with what for me is the urban myth surrounding the rise of the online agencies and its more recent relative demise in context of the last 20 years or so since the internet has been mainstream. As with most proptech, when a new idea comes along, every Tom Dick and Harry jumps on the bandwagon to make some money. Everyone is suddenly an expert, the death nail of the traditional agency is announced once more, the Town Crier on every high street ring their bell, “He Ye, He Ye, modernise or die!”.
Now as a member of Generation X, I have heard the heralding of the death of many high street industries many times over, especially in the property industry, all as a result of technology, yet none so far have. For example, when online conveyancing houses were launched about 15 years ago, that was it apparently for high street solicitors doing legal work on property transactions. Unless they could rely on litigation they were doomed. Now for about 5 minutes, these warehouses as with online agencies a few years ago, made some ground and solicitors suffered. There was some nice online gimmickry that people liked, being able to upload documents onto a portal, or being able to see the notes on your file for example, and it was true that the high street solicitors did none of these things. The online versions were very cheap as well. Win Win, or was it?
What happened though as with the reversals of fortune with online estate agencies now, is people then started to experience what was on offer, after a couple of years of thousands of customers using these new conveyancing warehouses, feedback began to disseminate out into the industry and amongst family, friends, peer groups as these things normally do. Yes, you had some nice online functionality, but expectations were not calibrated correctly, and people quickly became disappointed. Buyers and sellers loved the new bells and whistles, but they assumed these would be in addition to what a normal solicitor would normally do. They still expected a face to face meeting perhaps at the start, they wanted to be able to have one person dealing with their case, not a different person every time they called. They wanted a prompt call back, or one at all for that matter. They wanted a personal service, some attention, some empathy during what was a very stressful time. They didn’t expect mistakes either. None of these were forthcoming.
What no one explained was that this was the birth of a new, different model of conveyancing where the online niceties were actually a tell-tale sign that only the economies of scale allowed these new firms to undercut traditional firms to win market share. At 50% of what you would normally pay, you were essentially going to get 50% of what you would normally expect from a firm offering these services. As with all businesses they had a profit margin to maintain, and with revenue down by 50% from day 1, costs had to be as well. Spreadsheets would exist in board rooms showing how quickly and efficiently they could get a transaction through their business without it become costly. No dedicated person to manage your case, as all work was pooled to save head count. No phone calls. They were still expensive in those days especially to mobiles and wasted time. The online portal was designed to dissuade any customers from calling for this reason. People felt like they had been conned. Yes, proptech had made some advances, made some things quicker and easier, but that’s not what people wanted in lieu of everything else, on top of which people started losing confidence in the skill of these firms to protect the customer. It was about more than searches being applied for and ticks being placed in boxes, people expected any firm handling their sale or purchase to advise them of pitfalls, on the results of these searches, to closely examine the lease, to question in detail the other side, to report on title that meant they had all the facts they needed to proceed and sleep easy. Too many omissions and mistakes started occurring and with it went public confidence.
At the same time, traditional high street solicitors recognised that they did have to up their game, to modernise to a certain extent, to be able to provide an online payment option, or a website where customers could log on, or to simply accept scanned documents, which used to be the anathema of most high street solicitors. They did, and the online conveyancing houses lost traction and after the honeymoon period was over lost the market share, they had quickly won to start with. They still exist today and are here to stay. They too have learnt their lessons and have amended their processes and business model to incorporate some of the service elements people want.
Now what this underlined, was that in an industry where people are relying on a professional to advise them about the most expensive thing they have bought or sold in their life, the quality of the advice, the comfort that brings, the personal touch and empathy that is often expected, the expertise and experience locked inside someone’s head can never be replaced by an app, or an online solution in my lifetime, and perhaps never. People were prepared to pay for it as well. There had never been a groundswell of support for a cheap alternative if it meant quality was compromised.
So, Baby Boomers, Generation X and even Gen Y are still too old school to completely change, but will Gen Z completely dispense with the human element in 40 years’ time when we are all in the nursing home? Do they think there is a digital solution to everything? They are only just old enough to start buying property themselves now and I doubt many have with lending criteria being what it is, so I suspect until such time as they have had a large chunk of that generation buy and sell a couple of times, both using traditional methods and also with whatever technology they have created by then, will we have an answer.
To be fair though, the new conveyancing warehouses of the early 2000s weren’t trying to change the world. The whole online piece was their sales pitch to win some market share and make some money as I said at the start, about Tom and his friends. They knew it had a limited timeline. That was no digital revolution, but people has been convinced it was, until they used it and found it was simply another cheaper alternative to getting legal work done, questionably to a lower standard.
So, this is almost a carbon copy of what we have seen in recent years with online estate agencies. When they launched, the next new new new digital revolution was trumpeted. Traditional estate agencies charged too much, they did little for the money, most of what they did was online, on the portals, they booked a few viewings and made a few phone calls. Dozens of companies were created overnight, even celebs at the time like Sarah Beeny got involved. Estate Agency is easy they all said. You just need some proptech to do just about all of what they do, and we will charge only charge you 20% of what they do.
Once again, they had some nice functionality on their websites, you could book appointments 24/7 without speaking to anyone for example, which high street agencies could not offer. Traditional estate agencies were naturally concerned, I was one at the time. How could they compete against those kinds of fees? Then it dawned on everyone, that unlike the conveyancing warehouses that went before them, their model as it stood was not profitable and never would be, and most of the businesses by 2019 had gone bust, leaving a couple of well-known ones left. Purplebricks being the most well known and in its 9th year is still losing money, racking up tens of millions in debt as investors are told each year by a new management team that this will be the year, they take 10% market share. Most analysts are not sure even then whether that would make them any profit.
Getting to that milestone is made all the harder by Purplebricks falling foul of failed business models before it. Whilst they make no money, their model still relies on economies of scale. Their website books viewings as they have no staff to talk to anyone to book those viewings. As with the false dawn of the end of the high street solicitor, sellers using Purplebricks were not getting what they thought they were signing up to. They thought they were getting an Estate Agent for £899 instead of £5000. The problem was though they weren’t. The distinction between agency (small a) and Agent (capital A) is vital which I will come back to. They were getting their property listed on the portals, and that was it.
Their customers started recognising that elements they had taken for granted were missing. No phone calls, no accompanied viewings, no follow up from viewings, no advice, no weekly review of progress, no problem solving, no after sales service even if they do manage to sell it? This was all compounded by the fact that very few people that work for Purplebricks are Estate Agents, many claim to be but anyone can. All are self-employed, and all are paid only on the number of properties they list, not sell. None of this was made clear to their customers, but over time it has become known to most.
The online agencies had fallen on their own sword by claiming that traditional estate agencies did nothing for their high fees, when their model was to do far less for their low fees, thus actually highlighting that high street estate agencies actually did have to earn their higher commissions. The online agencies actually became the best flagbearer for their high street competitors anyone could have wished for. Traditional estate agencies like traditional solicitors before them, recognised that there were some proptech elements that today’s customer enjoyed with online agencies, and many adopted these in an effort to become more digitally relevant. At the same time, the online market shrank back to around about the 4.5% market share it had when it first became headline news.
So, to the question. One of my father’s sayings when I was growing up. “You get what you pay for in life”. So, do traditional estate agencies do more, what are you paying the extra for? Well ignore all the smoke and mirrors about websites and booking viewings, that is not where the value exists. Yes there are plenty of administrative tasks that can be done by a website or a less skilled person, just as in the conveyancing example, there are administrative tasks like applying for a local search, but don’t be fooled into thinking the solicitor applies for that search himself. As with a solicitor or an accountant or a planning consultant, you are paying for the expertise and experience locked inside their heads, their contacts, their relationships with local people, their ability to get results. The accountant doesn’t personally submit your tax return, anymore than the planning consultant submits your planning application, they have people in their business who do that, but it’s them that you trust, you buy into, the ones who know. The people you meet are the experts, the fee earners, the ones whose expertise you are paying for.
Similarly, the traditional high street Estate Agent doesn’t personally list your property on Rightmove, there is an admin team that do that just like at Purplebricks. The difference between the two business models is that the traditional high street estate agency firm have several experienced expert Estate Agents in their business whose only job is to advise clients, spend time with the buying public, formulate and execute strategy to get properties sold for the best price they can and get those deals over the line. Purplebricks have an admin team that list properties on Rightmove.
Traditional solicitor firms employ experienced Solicitors. Online conveyancing warehouses employ experienced administrative staff. Traditional estate agencies employ experienced Estate Agents. Online estate agencies employ experienced administrative staff.
The same can be said for accountancy firms, most consultancy firms, any business where advice and experience, and the interpretation of data is key. You can get anything cheap if you look hard enough, and that’s not to say you might not get lucky. Some people list their house with an online agency, sell it in 5 minutes for the price all the high street Estate Agents valued it at, and moved 3 months later. It happens, but by luck, not design, and mainly on cheaper properties where there are plenty of comparable properties to support the price. If you live in the South of England the margin of error or luck factor becomes a higher risk strategy.
Which is right for you? Only you can decide, but just make sure you understand you will get what you pay for whatever choice you make (unless you get lucky).