Real Estate Disintermediation

Have you ever bought a property in Australia?

Either the ‘For Sale’ or ‘Auction’ process, it doesn’t matter which one – they suck.

Neither of these processes are weighted fully in favour of the buyer or the seller. They are in fact weighted in favour of the real estate agent. Then the seller. Then the buyer. But remember most sellers quickly become buyers, so both groups are really being suckered by the agents.

Why so? Well, one might think that a happy seller, with a big result, is aligned with a happy agent. But their interests diverge. An agent is more sensitive to the time and resources required to execute a sale. A failed auction kills their margin. A long sales period does so too, as there are more costs accrued ahead of revenues. And they are juggling a portfolio of opportunities and prepared to cross-trade these at times.

All up, the agents manage to extract more money out of the process than is warranted. Remember people pay up to what they can afford in a real estate transaction – there is no true ‘market’ value for piece of land with a house on it; the competitive market defines the value. Under the current regime real estate transactions are a form of middle class welfare for real estate agents.

The buyers have all the money and hence they should have all the power. But they haven’t been able to exercise it for a lack of cohesion. Only the agents have full time focus and hence the cohesion needed to control the market in their own favour.

So here is a new suggestion as to how to change the system in favour of the buyers and sellers:

1. Set up a new real estate listing website.
2. Offer properties for sale with comprehensive inspection reports and contracts available on line.
3. This would allow people to buy online, with possible physical inspections prior to sale.
4. Have a one-bid closed auction process. Buyers would enter a single bid which is not published, and at the closing time the highest bidder would win the property.
5. Sellers could set reserve prices and these would be published. If no bids above the reserve are entered the highest under-reserve bid would have the first right to match the reserve. If that isn’t forthcoming the seller would have the option of re-listing the auction with a new reserve – there would be no old school mediated negotiations.
6. There would be an option for sellers to post a ‘buy it now’ price.
7. Sellers could place their properties privately on the site and freelance agents would be available on an hourly basis to manage any inspections. All other legal documents (contracts and inspection reports) would be arranged by the website and paid upfront by the seller.
8. The website could be a not for profit (if setup by a government agency) or a for profit, but with much less fee extraction than the current system. This would help it grab traction.
9. The website would use analytics to predict the actual sales price and post a continuously updated view of this. Eventually this would become so stable that all properties could just be listed with a ‘buy it now’ price and the auction process could become the option.

If buyers flocked to this site then pretty quickly the role of real estate agents is nixed. So they had better do it first before someone else does. Disintermediate yourself before someone else does.

Don’t you just love the internet?