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Real Estate Agencies – The Final Frontier

Most industries in Australia have faced some form of disruption with technology being leaned on to increase efficiency, promote competition against dominant incumbents and introduce new concepts.

One group has so far managed to fend off attempts to derail its privileged market position – real estate agents.

Technology has in fact played a part in preserving the status quo. The dominance of REA Group’s and to a lesser extent Fairfax’s Domain means pretty much all properties are advertised in just one or two spots, or usually both. Buyers and sellers go to the site by default as there is little viable alternative. It has also created a cosy relationship between the online sites and the estate agents. The agents pay to have the properties listed and the hosts don’t try and compete with them. It’s a powerful combination that has preserved commissions and prevented meaningful competition.

We believe it is only a matter of time until the sector is successfully disrupted. There have been attempts in recent years but none have made significant headway. As these come and go there are lessons learned and eventually a way will be found. A number of disruptive models are being rolled out now, some softer than others.


One model not targeting commission reduction but instead aiming to improve the power of the agent over the dominant agency franchisors is a company called The Agency. It is looking to list and Glennon met management recently. The best way we can describe the model is to liken it to how a private wealth stockbroking firm manages its businesses – basically enabling individuals to run their business within the brand, license, premises and compliance of the head company with revenues split on a pre-determined basis. The better the firm’s reputation the better the people it attracts.

Within real estate the major brands operate as a franchise. There is a lot of fee leakage from the franchisee to the franchisor and from the individual agent to the franchisee which makes life tough for those at the bottom of the rung.

The Agency has started attracting some pretty senior agents to its model. It will be run out of offices rather than street front stores. Each agent pays a monthly sum to secure a desk then simply shares revenue in return for the other services offered by the parent. Other services are added into the mix, like mortgages, conveyancing etc where fees can also be shared. Given the mobile nature of real estate these days we believe the model has some merit.


That’s all very well but it doesn’t do much for the consumer. Comparison sites, on the other hand, aim to put pressure on estate agents by making it more obvious who is doing a good job and what they are charging. This clarity isn’t available under the status quo and therefore it is difficult to know exactly what is a fair commission in any given market at any particular time. The result is a relatively static pricing world.

Glennon has a small investment in unlisted entity Local Agent Finder. It has established a comparison website that enable property sellers or renters to analyse agents in the area by commissions, marketing budget costs, success data and public reviews. A bit like iSelect. It earns its money by sharing in the commission revenue of the agent referred to through the site.

The theory is that, like other industries impacted by comparison websites, eventually it will generate competition and lower fees (and/or better service levels). There are numerous players in the market and we suspect the segment will start to have a more meaningful impact when one or two major brands emerge so that public awareness lifts.


The estate agency market has been seriously disrupted in North America and to a lesser extent in Europe by Do It Yourself companies. This model enables a house seller or renter to manage the process themselves for a fixed fee plus costs. No commissions. The DIY provider gives assistance in listing, marketing and signage for a price and sells ancillary services that the consumer decides on – photography, conveyancing etc. Whilst a daunting step for most, the processes have been streamlined to make it a simple and foolproof as possible. The savings are obvious but it comes with a heavier workload. A UK company, Purple Bricks, has a slightly more expensive model where an agent is provided to help with the process for a fixed fee – also with no commission. In Canada DIY accounts for 23% of the market (UK 14%, USA 9%). It must be noted that the agency model in Nth America is a little different to that in Australia and commissions payable are considerably higher. Hence the rapid take up of DIY property sales.

Nevertheless there are quite a few companies attempting to grow the DIY model in Australia, at this stage with limited success. The segment has about 3% of the local market.

Glennon has for some years kept an eye on listed player buyMyplace (BMP.ASX). It is a national player and probably the biggest. But size alone hasn’t helped the company make a profit (although its listing numbers are said to be closing in on breakeven). The immature nature of the local market means a lot of hand-holding for first-time customers which increases the cost. Most competitors are privately owned and happy to compete on price and make a small living. None of this is helping to grow the segment, although Purple Bricks has entered the market and its marketing presence is raising awareness.

We met with the new management of BMP this week and it seems a more holistic approach to property transacting is the potential answer. By better directing marketing, investing in technology – to effectively automate the hand-holding process – and adding services the group hopes to keep hold of the many eyeballs that visit its site.

It wants to attack the sell-side of the property equation with its own agent comparison site (like Local Agent Finder) which will not only generate commission share fees but eyeballs to its other products. It also aims to develop or acquire a platform that will enable DIY management of rental properties which will give it an ongoing relationship with the property owner and tenant for marketing its product suite. Thirdly it aims to acquire its way into the house and land package market which enables buyers to access the products of the major developers without visiting the properties themselves. This will earn a subscription from the builders/developers and a commission share.

To the obvious revenue synergies the company wants to add ancillary products like white label mortgages, conveyancing and even renovation services.

One thing is for sure, property is still a big consumer attraction in Australia. We understand BMP’s strategy of wanting to keep hold of the eyeballs it captures but there is still a lot of work to be done to pull it together. If it does the brand will grow, as will its chance of putting a dent in the estate agent game.

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