RECENTLY launched real estate portal HomeBid.co.za hopes to revolutionise the local property industry by introducing a much lower commission structure than that of traditional estate agents, who have long dominated SA’s R300bn/year housing sales market.
The founder of the new online estate agency, veteran property economist and developer Neville Berkowitz, notes that traditional estate agents in SA typically charge a commission fee of 7,5% (plus Vat) of the sales price of a house. In the UK, such agents charge 1%-2% commission for a sole mandate on a property and 3% for a multi-mandated property. In the US the figure is around 5%-6%.
HomeBid, which links prospective buyers and sellers directly, charges a commission of 1,95%. Berkowitz says that given technological advances and more innovative sales and marketing tools, it is no longer necessary for sellers to forfeit such a large chunk of their profits.
He says average sellers end up paying R85 500 for every R1m of the sales price of their house to an estate agent (assuming commission of 7,5% plus Vat). Given that SA home owners stay in one house for around eight years on average, and taking into account how the average house price has grown over the past eight years, Berkowitz says estate agents effectively claim 18% of the capital profit of the average sale.
His assumption is based on Absa’s housing index, which shows that the price of the average medium-sized home increased from R637 300 to R1 194 200 over the eight years to end 2014, translating into a capital gain of R556 900. The agent’s commission on the R1 194 200 sale amounts to R102 104 (18,35% of R556 900).
Using the same Absa figures, Berkowitz says HomeBid’s commission of 1,95% will claim only 4,2% or R23 390 of the home owner's capital profit over the same eight-year period.
Berkowitz says the HomeBid model cannot be compared with sale by an owner. "Though we cut out the estate agent, we still employ the services of a number of professionals to hold the hands of sellers and buyers through the sales transaction."
Berkowitz claims the HomeBid model is more efficient than the traditional sales process because most of the work is done up front, before buyers and sellers are introduced to each other.
The process starts with an independent valuation to help price the home correctly. Both buyers and sellers have access to the valuers’ report.
Prospective buyers are then pre-qualified through comprehensive credit checks, something Berkowitz says estate agents don’t typically carry out. Sellers and buyers meet for viewing purposes but they don’t negotiate the price, as offers are made via a confidential bidding process that is handled by a property attorney.
Berkowitz says FNB figures show that it takes just more than three months to sell the average house at present. "We believe the HomeBid process will reduce the average selling time to six to eight weeks."
HomeBid is not the first low-commission start-up to try to muscle in on traditional estate agents’ turf. Many others have come and gone over the years. Berkowitz concedes that others haven’t been successful, but says HomeBid has the financial resources as well as the right multichannel marketing infrastructure to offer SA home owners a workable alternative.
He believes HomeBid can secure 5% of the market (or 1000 sales a month) by the end of 2016 and become a major player within five years.
The key to its success would be to source enough sales stock, something even well-established estate agents are struggling with.
The general industry view is that a low-commission model won’t be a game changer. "Sellers are by and large prepared to pay for a credible, established brand and the personal services of a skilled estate agent. In any event, most agencies work on a negotiable structure, so that while the industry standard may be around 7%, on average most charge 4%-5%," says Seeff chairman Samuel Seeff.
He notes that estate agencies with long track records have access to extensive buyer databases — often 100 000-250 000 potential buyers — and a wide marketing reach through an existing branch infrastructure.
Pam Golding Property group chief executive Andrew Golding says there is an increasingly professional, knowledgeable and competent body of estate agents with academic qualifications that strengthen their ability to support clients.
"Competent agents are skilful negotiators capable of concluding transactions between buyers and sellers and of protecting the interests of both in what will always be a high-value and often quite complex transaction."
Golding says properties ultimately sell as a result of a number of interdependent activities, from effective advertising through to agent expertise. "The Internet is simply changing the way properties are advertised and promoted."
Herschel Jawitz, CE of Jawitz Properties, has a similar view, saying most sellers will base their choice of sales method on more considerations than just the rate of commission. Says Jawitz: "While I have no doubt that HomeBid’s model will achieve sales, it does assume that one package fits all."