It is always an interesting debate. There are people who believe strongly that the requirement for a real estate business to operate from a traditional retail premises is becoming obsolete in the age of Skype, iPads and cloud computing.
But before you jump to any forgone conclusions, there’s some information you need to know. For almost a decade now I’ve been analysing the geography of market share as it relates to real estate. What does this mean? Real estate is a local game. There are definite geographic patterns in relation to where a business is located, and where it holds market share.
The graph below shows the listings for all agencies located in the suburb of Nundah in Brisbane. It shows the number of listings that they have in each suburb (orange bars) as well as the running percentage of sales for all agencies combined (blue area). This is over a time period of about 3 years.
You can see that 50% of the collective agency’s listings come from the first 3 suburbs. To get an appreciation for the geography, below is a map which shows the geographic context of the suburbs.
Each red circle represents a suburb. The bigger the circle, the more listings held by Nundah-based agencies. It is obvious to see that the majority of these collective agency’s listings are held in the suburbs of Northgate, Nundah and Wavell Heights. The respective market shares of each of these suburbs are relatively similar as well. In fact, Nundah-based agencies hold 70% of the stock in these three suburbs.
I call this pattern the “Volcano Effect”. The Volcano Effect says that an agency’s turnover will peak in its suburb of location, or primary market, and then gradually decrease as you move further out.
These shapes of market shares are fairly consistent across the country. There are some interesting exceptions, predominantly in regional centres – such as Newcastle, Cairns and Geelong – where volcano effects are less-pronounced. But as these markets mature, I think you will see more localisation of real estate.
So what does this mean for the relevance of a real estate premises? Some people may argue that these volcano effects are there simply because of the traditional model of real estate. But I have even looked at the distribution of market share for businesses that operate on a remote-model, and there are still, if not less-pronounced, Volcano Effects in their business – normally related to where their premises are, or in some cases, used to be!
So I believe that the premises of a real estate business has a significant role to play in an agency’s success in a market. Less so from an operational point-of-view and more towards a marketing and recruitment focus. Your premises are the biggest billboard and statement to the market you have at your disposal. If perception is reality, then if your premises look like the market leader’s then people will think you are the market leader. Not only sellers and landlords, but other agents too! Who wants to work in the office that has the laminated window cards that block out all natural light to the cave-dwellers within?
So perhaps the premises of the future will be a remote “operations centre” where administration and property management is located coupled with smaller retail hubs in strategic geographic locations. You might even start to see Google-esque premises that focus on employee engagement and culture with ping pong tables and sleep pods.
While some may argue that the margins of a today’s real estate business does not allow for such extravagances, I would argue that there is more money wasted on letter-box drops to “Dear Homeowner” that could be better spent making your premises that little bit more attractive to both potential clients and potential employees.
There are already some businesses doing some innovative things, but I would watch this space because the residential real estate office of the future is going to be nothing like what it is today!
17 Comments
Peter Ricci
Great first post Ian. I agree that premises are still the strong suit. However I wonder if someone truly powerful and large like Virgin could come into the market and do away with traditional offices altogether.
Some already have tried, however the amount of marketing needed, backed by support is huge and currently only offices have that power.
I do think it will change with a huger player or an established bank / retailer , but not just yet!
Ian Campbell
Thanks Peter. Interesting idea. I still reckon real estate is a local game. A “local expert” that the consumer has a trusted relationship with will trump brand 100% of the time. Certainly the only entity that may even remotely have a chance is an established bank / retailer like you say, but happy to stand by my conviction that they will still need some sort of localised retail presence!
Bill
Great article Ian although I’m not sure long term your convictions will hold true. I recently put a property up for sale and contracted the agent via referral and I never actually went to his office but did some background work on the net. The agency was not from the immediate local area. But yes I am an isolated case and not the norm.
Brett Clements
A good read Ian.
Greg Vincent
Great first up article Ian.
I really believe that in today’s real estate market agents would be better served investing into how they present their Open Homes than their office premises because that’s where they now connect/meet with customers and build trust with potential sellers.
The McGrath model of having a centralised base and then mobilising/allocating area specialists within that structure appears to be attracting some excellent industry talent but even that format/structure will need to be revisited/enhanced over these next few years as everything becomes more mobile. The cloud and remote access are already playing a big part in the day to day running of an agency.
Outsourcing tasks to the Phillipines, etc and recruiting Virtual Assistants is where we are headed.
Ian, I did some research previously on the QLD suburb of Chermside where at that time there were 9 local agents represented in the Find an Agent section of REA. When I tallied up all of the agents who were represented in Chermside there were 149 listings represented by 38 different agents in the one suburb. That’s 38 different companies for a Chermside resident to sift through and make a selection from. (that doesn’t even take into consideration the agents they meet outside of their area at an Open Home 30 mins from home who says that they can sell their property for them).
Whilst the local agents did have a greater share of the listings ONLY 38% of the properties were listed by the local agents (prior to the internet & the major portals that figure would’ve been more like 70-80%).
When you think about all of the ‘Brand Clutter’ that a potential seller now has to sift through when they are looking for an agent to list their property with, the whole thing has become like ‘Agent Lotto’. No wonder the agent’s fees come under the pump.
With regards to shop fronts. The internet & print media (at least for the moment) have now become the shop front.
Some agents are sitting in expensive high profile retail positions with literally no one walking in the door (maybe the odd tenant to pick up a rental list), That high-pedestrian traffic retail shop front may be better served today (or definitely in the future) by opening up a portion of the office to provide a small cafe/coffee spot or gallery to attract some engagement with the local community and minimise costs. I’ve seen a few agents doing this now.
Ian do you think we will see some of the franchise groups drop the restrictions for areas/territories within their franchise agreements? I see that the restricted territory approach is actually costing their network and their agents money because all the trust & rapport has been built with the agent that the potential seller met at the Open Home and due to an out of date structure the agent with the rapport has to refer the client because they are not allowed to list in that area (a few suburbs away), actually putting that listing at risk of then being lost to a competing network.
Really interested to hear your thoughts on this and how franchise networks should address this moving forward.
Ian Campbell
Holy moly, Greg! Going to have to write a whole new article in response to your comment!! LOL.
Here goes:
1. Open Homes – not sure what it costs to call someone back, but I get what you mean. 100% agree that the Open Home is the salesperson’s “premises” and should be presented as such.
2. McGrath – one of the most fascinating businesses getting around. Certainly doing things differently, but even these businesses have distinctive Volcano Effects in their market shares. You hit on an important point though – the ability to attract staff is, I believe, one of the primary functions of a real estate office’s premises.
3. Chermside – I know Chermside really well – I’m practically a local and live in the neighbouring suburb. It is true, that Chermside is one of those suburbs where “out-of-area” agents do capture a significant chunk of the market share, however, you will find that most of the agents are still located in neighbouring markets – for example, Clayfield. It is also a market that has a large number of new apartments being built and a relatively high invester-owned segment to the market. The point is, each market place is different, the ability for “out-of-area” agents to compete for stock in a market place depends on the caliber of businesses that are local and also the demographics of the market place in question.
4. The “function” of the premises – Recently ended up in a heated debate about how you evaluate whether or not your premises is “working”. In the past, when foot traffic was an important factor to a real estate business, and the internet did not exist, then things like window cards and stock lists served a very tangible purpose. You could “see” the reason for the shopfront being there. Now, with most consumers doing their research online, the perception is that the shopfront is less important, but if you’re in a highly localised market, there would be more potential sellers driving past your premises every day than people searching for property to buy online.
5. Franchise boundaries – there are various degrees of territories being used in the different franchises. Some have compulsory conjunction clauses, others are just exclusive marketing rights, some don’t use them at all. It’s too broad a topic to go in to here, I have written a two-part article on it recently on my website if you’re really interested. In my experience, territories are simply a selling technique for most franchisors and have rarely been optimised for any sort of operational benefit. And I completely agree with you – what brand in their right mind would let a made-up boundary get in the way of a trusted relationship between seller and agent. Silly really.
Sal Espro
Good post, Greg.
Reece Coleman
Great post Ian – just came back from reviewing the progress that our builders are making on our new office on the corner of New South Head & Darling Point Roads – we’re moving out of the so called office of the future – the first floor office suite – back to a retail position on a busy intersection – agree totally that this is the best billboard we can buy and far outweights letterbox drops of banner ads on Domain.com.au or realestate.com.au – it’s all about being part of the community abd being local, local, local
Greg Vincent
I really hope that it works for you Reece. (Sincerely mate, I hope that your new location gets you in front of lots more sellers).
I’ve been there and done the best location in town thing and I if I was to open an agency today I would do it all completely differently.
An agent can get to become a significant part of the community and achieve incredible positioning & endorsements for around $3,000 – 4,000 (no ongoing rent to pay, leases or expensive fit-outs).
Ian Campbell
Congratulations Reece. Definitely going to be a tool for building your profile in one of the most competitive markets in the country!
vic Del Vecchio
A thought provoking post Ian.
I was heavily involved in the 80’s, and in fact put out a concept blue print for the way branches of a major bank, with over 1500 buildings across a Australia, should be presented. Included in the eventual rollout program was the separation of operations from sales and establishment of customer service phone centres and the closure of branches.
The 80s and 90’s saw feverish change occur with every bank in Australia adopting a similar concept. Included in the concept was the belief that the banks would have less buildings, less staff at the coal face and less discretionay authority at branch level. Most of you will remember the outrages from customers at the lack of abilty to talk with the decision maker at the inability to talk face to face with a customer service officer and at the inability to even be given the name of the officer that telephone contact was first made to. Rationalization became the buzz word.
Fast forward to mid 2000’s and the emergence of small banks, community banks, credit unions providing more services and the major banks began to realize the importance of full service facilities and discretionary authority going back to the coal face.
Real estate agents should be careful that they study the past before going headlong into structural change that could be regretted.
Fast forward to
Ian Campbell
Great insight Vic. You can see it in a number of industries. I have recently been inside the Telstra licensed programs and seen how they have significantly restructured their retail premises to focus on maximising traffic volumes and conversions.
vic Del Vecchio
Ian,
There is an agent here in Tassie that is structured along the lines of a centralized 3rd floor administrative office in Hobart, with no shop front. All agency sales reps are located throughout Tasmania as mobile sales force. Currently they have a mix of print and online marketing with individual reps advertising under the Brand name and their own phone contact. Accountability to the individual is high and at the same time each has independence.
The flexibility for gaining market share across the State is huge. And he is watching the outcome of the National licencing review as his model lends itself to rapid growth across the whole of Australia.
BTW, the principal is an ex Banker who studied the model rolled out by banks in the 80’s and 90’s. It works for him
Ian Campbell
What is the name of the agency? Would be interesting to run the stats on it.
vic Del Vecchio
Phone me Ian 0413040892.
Ryan O'Grady
Great first article Ian.
Look at commercial agencies they tend not to have street level shop front offices and instead go for the cheaper office on a floor in a building.
vic Del Vecchio
Great chat on the phone Ian.
I think we agree that Agencies are no different than any other sales and service business. Each outlet needs to take into account how best they can simultaniously get brand recognition and benefit from direct sales. If one or the other is missing from this equation then it is likely a shop front is not the way to go.
The difficulty for a franchised outlet would be directives coming from their franchise bosses on how and where to set up premises.
Where I differ slightly from the suggestion that flash premises will attract the better quality of sales persons, is my belief that self motivated sales staff would prefer to be more independent, operate mobily and have a base of their choice of premises and have regular communication/sales meetings by skype or even once a week office meetings.