06 Jul Real Estate ‘unmasked’ – Peter O’Malley
Peter O’Malley has written a book about the changes in the industry and how agents need to mold what they do to meet those changes, the major one being digital disruption. Peter joins us to discuss the changes and the impacts we are already beginning to see.
Kevin: I was interested to pick up a book the other day written by Peter O’Malley. Peter is a real estate agent. He is the principal of an agency called Harris Partners, and Peter’s been in the industry for quite a long time. It is an interesting read because it goes into a lot of things that are near and dear to my heart as well, particularly the changes in the industry and how agents need to mold what they do to meet those changes, the major one being digital disruption. Peter joins me.
Peter, thank you very much for your time, and congratulations on the book.
Peter: Thank you, Kevin. And thanks for having me along.
Kevin: It’s a pleasure. The book is called Inside Real Estate. I’ll tell you how you can get it a little bit later in the interview. Let’s talk about digital disruption because there is a lot of talk both within the industry and outside the industry. How has that changed the way agents work from your perspective, Peter?
Peter: The way it’s changed the agents’ workings, Kevin, is they’ve become a lot more database-oriented than outright advertisers of real estate. Real estate is still advertised, of course, Kevin, but we’re seeing a lot of instances where agents nurture their database and are able to offer vendors an off-market transaction without the need to go to the open marketplace as such.
In some market conditions, I support that strategy, Kevin, and in other market conditions, I question that strategy. If the market is in a full-frontal boom – and the Sydney property market, for example, rose 20% in the last nine months – in those circumstances, I would always encourage an owner to expose their property to the open market because you never know how high the price can go.
But in a slow market – say, what you might have in Townsville at the moment – if you want to sell your house and an agent should happen to pop up with a qualified, ready-to-go, cash buyer off-market, you’re probably well-advised to sell off-market, because the open market is probably not going to be any more generous to you given that, say, Townsville is so flat at the moment.
Kevin: Interesting, Peter, to hear you make that comment about marketing, particularly online. I don’t know whether you’re aware, but Australia is the most expensive country in the world to advertise on the Internet, and I think that’s a disgrace.
Peter: I’m very aware of that point, Kevin. I’ve previously written a blog about that point as such. Consumers need to ask themselves what value are they getting for these expensive Internet ads? And that’s a topic that is covered in the book.
That is something that I believe has driven off-market trades in the industry, Kevin, as real estate agents are saying, “Hang on. Why am I going to spend thousands of dollars advertising to buyers who I already know? Why don’t I just cut the third-party provider out?” And that’s an understandable business strategy that agents are adopting to consumers’ benefit and one that I applaud.
Kevin: Just to stretch that thinking a little bit further, here we’re talking about two major portals – RealEstate.com.au and Domain.com.au – that are charging extraordinary figures to advertise when you can go to the States and it’s next to nothing to advertise on the Internet. I sometimes wonder if there is room for a third player, a third serious player, who’s going to hold both of these websites to account, Peter?
Peter: I think there is room for it but no one’s been able to execute it, as we all know, Kevin. A lot of heavy hitters have tried to be the third player in this space, and the industry at large has attempted to do so.
At the end of the day, the value or lack of in a real estate portal is the amount of traffic that it gets, and if real estate agents continue to put all of their listings on websites that then come back and charge them excessive fees, naturally that’s where the home buyers and home sellers are going to do their business.
As I say, as opposed to a third party coming into the marketplace, so far, we’ve seen this growth of off-market transactions across the industry, and that will only increase, in my view, going forward.
Kevin: Could you give me an example of what you mean by these off-market trades?
Peter: Sure. A home seller interviews four or five agents. All of the agents inspect the home, they price the home, the owner agrees with the pricing strategy, and then the agent says to themselves, “I may or may not win this listing, but even if I don’t win this listing, I have a fairly good idea of who’s going to buy this property.
“So instead of trying to convince the home seller to spend $3000 to go on these media websites to advertise the home to a buyer I already know of, I’m going to cut all of that out and ask for a 24-hour or a 48-hour agency agreement from the vendor to run one or two hand-picked buyers, if you like, through the home who are very likely to make an offer,” because you know that they’ve missed out at three or four auctions already and they’re desperate to buy.
Kevin: Agents have been spending a lot of time building their databases and they’re getting very, very good with some of the CRM programs. They’re able to identify who these buyers are because they’re coming into contact with them long before they used to. Database marketing certainly has to be a great opportunity for sellers to sell at a very low cost.
Peter: That’s right. When I first started in the industry, Kevin, it was the old three-by-five cards, the hand-written notes on everything. The sophistication of the CRMs that are in the real estate industry now means that home owners don’t need to spend thousands and thousands of dollars advertising their house in a replicated fashion to the days of newspaper. The good real estate agents in this industry do nurture their data and can produce a buyer without any cost or risk to the home seller, and that’s something that I applaud.
Kevin: It’s a great question for a consumer to ask an agent: “Tell me about your database. How does it work? How confident are you that you will have the buyer on there?” And this should be one of the key questions consumers ask agents before they list with them.
Peter: That is a key interview question during the process of hiring an estate agent: “How do you find buyers, and can you produce buyers without me having to put my hand in my pocket to find a buyer for the home?”
Kevin: Tell me about silent auctions because I know that you’re a pioneer of this concept. How does it work?
Peter: Silent auctions is a closed bidding process, Kevin. While we like the fact that an appropriately used deadline can put pressure on the buyers, while we know that when one buyer knows they’re in competition with several other buyers, that will drive their energy and their fear of missing out towards the subject property, one of the things that I like about the silent auction is that each party needs to produce their best, highest, and final offer without ever knowing what any of the other bids are.
Across Sydney even during the boom – and I talk about this in the book – a lot of auctions turned into a series of $1000 bids over $100,000 to $200,000. That’s a very painful experience to watch, and at the end of the day, while the property sells and it sells above the reserve, I’m not always convinced that it does sell for the winning bidder’s highest possible price.
We see on average in our silent auctions, Kevin, a spread somewhere between 4% and 6% between what the top bidder pays and the second best bidder pays.
Kevin: Peter, I want to take you to another part of your book Inside Real Estate – which, as I said, has been written by Peter O’Malley who I’m talking to. It’s published by Wiley. And available at most bookshops, Peter, is it?
Peter: Yes indeed, Kevin, nationally.
Kevin: Is there a website we can go to if we want to get hold of it?
Peter: I’m sending people to the Dymocks website. They’re doing a good job of processing orders at the moment.
Kevin: Very good. I’ll take you to page 113, chapter 35: Protecting Yourself from Conditioning. Let me read the definition that you have in there because I think it’s quite appropriate: “It’s a systematic process employed by real estate agents for communicating bad or negative news to the vendors to drive down their price expectations after the agent has received the listing.
Conditioning or crunching are terrible terms that were used in the industry many, many years ago. A very bad practice. Probably one of the most common complaints I get about “How I listed my house, the agent said they loved it, and now they’re telling me all the bad points about it.”
It’s a bad part of the industry, Peter.
Peter: It is. What it comes back to again, Kevin, is the interview process where the home seller inadvertently and mistakenly selects their real estate agent on the price the agent thinks the home will sell for.
Kevin, what I say to home sellers is unless the real estate agent is trying to buy your home, what they think your home is worth is largely irrelevant. You are employing an estate agent to negotiate on your behalf in the open marketplace.
What happens if you do select a real estate agent who over-eggs or over-promises on the expected sale price is that agent then has an over-priced listing by the time it comes on the market, and before that agent can get the home sold, they need to get the home owner’s price down.
They don’t want to say, “I got the price wrong. I apologize.” What they will do is start being critical of the home and wrapping that criticism up in buyer feedback such as “The road is too busy. The bedrooms are too small. The back yard is south-facing.”
This is why it’s a strong point to avoid being conditioned. The best way to do so is to avoid selecting your real estate agent on the price they quote for your home and instead, assess them on other issues, such as their experience, their clearance rates, their database, their fiduciary duty in the negotiations. They’re the sorts of factors that will deliver you the right real estate agent when it comes time to hire one.
Kevin: Great talking to you. Peter O’Malley has been my guest. Peter’s book is simply called Inside Real Estate. Dymocks is the place where you’re going to find it. Go online. You can check it out there.
Pete, thank you very much for your time. Congratulations on the book, and I look forward to talking to you again real soon.
Peter: Thanks very much, Kevin.