Wanted: Estate agents, not key holders

Retrenchment may be the name of the game for many parts of the global real estate industry as we climb out of recession, but I sense those buying and selling homes are using the downturn as a moment for innovation – and anything may happen.

The examples I give below are all in the UK but they represent trends that are happening worldwide. They present a picture of a sector in flux.

Tesco, the giant retailer, is now launching an estate agency business in the UK with the objective of under-cutting established agents. The Tesco operation, called iSold, will pilot in Bristol, the UK's eighth largest city, and will work alongside an existing estate agency called Spicerhaart. UK estate agents charge 1.5 to 2.5 per cent, acting for sellers by advertising and demonstrating homes to buyers. For a typical UK home costing about £200,000 (Dh1.1 million) a two per cent commission rate means the seller pays £4,000 to the "conventional" agent, plus 17.5 per cent value added tax. The iSold service will be flat rate of £999 including tax.

Sellers register for a free online valuation before a valuer visits to confirm the price, take photos, measure the rooms and create property details. These are then marketed online, including on existing (and hugely popular) property portals such as Rightmove, where many buyers begin their search for a new home. The initiative has been treated with derision by established estate agents – partly because Tesco has a downmarket image among some "top end" property professionals, and partly because online house sales are considered unproven.

But this is likely to be attractive to sellers – the Bristol scheme will roll out to other cities shortly – and given Tesco's trading success in most spheres, it may be that current derision from others is a nervous reaction to what may inevitably become a significant residential industry player.

Even more aggressive responses from "traditional" estate agents have appeared after the publicity given in recent weeks to two fully-online house sales websites, www.tepilo.com and www.onelondonproperty.com. These are run by property professionals but their publicity emphasises how estate agents' fees can be saved by sellers who advertise their homes on the web.

Both are small sites and, within the context of the UK's house sales industry, have few properties on their books – perhaps 10,000 compared with 750,000 on sale through old-style agents. But the waves made by these sites, and their apparently successful customers, are much stronger than the numbers of homes they market.

There has been a torrent of criticism for journalists who included these sites in their articles and one long-standing agent made a thinly-veiled threat to withdraw advertising from one newspaper that interviewed an online agency spokeswoman.

This is all the cut and thrust of free market competition, of course, especially in an era of technological change. The conflicts between "physical" and "online" agents is now beginning to be played out in many other countries too, with similar debates. But the establishment estate agents could, perhaps, make a better fist of promoting the benefits of their services – and why they cost as much as they do.

My view is clear.

Old-style estate agents, especially those who sell at the top end of the market, are usually highly skilled, have intimate knowledge of the geographical areas they work in, and most definitely secure higher prices for sellers by their sales techniques.

For someone selling a home valued at £1m, the payment of £20,000 commission to an estate agent is probably seen as justifiable and a good investment – the sale price will probably be well above £20,000 more than any online site could secure.

But many estate agents – those selling at the lower, volume end of the market – have little or no training, often have poor familiarity with their selling areas, and act as little more than "key holders" who show properties on sale to prospective buyers. A seller of a modest house handing £4,000 commission to an agent may, perhaps, be entitled to ask "what has he really done to deserve this money" especially in a rising market where properties are perceived as selling themselves.

So my point is this.

Established estate agents, in an era of online transparency, need to demonstrate their worth to the public. They need to insist on higher industry training standards; the training should require consistent, long-term study which will deter the "quick buck" unskilled salesmen who pepper the house sales business in countries such as the UK.

- The author is a property correspondent for The Observer

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