DIY real estate has recently become a hot topic on the back of growth in proptech firms.
This phenomenon has been caused by the proliferation of DIY portals, availability of information to those in the real estate transaction and ease of convenience with putting up one’s own place.
Backed by technology and the widespread adoption of smartphones, every player in the life cycle of a real estate transaction has access to information that was not available just 5 years ago.
Historical transactions, check. Buyer and seller guides, check. Landlord and renter guides, check. Regulations and laws protecting various parties in the transaction, check.
Of note, DIY portals have arisen very quickly.
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A quick check on disruptproperty.com shows 47 property startups in Singapore. Some of these are DIY portals while others offer data analytics or online signing services.
Some of these DIY portals include Ohmyhome, Stackedhomes, Propseller, No Agent Residential (how creative), Directhome and Popety.
What do DIY portals offer?
At it’s heart, DIY portals offer to remove agents from the real estate transaction, be it for sale, purchase or rental.
The main beef is that real estate agents charge an astronomical amount of commission for a seemingly simple process.
Is the process simple? There are arguments from both camps, with customers (buyers, sellers, landlords) saying yes, and agents saying, no, the process is not as straightforward as it seems.
With a mismatch of views in the market, DIY portals sprang up in a bid to let consumers take charge of their own housing affairs.
From the websites of Stackedhomes, Rentals.sg and Averspace, all of them claim to help consumers save on commissions by buying and selling directly.
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How do DIY portals work?
Many DIY portals started out with the aim of not including agents in the process.
The process usually goes this way.
- Create a platform.
- Get sellers and landlords to list their properties.
- With a critical mass, buyers and renters should start flocking to the site.
- If take up isn’t strong enough, carry out advertising.
- Let the buyers and sellers chat with each other, negotiate, carry out the paperwork (most platforms try to make it easy to do so), close the deal.
All without property agents in the picture.
To date, none of the DIY platforms have made it big by entrenching themselves firmly in the minds of buyers and renters when they are thinking of buying or renting.
There are some strong names, but none of them command a foothold in the market.
Compare to the above process, since 2016 when the first few DIY portals opened, the process has changed.
Agents began to be involved in the process. How?
The DIY portals offered buyers and sellers the option of an advisor (the agent) to guide them through the process.
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Ohmyhome now offers agent services for sellers and landlords.
I think the shift to getting agents on board signals a few things.
- Buyers, sellers, landlords and renters are not sophisticated enough yet to carry out the transaction from cradle to grave.
- The players in the process don’t have the time or want the hassle of executing the transaction
DIY portal founders thought the creation of the platform could immediately remove the inefficiency and friction in the property transaction, but it is not so (because of the varied circumstances of buyers and sellers, regulations involved, paperwork, financial calculations e.g. contra, bridge financing etc).
Despite the proliferation and availability of information to market participants, property agents at this point of still appear to add value, though the amount of value-add may be declining.
How does the shift to DIY real estate look like?
The picture is a little mixed.
With the number of DIY portals in the market, one would have expected to see a sky-rocketing number of transactions being done DIY.
The shift hasn’t been tectonic, but there appears to be a trend.
In Sept 2016, the Straits Times reported that since 2013, about 25% of all HDB buyers and sellers have chosen the DIY route.
Has DIY portals been successful?
Going by the headline grabbing articles published since 2016 on how DIY portals and proptech will make many agents irrelevant, the transformation has been muted.
I personally would have thought more consumers would catch on to the trend.
Stalwarts Propertyguru and 99.co, and to a smaller extent SRX, still command the majority of eyeballs, both from home searchers and agents.
It may be that the change to DIY real estate is still in its early stages, and adoption has not picked up yet.
The pace of change may pick up in future, but in my view, the economics of DIY portals and the present state of the industry means change will be progressive rather than abrupt.
Do DIY portals make money?
There haven’t been any publicly released financials released by DIY portals so the question is tough to answer.
What is known is that in Singapore, very few platforms have received private funding, either private equity or VC.
The most notable name to have received funding/partnership would be Averspace.
Pairing up with DBS meant that all rental listings on Averspace will be dual-listed on DBS’s rental marketplace.
Averspace Partnering the Largest Bank in S.E Asia to become the Largest DIY Rental platform in S.E Asia.All rental…
From a business point of view, many DIY real estate platforms receive income by hand holding sellers through the sale process.
For example, Directhome provides an account manager for those who take up the “Express Sale” or “Express Rent” feature.
At a low cost, Directhome’s account manager will help the seller or landlord execute the transaction.
In any case, this service is a substitute to engaging an agent to perform the work.
The price is fixed, which is beneficial to the landlord or seller.
Another way platforms can receive income is by advertising, which is really a pittance and can in no way cover operating overheads.
A quick survey of the DIY platforms show that there aren’t any visibly mentioned way of generating income.
Charging buyers or renters would turn them away since in the industry presently, they don’t pay.
Therefore, the only way is to charge landlords or sellers, and that is only if they take up the ‘premium’ package where they have to pay.
Most DIY platforms tout themselves as reducing the expense to landlords and sellers, so it would go against the grain of the platform to charge landlords and sellers.
So if landlords and sellers use the basic package, the DIY platform does not receive any money.
One risk to the DIY platform is that over time, landlords and sellers may become fatigued and realize the basic package does not help them close the deal quickly, and may move to a competitor DIY platform.
Alternatively, some landlords or sellers may engage an agent. And the DIY platform ironically becomes the disrupted.
The main cost items of running a DIY platform include
- Salary of founder and staff
- Salary for account managers or fixed-pay real estate agents (if hired by the platform) to guide sellers or landlords
- IT infrastructure
- Office rentals
The largest cost burden arguably is salary followed by IT infrastructure.
Comparing the few revenue streams available to a DIY platform against the cost items, it certainly does not seem like the margins are great or even sustainable in the long term.
The lack of private equity going into these platforms should be a sign that the business model of DIY platforms require some tweaking.
If the business model were sustainable, it would be that private equity players would be coming in to support different players.
If the smart private equity guys are not in in a big way, there must be something more than meets the eye.
In addition to a revenue and cost mismatch business model, there is a lot of competition in the DIY portal industry.
Mentioned earlier, there are 47 proptech startups. Even though not all fall into the DIY real estate category, competition exists.
One very clear sign that revenue streams are not robust enough to cover costs is the fact that Directhome recently launched an ICO.
My opinion is that if they were making money, need they launch an ICO? Is the ICO a form of tapping the capital/equity (in this case crypto) market for funds to support their operations?
While it’s not wrong nor is there anything prohibiting Directhome from launching an ICO, since when did they pivot from being a DIY platform to a crypto operator?
This could be a clue as to the lack of viability of the DIY model.
Stand in the consumer’s shoes
Related to the point of competition and having many DIY portals, are you, as seller/landlord, going to put your listing on every portal, one by one? Do you have time/energy to do so?
The sellers or landlords would also be thinking about which platform they should list on if they were to choose.
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Selling a home is also a very emotional process and having an agent manage it allows one to be objective with regards to presenting the home, managing offers and closing the deal.
In any case, the eyeballs received by DIY portals at present are far lesser than those received by current incumbents Propertyguru, 99.co and the other listings portals.
Economics of the work property agents do
It would be good to at this point of time revisit the economics of the work that property agents do.
Property agents receive commission in exchange for providing the following services or bearing the following items
- RISK. In my mind, this is the biggest burden agents carry and is not easily quantifiable. Salarymen have certainty of income, agents do not. This can also be called UNCERTAINTY.
- Personal time (a salaryman provides his time to the company and is paid by the month, an agent provides his time to the client and tries to get a deal closure)
- Marketing costs (listing units on major portals. Increasingly, Facebook marketing, Google Advertising and video ads etc. are being used)
- Travel costs
- Personal insurance (unlike salarymen where the company takes care of this aspect)
- Healthcare costs
- Entertainment expenditure
- Any kind of activity required for deal closure e.g. administration, negotiation, mobile communications, reporting to authorities etc.
Consumers feel that agents are overpaid for the seemingly simple work they do. For example, closure of a S$1m house results in a S$10,000 or S$20,000 paycheque.
This is what’s seen on the surface.
Behind the scenes, agents have to do numerous things for their clients.
Agents exchange their time to take pictures of the clients house, brush up the photos (some agents), list it on portals, pay subscription fees to the portal, boost the listings (otherwise the house won’t get seen by potential buyers/renters), attend industry talks to stay relevant, file paperwork, travel around the island, work late nights to negotiate and many more.
The agent gets paid commission for these activities, and also the RISK/UNCERTAINTY borne by the agent that the activities will come to naught.
A salaryman has certainty that if he/she shows up at work, a paycheque will very likely be given to him.
A property agent does not have such assurance. Nor do they have the ancillary benefits provided to salarymen.
In my mind therefore, the risk/uncertainty premium forms a large proportion of the commission amount.
Can buyers and sellers really DIY?
So the question remains, can buyers and sellers, landlords and renters really DIY?
As it stands, the number of DIY buyers and sellers are increasing, but not by leaps and bounds.
It is more difficult for buyers and sellers to DIY, but more straightforward and possible for landlords and renters.
Purchasing a home requires exchange of money that is larger in multiples than that of renting.
The obstacles to DIY buying and selling is naturally higher.
Buying or selling property is a milestone
For many, they would only buy or sell a property a few times in their entire life.
For many, just twice, and possibly thrice.
With the ever increasing amounts of money involved in a home purchase, there are likely to be some who will want to have a trusted advisor walk them through the transaction.
The transaction being a milestone in itself does not mean it can’t be DIY’d.
More pertinent is the risk and possible loss associated with a hiccup with the transaction.
Someone may not have a roof over their head or may be out of pocket a few hundred thousand. If matters are not properly executed, there may be legal implications.
For many, the risk to be borne by DIY’ing is not worth the monetary savings or reduction in hassle.
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For rental deals which are of a much smaller quantum, it isn’t really a milestone in the traditional sense of the word.
These type of transactions are likely to go the DIY route.
A look back in history
For the longest time, academics and analysts have been saying that real estate agents will be disrupted by the internet.
An article written in 2004 by two professors and which appeared in University of Auckland’s Business Review journal mentioned that “agents will find it hard to survive and may be subject to disintermediation”.
They also mentioned that some will succeed in using information and communications technology to their advantage.
Over the last 14 years (2004 to 2018), there hasn’t been an apocalyptic change in the industry.
What’s more apparent is a shift that has happened comparable to many other industries such as the travel, hotel, food sectors.
It’s very tempting to think that changes happen overnight, and even more tempting to produce headlines that scream the disintermediation of a whole class of self-employed people, but the reality may be very different.
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Zillow, Trulia, Realestate.com.au and other aggregators
A quick survey of which websites in the real estate industry are more popular and used by people show that aggregators are the number one.
Using Domain Authority (DA), an industry standard for determining how trustworthy, authoritative, popular and utilized a website is, I compare popular DIY platforms with aggregators.
In Singapore, Propertyguru, 99.co, SRX, Stproperty and other aggregators have DA’s between 40 and 70.
Popular DIY portals such as Averspace, Directhome and Ohmyhome have DA’s in the 20’s.
Very evidently, aggregators lead the pack.
The picture is the same in America and Australia.
Trulia and Zillow have record DAs of close to 90 while Realestate.com.au has a DA of 79.
In comparison, DIY portals in those countries such as Next Address have DAs in the 20’s and 30’s.
What’s next for the industry?
DIY and listing platforms
DIY platforms won’t remain plain vanilla because there are many competitors.
Some will differentiate themselves by involving agents as account managers or offer some type of machine learning or AI (not likely in the near future in my opinion) to assist users.
Some will partner with established companies.
The cost minimization strategy is unlikely to work. It may work with stock brokerages where every stock is homogeneous, but unlikely in the property transaction process.
Every home owner or buyer has differing circumstances, every house is different, and different rules and regulations apply to different transactions.
At the end of the day, the economics of running a DIY platform, the nuances of each transaction, regulation involved and the economics of being a real estate agent is likely to result in listing portals still being dominant.
Real estate agents
Real estate agents will gradually play the role of consultants.
No longer will they be individuals who open and close house doors for people, but will take an active role in consulting and advising clients.
To that extent, the knowledge, professionalism and skills required of a real estate advisor (no longer agent) will have to be stepped up.
The introduction of the Council of Estate Agents (CEA) is also in the right direction because it protects consumers, regulates agents and weeds out ‘black sheep’ agents.