Buying and selling property is a universal past time and with so many Australian real estate agents and innovators attending INMAN Connect and other US conferences, you could be forgiven for assuming the property markets were identical.
But there are some key differences that can affect how proptech innovators launch in each country. I’ve outlined the most obvious ones below:
Agent market size
There are roughly 100,000 real estate agents in Australia. (The official figures from the Australian Bureau of Statistics are between 84,000 and 120,000 depending on who you classify as an agent). In the US, it’s widely quoted that there are over 2 million active agents, of which 1.36 million are licensed realtors. So the back of an envelope calculation is that the US agent market is 10 times the size of Australia.
This means the US is a truly exciting place to scale an Australian proptech business, while the smaller Australian market can be a great place to incubate and test new ideas, or follow the example of US proptech Life360 and IPO on the Australian Stock Exchange.
Property market size
According to CoreLogic, there were 429,956 property transactions across Australia in the 12 months to April 2019. This is from a base of 10.2 million dwellings. Residential real estate is valued at $6.3 trillion in Australia making it the largest asset class in the country and 50.5% of household wealth is held in housing.
In the US, NAR says there were 5.34 million existing homes sold in 2018 plus an additional 667,000 new properties purchased. There are 121.6 million residences in the US according to the 2017 American Housing Survey and 63.7% of families own their primary residence.
Agents, realtors and licensing
Realtors and agents are not exactly the same thing in the US. To become a realtor, licensed real estate agents must register as a member of the National Association of Realtors, the largest trade organisation in the country. Realtors must abide by the NAR Code of Ethics and Standards of Practice and have access to the MLS, or Multiple Listing Service, which is a private database of property listings.
In Australia, membership of the state-based Real Estate Institutes (REIs) is not compulsory and the strength of the institutes varies state to state. The Real Estate Institute of Australia is the peak body made up of the state-based REIs. One of the great frustrations with Australian real estate and the REIs is that there is no single way to access all of their members across the country. Market share for innovators needs to be tackled state by state.
There is no single property market
Just like the US, the Australian market is a market of many geographies. The majority of the population is located on the east coast and spread around the capitals of Sydney, Melbourne and Brisbane. Sydney and Melbourne especially tend to dominate property selling and buying behaviour and have significantly stronger markets. This is similar to the US where cities like New York and San Francisco can behave differently or to stronger extremes than markets across the rest of the country.
Each Australian state – there are 8 in total – has its own legislation that governs transactions, agent behaviour and which seeks to protect consumers. This legislation can be significantly different between the states, especially in areas such as how agents market and advertise price expectations to buyers.
Australia has an auction system
Auctions are prevalent in the Sydney and Melbourne property markets and account for up to 30% of transactions in some markets. Auctions can be held in rooms, or most frequently they are held on the site of the home for sale, most usually on a Saturday.
The auction market is a spectator sport across Australia. The theatre and drama of a live auction is quite thrilling. Auction sales are unconditional and have no cooling off period. At key times of the year, auction volumes will be high to ensure sales can settle before Easter or Christmas. These are called Super Saturdays and can get media attention equivalent to a premiership.
Auction volumes and clearance rates keenly observed and commentated upon in the media and they are a bellwether of the health of the property market. Lower volumes and low clearance rates demonstrate market weakness and flag to buyers that there are bargains to be had while high volumes, high clearance rates and sales over reserve signal the strength of the market and in turn attract more sellers to transact.
The benefits of auctions are that they limit the sale period for a seller as the auction marketing period is usually around 20 days. They are a transparent sales method because all parties must be present – or have a representative on site – to bid. And they also a great signal of market sentiment. When properties are passed in, it identifies quickly that seller and buyer expectations are not aligned and a market correction is coming.
Buyers agents are a minority in Australia
In the US, buyers are represented by a buying agent who will source properties, organise inspections, negotiate on behalf of the buyer and step them through to settlement.
While using a buyers agent is not essential in the US, it is a practice accepted so widely that it is often thought to be legally obligated. Real estate innovators like Redfin are challenging this by allowing buyers to make offers on properties directly from their website. The move is causing uproar as the buyer commission is a deeply entrenched part of the US business model and system.
At the opposite end of the spectrum, it is estimated buyers agents represent just 5% of transactions in Australia. Buyers are on their own for the vast majority of transactions, finding properties they are interested in on the online portals realestate.com.au and domain.com.au and needing to handle their own negotiations with the selling agent. Open for inspections are typically set on a schedule with Saturday mornings being a key time to inspect.
In case you’re
wondering, yes, this is a period of considerable stress for most buyers in
In the US, a typical commission is 6% with 3% going to the selling agent, and 3% going to the buyer agent. Real estate agents in the US cover all marketing costs for a property as part of their commission, although again there are challengers here, namely from Redfin who will charge as little as 1% for listings.
In Australia, agents represent the seller or vendor, and charge fees between 1.5% to 2.5%. Cut price commissions have been a hotly debated issue in the market. However very good agents will charge higher fees of 3% or higher based on their results and service levels.
In most cases, Australian agents charge the seller an additional fee for their marketing campaign. This is called Vendor Paid Advertising.
What is Vendor Paid Advertising?
With commissions for agents in Australia considerably lower than the US, and based exclusively on the service they offer to sellers, vendor paid advertising has developed to cover marketing costs.
Agents present a marketing campaign to their seller that they believe will help achieve the sellers sales objectives whether that is for a fast sale, an auction campaign, or obtaining the highest price to a niche market. It will include recommendations for online advertising at different presentation levels, print advertising, sign boards etc. These marketing fees are paid for directly by the vendor and in some instances – especially at the premium end of the market – can be a considerable additional expense to selling.
However, one of the upsides of Vendor Paid Advertising has been the innovation around agent marketing in Australia. Marketing and advertising standards and the quality of design and presentation is considerably higher in Australia generally than across the US.
In the US, listings data is controlled by the MLS (Multiple Listing Services) which are owned by the NAR in each area. Agents join NAR, share their listings and get access to all other listings in their area and nationally.
The MLS system is deeply deregulated with between 600 to 700 different systems making it extremely difficult for proptech innovators to access one single data centre of property data for the US. While most MLSs will have an API they are all structured differently, and access permissions are different from association to association. Rules for what data you can and cannot use also vary.
This gap is in the process of being filled by data wholesalers such as CoreLogic’s Trestle, Wolfnet and even House Canary, but these are still very fraught and can be slow, frustrating and expensive to access.
The way forward
for Australian data proptechs needing access to US data is to either
a beta client
permission to use the MLS through your client
their local MLS data to demonstrate your product and its capability
MLS to MLS
Or look at accessing data through the portals of Zillow or Realtor.com with a business partnership.
In Australia, data access is relatively straightforward. CoreLogic in Australia has an extensive API, although gaining access can be a convoluted process. Alternatively Pricefinder, owned by the Domain group, provides free access to its API, making it a great place to iterate and experiment when building new products.
The business model of the real estate
portals is different
There are two dominant real estate portals in Australia – realestate.com.au and domain.com.au. Both were born from newspaper businesses who back in the day, dined richly on profits from vendor paid advertising.
As such, the Australian business model of the portals is paid-for listings from properties for sale. More than just classified, these vary from straight photo and text all the way to premium listings with multiple photos, video and walkthroughs.
In the US, selling agents place their listings on their MLS. The dominant portal business model for Zillow and Realtor.com is that they deliver leads. They capture who has clicked on a property and send that information to buyers agents. Similar to Google, agents can bid to dominate the receipt of these leads. Advertising properties for sale is also possible but it’s a much smaller part of their business.
One sentiment however unites Australian and US agents – regardless of the business model, all agents in both countries love to hate their portals with horror stories about how the portals pillage the industry abounding on both sides of the Pacific Ocean!
Have I missed anything? Let me know in the comments below!