“Every homeowner in America should rejoice. Aussie- style real estate is on the way.” – Greg Hague
Back when Uber displaced the taxi model many asked themselves “Why didn’t I think of that?” The same with Amazon (Jeff Bezos), Google (Larry Page and Sergey Brin), windshield wipers (Mary Anderson), seat belts (George Cayley), and the bagless vacuum cleaner (James Dyson).
Why didn’t I think of that? That’s what I’m asking myself about the Australian real estate model. If I didn’t invent it, I could have at least been the one to introduce it into the U.S. Instead, it was a group of home sellers and a very smart attorney (who is now very rich) who effectively said, “Enough is enough, we’re changing the way homes are bought and sold in the U.S.”.
In fairness to me not being “the one”, I’ve complained about the backward U.S. real estate model for over 20 years, and at least within my real estate firms, tried to change as much as the existing rules would allow. But it’s challenging to affect big change in a powerful industry infamous for resistance to meaningful change.
But now, thanks to a group of fed-up consumers and an attorney who saw a mega-legal-fee pay-off, things are going to change… fast. In the wake of the recent landmark court decision from a case I’ve been writing about since 2019, and the multi-billions of dollars in antitrust damages the jury awarded the home selling plaintiffs, the U.S. real estate industry will be re-invented.
I have written several articles on this topic going back as far back as 2019…
Want to Sell Your Home At Half The Price? (September 8, 2023)
Will we become what Australian real estate has been for decades? It would be easier and less expensive for homeowners to sell their home. Buyers could also benefit with more impartial representation at a transparent and negotiated price. So, what would that look like?
AUSSIE HOME SEARCH PORTALS
Let’s start here. In Australia, you can pay to have your home featured more prominently online. Buyers cannot see how long your home has been on the market. Buyers can’t see whether you’ve adjusted your price up or down. Those are real benefits to home sellers.
Like the two major U.S. home search portals (Zillow and Realtor.com) there are two popular online portals in Australia, RealEstate.com.au and Domain.com.au. These are where most Australian buyers look for homes.
In contrast to the “old days” (prior to the Internet) when you had to use yard signs, open houses, and print ads to find buyers, it’s now easy to instantly get any home for sale in front of every prospective buyer, both in the U.S. and Australia. Because every serious buyer these days looks (usually daily) for newly listed homes online, these major home search portals have displaced traditional media as the way to find buyers for a home.
Which brings me to my HUGE criticism of U.S. home search portals…they make money by directing buyers away from listing agents (those who know about the home) to agents who pay for leads. These “pay-to-play” agents (who typically don’t know about the particular home buyers inquire on), pay Zillow and Realtor.com up to 40% of the commission they earn in exchange for the buyers being directed away from the listing agent to them. That’s the primary way Zillow and Realtor.com make money.
This is awful for home sellers because their home is being described and shown by an agent who often knows nothing about it. Also, these “pay-to-play” agents don’t care whether they sell the specific home a buyer inquires about, or another home that perhaps they, or somebody in their office, has listed which may enable them to earn more.
This problem doesn’t exist with Australian home search portals because they are monetized by listing agents who pay to upload homes. Therefore, in Australia, listing agents receive all buyer inquiries on their properties. This means the probability of a buyer purchasing the home they inquire about increases, and the cost to the seller is reduced because they don’t have to pay 2% – 3% to a buyer agent.
Also, Aussie real estate agents can pay extra to have their homes more prominently featured on the home search portals, and “served up” to more buyers who are looking online. This gives listing agents an effective tool to attract more buyers to a property.
Why can’t U.S. real estate agents spend money to promote homes more prominently on Zillow, Realtor. com and other home search portals? Those portals don’t allow it. This makes no sense, right? Why wouldn’t a home search portal allow real estate agents to pay extra to have their homes featured?
The answer is unfortunate. They likely make more money by directing buyers to pay-to-play agents who pay them 40% of the commission they earn from the buyer leads they obtain. These court cases are predicted to eliminate sellers paying buyer agents, which means the leads that “pay to play” agents receive from Zillow and Realtor.com will become a lot less valuable. Why? Because the agents will have to convince buyers to pay them rather than getting paid by the seller when the buyers buy a home.
Do Australian listing agents really pay to promote homes online? While Australian listing agents charge a lower percentage commission than in the U.S. (1.5% – 4%), they typically require sellers to pay the home’s advertising cost in addition to the percentage commission. So the agents charge for their service (like attorneys), and the client pays the actual costs (like attorneys).
WERE HOME SEARCH PORTALS GUILTY TOO?
The “inflated commission” lawsuits and the recent court decision awarding $1.8 billion in damages to Missouri home sellers were, in my opinion, partly a product of a home search portal business model that increased the probability home sellers would have to pay both a listing agent and buyer agent commission.
ADVANTAGES TO AUSSIE REAL ESTATE
There are many reasons why I am a fan of the Australian real estate model over the U.S. model.
- Seller commissions are lower because they typically don’t pay a buyer agent.
Home search portals allow listing agents to make homes look better and be featured more prominently in front of more buyers, which benefits sellers.
- Home search portals don’t direct buyers away from listing agents to pay-to-play agents, which benefits sellers.
- Buyers who want representation hire agents or attorneys, choosing from an a la carte menu of individually priced services, allowing them to pay only for services they need.
- Buyers who hire representation can be more confident that their agent will advise them impartially because they are paying their agent directly, instead of the agent being paid by the seller to convince their buyer to purchase the home.
- The overall cost of selling a home is typically lower than in the U.S., even if you factor in the fees that buyers sometimes have to pay for representation.
- From what I can find online, there are fewer agents per capita in Australia, their experience level is higher, and they earn more than real estate agents in the U.S. This would seem to serve buyers and sellers better.
- From everything I can find, it appears that the Australian real estate model has significant benefits and few negatives compared to the way homes are bought and sold in the U.S.
Many in the real estate industry are fighting the impending changes. Personally, I embrace the opportunity to make the home selling and home buying models in the U.S. fairer, more efficient and less costly.
Real estate agents, whether helping sellers or buyers, should compete based on unique value propositions, including price, instead of some pre-set, expected standard. The more you offer, the more you should be paid.
My industry has been dramatically called out. Things are going to change fast…and it is something that should be celebrated, not feared.