The way estate agents charge for their services has undergone a revolution in recent years. First there was the traditional commission-based model. Then fixed fees came along. Both models have their pros and cons, and their supporters and detractors. Generally though they’ve both rubbed along together fairly well and have each found their own place.
Now however another kind of model is starting to make its presence felt. That is the free estate agency service. So now might be a good time to think about whether free estate agency will take off.
Free estate agency has come primarily in the form of hybrid agency Strike. Strike has been around since about 2007 and used to be called Housesimple. They’ve been offering free estate agency, but only in northern England, for around 18 months. More recently however they have made the free service national across England, which could be much more significant for the market.
Strike operates what is sometimes what is known as a freemium model, which operates in other industries too.
With Strike basic house selling services are free. These include valuation, photographs, floorplans, basic online listings, help with negotiations and sales progression.
Sellers can then pay for the optional extras they want and need. These include an EPC (£99), upgraded marketing (£499 extra) and hosted viewing services (£699 extra). They also generate a referral fee from offering financial services (mortgages), conveyancing and removal services.
Interestingly Strike divulge some basic information about how many people sell their house for free and how many pay for the extras. They say that 40% of their sellers sell entirely free while 60% buy some extra services. In other words, four in ten customers don’t pay them anything.
So what are a few of the pros and cons of free estate agency?
It’s obviously a great offer for sellers who stick to the free service – and also assuming they end up with a sale. They get to save, potentially, thousands of pounds compared to paying agency commission.
It’s obviously not so great for other agents – both those who charge a commission or a fixed fee – who face extra competition and who could lose listings as a result.
One other possible problem to consider is that this kind of service could attract sellers who aren’t really serious about selling and who are just ‘testing the market’. That could be a problem for Strike, and for prospective buyers who try to buy through them too.
So can free estate agency services really work?
They could work if sellers, having been attracted by the free selling service, then go on to buy the paid for services in sufficient numbers to make it all pay off.
They could work if backers and investors keep putting money into the business to support the free service. Strike is said to have received around £11 million of extra investment to launch nationally. It’s quite usual for dynamic new business models to be supported by investors not customers. It’s fair to assume, however, this kind of support is finite.
The concept could hit snags if too many people just use the free service and then don’t buy any other services. Sellers might find they can just use the free service and then buy the other services they want cheaper elsewhere. One problem with operating this way is that the people who buy the paid for services are essentially subsidising those who don’t.
Some people might argue that low fare airlines like Ryanair make this model work, so why wouldn’t it work in estate agency? They sell flights at low prices then make up the difference with baggage charges, seat reservations and sales of food and drink onboard. An important difference of course is that you can’t buy those extras from anyone else but the airline. But in a property sale you can get your EPC, legal services, removals and so on from anyone.
Another issue is that other estate agents, especially hybrid estate agents, might get into the freemium model too – especially if they see it is working well.
In summary then, will free estate agency take off? Is it here to stay and become normal?
It’s probably fair to say that now isn’t a good time to judge whether it will work long term. The property market has boomed over the last year or so. There’s been such huge demand that pretty much any property that comes onto the market has sold fairly easily. If the property market slows then it might not be so easy to list and sell property even if (and especially if) you’re doing it for free.
While free estate agency certainly has its attractions, both as a business model as well as for sellers, it’s probably true to say that only time will tell if it actually succeeds.