The Wiki Man

Why the internet hasn’t killed estate agents (and what might)

Relational capitalism will keep them going – at least until the coming of the driverless house

9 May 2015

9:00 AM

9 May 2015

9:00 AM

I don’t like to make business predictions, but — barring some apocalypse — I suspect there will be plenty of estate agents around in 2065, and occupying prominent high-street shopfronts just as they do now.

This may seem an absurd prediction: after all, almost no one now uses an estate agent to find a house: we go to property websites instead. And, since we all assume the purpose of an estate agent is to find buyers for a house, a role usurped by Rightmove and Primelocation, we think the remaining days of the estate agency are few.

However, perhaps the principal role of an estate agent is not to find us a house so much as to be a scapegoat if the house we buy proves to be terrible. When you pay Messrs Knight Frank, what you are actually buying is a form of reputational insurance to pass on to the new owner of the house in the form of reassurance. The estate agent is the local man who remains in place to be vulnerable to reputational and legal redress. He has ‘skin in the game’, as Nassim Taleb calls it. The plate-glass windows are no longer there to display property: they are there for me to put a brick through if my new house turns out to lie on a flood plain.

To understand this, you have to understand an idea first expressed by, I think, Jacques Attali: that fundamentally there are only two kinds of industry. There is the insurance industry, to protect us against something going horribly wrong, and there is the entertainment industry, which distracts us from the fact something will soon go horribly wrong. Everything else is just an elaborate variant of one or both of these two businesses.

It is for this reason (what I call invisible insurance) that I always buy a car from a local dealer. Most of the time, I get a slightly worse car for the money than if I bought from a chap called Dave with a suspiciously fluid pay-as-you-go mobile phone number. I know this. But the likelihood that a reputable dealer will sell a truly ghastly car is lower, since he is vulnerable to reputation risk. I sacrifice contrasting leather piping for the reduced chance the engine will blow up.

Many predictions made about digital disruption are wrong, because they understand only transactional capitalism and not relational capitalism — and the unwritten and unspoken understandings underpinning most commercial relationships. When Uber prices (perfectly logically) rocketed during the Sydney siege, they suddenly realised they had breached one of these unwritten rules: ‘Do not exploit misfortune for personal gain.’ In many cases the intermediary is not redundant — they are part of a feedback loop that keeps businesses trustworthy. The anonymous trading of commodities looks efficient on paper but is a disaster in practice. Even the Soviet Union eventually made factories stamp their name on their rivets.

No, if there is one technology that should scare estate agents, it isn’t the internet, but Elon Musk’s new battery, which makes it possible to live off the grid or off solar power for long periods. You see, both Google and Tesla have so far failed to spot the real disruptive technology of the future: it’s not the driverless car, it’s the driverless house.

In 20 years’ time, rather than paying £20 million for prime London residential property, I plan to convert a driverless, electric double-decker bus into a luxury home (£250,000?), and program it to spend the week cruising around the best areas of London at low speeds, repairing to the seafront at weekends — like a hi-tech -Genghis Khan.

‘Where do you live?’ ‘Berkeley Square, mostly’. ‘Oh, me too — clockwise or anticlockwise?’

Got something to add? Join the discussion and comment below.

Rory Sutherland is vice-chairman of Ogilvy Group UK.

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Show comments
  • tjamesjones

    this is great. estate agents also buffet us from each other, and the lies we all tell when we’re buying and selling (‘cash buyer’, ‘quiet neighbours’). i’m killing time till ed kills our economy.

    • James Jones

      “estate agents also buffet us from each other”

      I know Estate Agents have a reputation for ferocity, but cannibalism, surely not?

      • tjamesjones

        oh who knows. I think I meant “buffer”. In my defence I was very nervous about our impending socialist revolution. Which turned out to be a Guardian fantasy, thank God.

  • Dogsnob

    Long live gesselschaft!

  • Francisco van Zeller

    There are a lot of sophisticated tools to monitor the online letting agents’ reputation – trustpilot is a good example. Agree that you need to have somebody to deal with – locally if possible!

    • Francisco, not sure that trustpilot, all agents or any review site can be deemed a sophisticated tool! Homeowners need to do due diligence when choosing an estate agent and likewise with buyers. Take the emotion out!!
      Re: online estate agencies, the amount of work involved with selling a home far exceeds the price online agencies charge. Expect a price increase soon or many business model casualties

  • John de Rivaz

    With regards to
    these unwritten rules: ‘Do not exploit misfortune for personal gain.’
    load of professions do this:
    Insurance agents, Lawyers, Doctors, Surgeons, Police, Prison Officers

    • rorysutherland

      That’s when the misfortune is the reason for the business existing. There is an obscure John Locke pamphlet from 1690 called Venditio which is very interesting on the idea of the just price.

  • David Hart

    Rory’s saying he would only buy a house through an intermediary, rather than an individual (like a used car). But to say that you have to have a shop-front to have that reputational risk doesn’t really make sense. Internet brands aren’t immune from reputational risks. Just look at the problems that have dogged AirBnB and, as mentioned here, Uber.

    • rorysutherland

      That’s very much my point! They are learning. I am amazed that Uber treats its drivers rather stingily. The biggest risk it faces as a business, other than legislation against it, is passenger boycott.

  • Callipygian

    what you are actually buying is a form of reputational insurance to pass on to the new owner of the house in the form of reassurance
    I find this an odd assertion, Rory. I am very with-it when it comes to home buying (and, alas, renting to cover the transition), and I’ve never been more favourably inclined to ‘for sale by owner’ than I am now. Perhaps the difference is that in America our agents each charge 3% of the final sale, or 6% as a total. That is a h=ll of a lot of money. Now it’s true that if you’re new to an area — a big city such as Houston, Texas, and your agent drives you to all the houses in all the likely neighbourhoods, being your tour guide and chauffeur, and you take three months of daily looking to find a property — then you can say that they’ve earned their pay. But I wonder how many agents, even in America, actually do that much.

    As for the merit of the property: the agent in no way assures this. That is all down to the home inspector. And I don’t trust them, either. I have had the home inspector not tell me important facts (like: the cladding was resin not painted wood) while obsessing over nothing (the possibility of non-existent roots by a drain). That was England. In America I was NOT told about the door that wouldn’t shut (I don’t mean lock, I mean that it wouldn’t even shut because of foundation shifts); the furnace that was all but dead; and so on. But he did (again) draw undue attention to pickle-up-bum code-stuff to do with this pipe and that insulation, which cost me money to attend to but did nothing to make anything work better or more safely. I am rather sour on home inspectors.

  • Verbatim

    I’ve tried selling a home online at a reputable site and got only two people interested, but plenty of replies, but my sister sold an apartment in Sydney this was without any problems. The market is in decline where I live and agents are having a tough time selling in my price bracket too.

    But next time I’ll go to an agent because I don’t want the grief; I want them to vet the ‘lookers’, make the appointments, do the selling spiel, advertizing and necessary paperwork – and I’ll give them the keys and go away for a holiday! But I don’t think ANYONE would trust the word of a real estate agent. The last home I sold they wanted to under-price (to get the sale) but we stuck to our guns and sold on Day 1 anyway.

    The secret is to NOT let them dictate what your home is worth if you think you’ve set a realistic price (do your homework). I find a lot of what Rory says here is just plain rubbish. (And I’ve sold a substantial agricultural business myself privately!!)

  • kathee

    I remember lying in my room when I was in high school and writing in a journal to my future husband. I’d write all sorts of notecs and questions and things I’d wonder or ask this man when I eventually met him. I would wonder where he was and what he was doing and if he was thinking about me too. It has always been such a strong desire in my heart to find a wonderful man to marry, someone who would love me and cherish me and appreciate me for the person I am. I always thought I would get married right out of college, just like my parents, so when that plan didn’t work out, I started to get discouraged. A school mate snatched my future husband away from my arms just because she had spiritual powers, all hope was lost to me before i came across the help doctor (
    ) who i confided in, i told him my long story and he helped me regain back my lover with his prayers which is now my husband today. if you have any problem email the help doctor (