In this episode of Industry Change Richard talks to Malcolm Gunning, the President of the Real Estate Institute of Australia and the Principal of Gunning Real Estate in Sydney. They discuss the recent changes in the real estate industry including the rise of the DIY vendor and how now, more than ever, agents cannot just hide behind the regulations in their industry. But must give more and more value to their customers.
The real estate industry has the very real challenge of new portals and platforms springing up that match property managers with vendors as well as allow consumers to rate their agents. While the consumers love these platforms, agents remain wary. Malcolm advocates that the industry must be nimble and quick and change with the times if they are to stay ahead of the game.
Watch the episode to find out more.
Richard T.: Welcome back to Industry Change. It’s Richard Toutounji. And today I’ve got Malcolm Gunning on board. Welcome.
Malcolm Gunning: Glad to meet you.
Richard T.: And Malcolm is the president of the Real Estate Institute of Australia. The REIA. I wanted to talk to you because I just think that with every industry and the change of industry. I’d love to understand how that industry body is moving forward. Is looking at the past. Is looking at the future and kind of figuring out where to go. Now, the Real Estate Institute of Australia, the REIA, is well known in the space, and you deal with a lot of that market and a lot of that change. And I’d love to know a little bit more about how your peak body is actually made the shifts. And made the adjustments through all these changing times and technology and Airbnb. How have you kind of delved this process?
Malcolm Gunning: Well, the Real Estate Institute of Australia has been going for about I think 110 years. And in the various states has been going for 120 and 130 years. So, there’s been an evolution. Real estate’s changed dramatically from the 19th century through to here we are in the 21st century. The big challenge for particularly residential real estate is the amount of change that is coming down their line now. Particularly through what we see happening in the rest of the world, is dramatic. We’ve never seen anything like this before. So, the industry itself has to be … has to adapt very quickly. And in the past, we haven’t been nimble. Change has been slow. And we’ve hidden behind overlying regulation because residential real estate is highly regulated in most of the states. So, there’s been a little bit of complacency in as much as well, we’re regulated. We’re licenced.
Richard T.: Everything will be okay.
Malcolm Gunning: Everything is okay. But as we know with Airbnb and with Uber. What they did to those industries. So, we’re looking over our shoulder and saying, “What’s coming?” And we’re gonna move quickly.
Richard T.: It’s really interesting point you said it because yeah, it’s industries that have been pretty stable and all of a sudden there’s a new player on the block. With a lot of backing. A lot of money behind it. A lot of change. Sitting in [inaudible 00:02:33] like say the grey area where they’re not kind of … They’re not kind of coming to the front. They’re just playing on the outskirts but all of a sudden they just … they’re right on your door step then.
Malcolm Gunning: That’s correct and we see can see that with a range of areas. Look, you’ve got portals coming in to the property management areas. Looking at really having a platform where property owners and tenants can matchup. So, the property managers position will be eroded. Then you’ve got rate my agent [crosstalk 00:03:09] type of arrangements. So, you rate your restaurant. You can rate your doctor. You rate for a combination so you’re gonna rate the real estate agents for sure. So a lot of real estate agents say, “Hang on here. We don’t like this.” But the public do. Whatever the public want. The public is going to get. And that’s the big thing that’s [crosstalk 00:03:29].
Richard T.: Interesting. Whatever the public wants. Whatever the consumers want. That’s what they’re gonna get.
Malcolm Gunning: Correct.
Richard T.: That’s what gonna win.
Malcolm Gunning: Correct. So, hiding behind registration or that type of thing, you’re not gonna win business in the future. And I’ve been around for a long time. You can look at my age. My lack of hair.
Richard T.: Oh, I’ve got a bald head too so-
Malcolm Gunning: One thing that we have to be good at in real estate and many of us are is to be nimble and quick and change with the time. Look at … I suppose the biggest example, Richard, is we all just used to sit around on a Saturday 10 years ago. Have a coffee and read the real estate ads. We were looking at leasing or buying property. What do we do on Saturdays now? You sit with your iPad looking at the portals.
Richard T.: Straight through. Yeah.
Malcolm Gunning: And that’s 10 years. You’ve seen Fair Facts go from the Rivers of Gold from the classified ads of a Saturday to now being effective of what it was and prints starting to disappear.
Richard T.: Oh yeah. I started advertising for one of those real estate portals saying, “If you’re not on our platform, you’re not in the game. You’re not in the real estate game.” I thought, you know what, if they said that five, seven, eight years ago it would’ve been, “Yeah. Sure.” But if you say that now it’s like well, it’s pretty much factual now. People are looking in a different way. When we took out marketing in our company and we educate any business about how to market. The first thing we always talk about especially today. Anything will change is built in trust in the market place.
Now, I’ve found that real estate agents have known this for a very long time because I see … And for years you see a flyer in a mailbox. It might not be the most appropriate thing now but you still see their picture on the flyer. And then you see the billboard with the picture. And then you see the houses sold by this agent. Now, other industries haven’t really … They’re taking up that offer now. They’re taking up that process now but I’ve found that the real estate market always did that process. I’d love to know who kind of … Why you guys started that process of really branding a person’s face and do you think that’s the future or do you think that’s aged? How’s that gonna work with the new technology?
Malcolm Gunning: Because most people want to trust an advisor with their biggest asset, particularly a home. What changed in real estate is what you’re talking about. Is that the real estate agent tended to be the custodian of the market. The market information in their suburb. So, if you went down and saw Malcolm Gunning down the road. You saw these sign boards with his face. He know what’s going on. He can price my house but guess what, you can go online now and with a few clicks you can find out generally what your house is worth.
Richard T.: Makes sense.
Malcolm Gunning: So, the valuation of your property is not so important. So, what the agents are doing now. What the residential agents particularly. They’re saying, “I’m the one who can achieve the best price for you. I’ve got the expertise. This is where they move to. I’ve got the expertise to value add your transaction because you got a special home and every home is special as you know. And mine’s better than the one down the road. So but, I might be able to recognise that. I’m able to then put myself between the prospective purchase myself and I’m gonna be able to get you the best price.” And that’s what the fees are paid for.
Those that think that the process … And this is where the cynicism came from the public because the public started to believe that the process sold the house. And also, we agents in Australia, particularly a lot of the young agents. There’s been so much money made out in real estate. Let there be no doubt. Over the last five or six years. Real estate agency, particularly residential real estate in Melbourne and Sydney has been awash with money.
Richard T.: Well, we see that. Yeah.
Malcolm Gunning: Okay. [crosstalk 00:07:38]. But we agents put our images on Facebook. Not so much an old block like me but a young man or woman have been successful, made a lot of money. They have a photograph of themselves standing in front of their sold sticker. Sold the property 10% over [inaudible 00:07:58] and just in the corner of the signboard is their new Porsche. So, what does your public think about that? Okay. Most may might go with it. As a business person, you don’t care because you can negotiate then and it doesn’t matter. But a lot of people think, “Hang on here. I’m I paying too much? I’m I-”
Richard T.: “I’m I paying for that lifestyle?”
Malcolm Gunning: “Paying for their lifestyle.” So, we became a bit brash and that’s what … In New South Wales and in [inaudible 00:08:33] in Victoria we know this undercutting legislation came in. People got angry that the agent couldn’t accurately tell them, a purchaser, tell them where they should be in the market to buy the property. Now, but the market went mad but so a lot of trust. A lot of the agent collateral disappeared during that time. That the collateral was being the custodian of the market value. The market value now you take more notice of CoreLogic, Domain or Real Estate. That’s where … they give you … they’re the market monitor.
So, the agents lost that mistake and said we’ll all tell you what your property’s worth but if you said to me, “But I already know what it’s worth. I already know that it’s worth this amount of money. Now what are you gonna do to get me better price than that and how much are you going to charge me.” So, then the challenge for the real estate agency is how I’m I going to value add that transaction when you take two or three things away.
Richard T.: So, the value add is still very important then, but it’s done in a different way?
Malcolm Gunning: You’ve asked about the agents have promoted themselves very well. So, if you’ve been in an area for some time and most real estate agents get themselves associated with an area. I’ve got grandsons that paid 40 out of town, at [inaudible 00:10:08]. And of all the teams that rally round there. I think every prominent real estate agents got a tag on their shoulder or their jumper. So, what does that tell you? That, that agency is associated with that area. So, what people want, people will becoming more villager entitled so they’ll go with the local butcher. They’ll go with to the whatever, solicitor, more community. So, Malcolm Gunning or Richard is associated with that community. They sponsor the community. They give back to the community. They must be good blocks or good people.
Richard T.: So, the branding in marketing. What you’re saying and what’s [inaudible 00:10:53] gonna in the future. And it’s already happening now. It’s about making sure that if you wanna drive that fancy Porsche, you gotta make sure that you put yourself in the community correctly and do it well. And be consistent in that.
Malcolm Gunning: Correct. Very much sir. But you also have to be in a [inaudible 00:11:13]. So, you have to understand that the public are not dumb anymore. Okay? So they’re going to get more and more information. And the challenge for the real estate agent is to be able to broker that information. Be able to sieve through and say, “Look you’ve got those facts and figures but let’s just run through a few things here. So, we that can get it very clear. This is what the buyer is going to be looking for in your property. Okay? This is what sets your place apart or what that doesn’t and this is how we gonna market it.”
Richard T.: And correct me if I’m wrong. I mean the future then will really be about providing a service as a real estate agent to stay in business. From what I’m seeing. What you’re saying is providing a service that is second to none. Providing convenience so that person can sell their property without having to do all that labour work, pretty much.
Malcolm Gunning: True.
Richard T.: And that’s where the value will come.
Malcolm Gunning: It will.
Richard T.: This is … I mean with these new portals come in. There’s gonna be platforms that connects the buyers to the sellers. Happy days. But at the end of the day people still want that trust and credibility.
Malcolm Gunning: Richard, not all will.
Richard T.: Yeah.
Malcolm Gunning: From the information that we’ve got from the United States, which is a pretty sophisticated market over there. The real estate agents have lost upwards of 20%-
Richard T.: That’s quite a lot.
Malcolm Gunning: Of the market in the last five years to areas, which are low cost. Portals that sell your … Platforms that sell your property.
Richard T.: [inaudible 00:12:41].
Malcolm Gunning: We’ve got Purplebricks coming in which is [crosstalk 00:12:44] big advertising at the moment. So, really what happens is you transact your own property. You use this to go through. There’s a set fee. You get advice. But really you’re the one … You and the vendors are the one that’s driving it. So, and that makes a bit of sense sometimes. And I’ll be-
Richard T.: It makes a lot of sense.
Malcolm Gunning: It does. If particularly and let’s just talk about fees. Let’s just talk on, here we are sitting on the Surry Hills. This is where the smash of a carton tussle is all about. Okay? I mean no doubt and it’s a highly desirable place to live [crosstalk 00:13:19]. For the baby boomer like me, the [inaudible 00:13:23], or the professional wants to come live here. So, it’s gonna cost you 750,000 dollars to buy a 55 square metre one bedder.
Richard T.: Fair call. Yeah.
Malcolm Gunning: Okay. So, the 55 square metre one bedder is a box. It’s like a box in a good location. What’s unique about it is the lifestyle and probably the architecture of the building outside. So to sell something like that you’re probably gonna be charged a fee of at the end of this of 10 to 11,000 dollars. That’s a 2%. Let’s just use that as [inaudible 00:13:57] but you might be able to get at Purplebricks and you can sell that for half that fee. Okay. So you’d sell it. So, for how high is it to sell?
Richard T.: Sure. That would be the obvious question obviously.
Malcolm Gunning: The box. Okay? So now, there’s an agent I know that works this area that specialises in that sort of property. And if I said to him, look I can go to Purplebricks. He’d say, “I know you can but I’ve an over group of buyers that are going to compete for your property. I’ve sold so many over the last seven or eight years. I’ll introduce this property to a group and I’m of the opinion that I’m gonna be able to significantly add value to it. So it you are of the opinion that it’s worth 750,000. I’m fairly confident I’m gonna get your price above that because I’ll create the competition.”
Richard T.: Got you.
Malcolm Gunning: Okay? And you’ll go, “Well, okay.” So, this is the challenge now. Most of the survey vendors will want to negotiate a fee. “You get me a bonus. I’ll pay your bonus.” Okay? And a good agent said, “You’ll pay back my skill. I get you a bonus. You give me a fat fee.” Most people like that idea. Some people don’t. So the whole way we of doing business is unless the agent can value add to the transaction they’re gonna get a very ordinary fee. They’re gonna be disrupted.
Richard T.: Makes sense. And the ordinary fees than what people, the consumers are basically wanting to say, “Hey. That’s fine. You’re a service provider helping me or you’re an expert that’s gonna get me the extra price. And if you do that, you’ll be rewarded. You can go get your Porsche, pretty much.”
Malcolm Gunning: Correct.
Richard T.: That’s the value there because they’re selling a higher price of it.
Malcolm Gunning: Correct. So, what does that mean for the industry in Australia. We’ve had … Sydney and Melbourne. What we’ve got to understand to this with affordability albeit that’s going on and that’s really only Sydney and Melbourne to buy. Other parts of Australia and your viewers would know very well. What happens in West Australia, prices are falling or Brisbane or you go there Northern territory have their other way.
Richard T.: Everybody is moving in different areas [inaudible 00:15:59].
Malcolm Gunning: Real estate is not like it is in Sydney and Melbourne. So, up there they’ll gladly pay any … Outside of Sydney and Melbourne most places I’d gladly pay a fee for a real estate agent because buyers are not as scarce. I’ve got to stop losing money because it’s going back the other way. So, this is really very much a Sydney, Melbourne top thing.
Richard T.: And this is whether Sydney and Melbourne really if you want to play in this industry. The first industry for change. You have to be prepared for change otherwise you’ll see more move up in that area so that you can go back to old school business.
Malcolm Gunning: Old school business very much sir is not gonna be as much disrupted up there. When I in Darwin they wouldn’t know of Purplebricks or RateMyAgent and this and that sort of thing. It’s a very different market place.
Richard T.: Yeah. Now that’s really good. It’s really good. And it’s so interesting because every industry is going through some sort of disruption right now. And it’s great to understand that if they take the advice, and if they kind of work together within that industry body. And not be so against, it they’ll ease ways to continue that business. It’s just about staying innovative. And how do you think a real estate agent should be marketing themselves to the consumer now? What do you think the best way for that is?
Malcolm Gunning: That’s a very good question. Having a [inaudible 00:17:29] of an agent running around and being in the area. Standing in front of a beach or a rural property or something like that. I think they should be able to talk about the market. I think they should be able to give information. I’m always of the opinion when we go out there we should tell the owner or landlord something they don’t know.
Richard T.: All right. Giving a lot of value.
Malcolm Gunning: Correct. So, what happens is the owner or the landlord they’ll probably say, “Well, G I didn’t know that.” First of all they’ve recognise you that you have some skill instead of just flashing your CV. They’ve got to understand that you’ve got empathy with them. “You understand my house. You understand what I know is good about my house.” And then what you’ve gotta have is they’ve gotta have that trust in your skill as a negotiator. In real estate there’s an old saying, “If you can’t sell yourself you won’t sell the house.”
Richard T.: I like this. So, you’re basically saying the first step is give value. Give information that the consumer doesn’t know or want to know especially selling the house then they come to you and then they say okay, you’ve got me hooked me in with the content the value gave me now do you have the credentials, the qualifications, the experience to actually sell my property.
Malcolm Gunning: Correct.
Richard T.: So instead of going straight to show the flashy car. Show what I’ve done. You gotta go one step first and actually show a bit of value on the front end.
Malcolm Gunning: Correct.
Richard T.: Last question, how do you predict the future?
Malcolm Gunning: Our industry will continue to do very well but the better agents will earn more and the less professional agents will be disrupted.
Richard T.: Love it. That’s this week’s episode of Industry Change. I thank you so much for your time and it’s really great to get an understanding of your industry and tell the REIA is gonna take that forward.
Malcolm Gunning: Now, thank you very much.
Richard T.: Thanks so much.
Malcolm Gunning: It’s been very enjoyable.
Richard T.: Thank you.