The primary difference across global markets is rooted in the presence or absence of systems and policies based on cooperation. Four of the most significant challenges unique to real estate markets outside North America are as follows:
1. Lack of Systemic Cooperation
Without an MLS system, associates are reluctant to cooperate, buyers struggle to know what is on the market and sellers have limited property exposure to generate a quick sale at the best price.
With more than 800 MLSs in North American real estate, broker cooperation is the norm and broadly perceived as beneficial for both sellers and buyers. Sellers benefit from increased exposure for their properties and buyers benefit from access to all MLS-listed properties while working with only one broker, whereas outside North America, there are very few areas with an MLS, so brokers, as a rule, do not typically share their listings. As a result, the way in which consumers search for, buy and sell properties and associates service their clients varies significantly.
As an example, a few years ago I experienced this challenge firsthand when looking for a property to purchase in Portugal. To begin my search, I traveled to Portugal and walked into a real estate office asking to see some local listings. I was shown only three or four listings represented by that agent and when he asked if there were any others, I was pointed to another real estate office down the street. When walking into this second office, I was again shown just a handful of listings and directed to yet another office a few streets over to see if they had additional listings. This was clearly not the most efficient model from a buyer’s perspective, nor did it serve the seller’s best interests.
When competitors cooperate, it benefits everyone involved in the transaction. It also provides for maximum exposure of properties, which is good for both buyers and sellers. Without an MLS, brokers create their own separate systems of cooperation, fragmenting rather than consolidating property information. This fragmentation inhibits the amount of exposure each listing receives and limits referral opportunities between associates.
2. Open Listing Agreements
Open listing agreements limit seller opportunity due to the costs of undedicated representation and misguided buyer perceptions. Unlike North American markets where exclusive listing agreements are largely the norm, in the majority of markets outside North America, open listing agreements are commonplace. In Europe for example, it is common for property owners to solicit multiple real estate associates to sell their property. In this case, when a property sells, the commission is only paid to the associate who brought in the buyer. From the owner’s perspective, more associates equate to more potential buyers and competition between associates adds a sense of urgency, supporting a fast sale.
The challenge, however, is that the competition open listing agreements create between associates often results in a race to bring forward an offer, any offer, in order to secure the commission, rather than finding the best offer for the owner. Also, associates are likely to prioritize their exclusive listings over their open listings, often lengthening an open listing’s days on market driving down the price. Buyers may also interpret a property having multiple associates represent it as a sign that it is difficult to sell, suggesting there could be an issue with it or it’s overpriced. All of these occurrences are to the seller’s disadvantage.
Overall, with an exclusive listing—one that is listed with only one broker—associates are far more motivated and personally invested in finding the right buyer and price for the seller he/she represents. In the end the customers win: Buyers find the best home for their families from all the possible inventory properly represented by an agent, and the sellers get the maximum price for their home faster by exposing it to as many buyers as possible from other agents.
3. Lack of Regulation and Enforceable Law
An unregulated industry leaves all parties vulnerable and lacking confidence. In North America, real estate professionals are subject to rules governed by boards and associations who issue licenses and enforce laws and regulations. These laws protect agents and consumers and provide everyone involved in a transaction with a sense of security and confidence. There is no such equivalent at the same scale outside North America. In many markets, there are no qualifications or licenses required to sell real estate, nor are there enforceable regulations to govern transactions; almost anyone can sell a property and sometimes anything goes. For those laws that do exist outside North America, they vary significantly in type and enforceability and are typically only within a small geographical area and almost never at the national level.
Lack of regulation has its consequences. For example, it reduces the willingness of associates to split their commission on a transaction, and when commission disputes arise (such as one associate claiming that another associate did not pay their split), they often need to go through small claims court, which can be expensive and take a long time to resolve. A lack of regulation can also lead to associates finding creative ways of selling properties in order to avoid paying a commission split to their broker. Together, these issues cause challenges at all levels of real estate, from inaccurate data and financial reporting to a lack of clarity on the rights of all involved.
4. Portal Dominance
Internationally, real estate portals are a necessary evil. To meet growing seller demand, associates are listing properties at a significant cost.
Property search has revolutionized over the years and portals have become powerhouses with significant marketshare. They invest heavily in marketing to create and sustain consumer demand. It is estimated that there are over 10,000 property portals around the world and growing.
Portals are more than just classified sites. Some act as advertising giants selling ad space and making use of rich databases of consumer information they‘ve gathered, who then sell the information to other advertisers. Others promote products and services from other verticals, such as automotive, careers/jobs, short-term rentals and eBay-type marketplaces. This multi-purpose model often mitigates the effectiveness of real estate listings and their ability to generate qualified leads.
With the global market flooded with portals, it’s causing a battle for listings, web traffic and web leads between portals and real estate brands. Portals are perceived by some brands as a threat to their value proposition. It is increasingly common for sellers to demand that their associate list their property on the dominant portal in their market, regardless of the cost to do so or likelihood of generating leads, with indifference given to their listing being placed on the brand website. However misguided this may be, it is a challenge for many brokers and associates, as portal fees can be expensive and act as an opportunity cost for other marketing.
Written by Carlos Matias