The power of the owners, after the Crisis
In the two previous postcards of this series we talked about the Power of the Competitors and the Power of the Buyers, taking as reference the scheme of competitive forces by Michael Porter. (1) Today we have to reflect on a third: the power of the owners.
The power of the owners
What is meant by that?
The owners -providers in the language of Porter- may or may not entrust us with the work of selling (or renting) their properties ... or not, they may do so under one or another form of custom and they can or no, accept certain intermediation costs; they also decide on the term of the custom contract and on a number of other variables that affect the commercialization of their property. And that is the source of their power: they are the suppliers of the raw material of our sales. And front-before them, we can only oppose our negotiating skills.
But, that, can be more or less effective for the agency, depending on a number of aspects.
The bargaining power of suppliers impacts the costs and competitiveness of SMEs, which are not, in general, buyers of large volumes of inputs, merchandise or raw materials. Some of the factors that put the bargaining power on the side of the suppliers, so you can analyze them in advance and understand what is your room for maneuver when making your purchases:
a) The number of properties similar to the sale
The smaller number of suppliers - of properties for sale (rent) - exist, the greater their negotiation capacity, since there is not so much supply, they can easily increase their prices, demand lower intermediation costs , offer less advantageous contracts, etc.
And its opposite t It is also true that the greater the number of suppliers - of properties for sale (rent) - existing, the lower will be their bargaining power, since the excess of supply must adjust to the shortage of demand. And therefore they will be more inclined to pay something more for intermediation, to grant longer terms, to be more flexible in the negotiation of the order.
As other variables that we will see the bargaining power of the owners influences in the results of the agencies, for the final results of the agreement that is reached, hence its importance as a competitive force.
In other sectors of massive distribution of goods -it is not, then, the case of real estate- , there is another source of power for the owner provider, related to the size of the offer. And is that suppliers in a strong position, can make it even more powerful if they choose to reduce the amount of product available for sale, something that is more effective if, in addition, there are few substitute products (alternatives) to which buyers can opt.
b) The Differentiation of the Offer
That the products offered by suppliers are positively differentiated or not, has a decisive influence on the sale . So, to a greater differentiation of the good with respect to others of the same class, the owner's position will be stronger, because he knows the value of his property.The shortage of intermediaries weakens their position and abundance maintains it. (If there are many, for example, the% intermediation will be more sensitive to the decline.)
d) Your position in front of the sale
As Since the owners can become competitors of the agency, very easily and with judicial support in many cases, the sale through real estate intermediaries can be broken at any time. And not always with negative consequences for the owners.
In MK, this is called: "threat of vertical integration forward".
e) The position of the others competitive influences and the state of the market at all times.
In times of depression, their power diminishes - there are less demanding, there is more supply, the economic situation is worse, confidence decreases, the credit is scarce, etc.-, and in expansion-there is less supply, the economic situation is better, confidence grows, credit abounds, etc. grows.
f) The action of competitors
In our country, now, the competition with other owners has exploded with the appearance of real estate, that is why, now, the bargaining power of private owners has decreased in a huge way.
g) Consumer legislation
If the owners they are not companies, but individuals, the backing of consumer legislation, European and Spanish, puts them in a situation favorable to their interests, because the consumer-agency intermediary relationship is considered not to be on an equal footing.
h) Illegal agreements on the price level of their properties.
It is typical of the manuals that describe this force warn of a possible danger for intermediaries and buyers: the ability to create informal, or even formal, agreements to establish the offer prices, among the principals s suppliers of a product.
In our country and real estate, this is an unlikely situation. (Not so in other sectors such as Energy, Communications, Banking sector or agricultural goods.)
i) The volume of sale offered
In the last sales of large packages of real estate to vulture funds that have taken place in our country recently, the volume and terms of sale of the same has been a measure of this power of the owner. (That has had to be seen, mainly with the final buyer and not with the intermediaries.)
In our country and real estate, this is an unusual situation.
j) Availability of substitute products.
Neither does it have a great development in our country and real estate sector, since housing is a good that is difficult to replace satisfactorily. In other sectors, on the other hand, a high number of substitute products weakens the position of the suppliers.
The Power of Suppliers (of the owners) has also changed
1 On the one hand they have weakened. Faced with the loss of demand, they have had to lower prices and although now they seem to rebound - in some neighborhoods, cities, places and types of properties - there is a legion of owners with difficulties to sell.
2 They have become small competitors of the large property owners - the "real estate owners" -. And they can not, in almost any case, compete with those, neither in price ... nor in commercial resources or sales channels.
3 They suffer, as do real estate agents, from the shortage of buyers ... possible.
4 In many cases, places and types of property have remained as the last in the row, holding a good that nobody wants ... for the moment.The courts, especially in the last two years, are crushing the conditions agreed in the sales contract, with the owners, both in exclusive cases and in other types of order. And what is being strengthened is the consumer character of the individual, and therefore, recipient benefited from the protection of both Spanish and European laws of Consumption.
There are more aspects that we will develop in other postcards, such as the disappearance of some beliefs or customs that favored us regarding the kindness of buying a home, for example; the increase in economic inequality with a sharp decline of the middle class to the economically lower class, the continuity of an economic, sour environment; the still weak financing of operations; the global environment with threats; etc. but all of them lead to the same thing: the change has been so radical that if our operational conducts in the direction of our agency are the same as before the Crisis ... surely we are competing worse than we would if we had them in mind.
Miguel Villarroya Martín, April 3, 2016/Madrid. Spain/Pri.email@example.com
(1) See The competitive forces of M. Porter, today, in the Spanish real estate.
And also: After the real estate crisis ... The change?