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Online agencies ‘could be described as Ponzi schemes’ - claim

A new analysis of the online estate agency business model claims that it ‘could be described as a Ponzi scheme’.

The accusation comes from Sebastian Goldenberg, founder and chief executive of TheHouseShop, an online platform that carries  listings from private sellers and individual landlords as well as estate and letting agencies.

TheHouseShop - which regards itself as having a wider-based and more robust model than online agencies - says Brexit has been a game-changing event for the viability of online agencies like Emoov, which collapsed recently taking Tepilo with it.


“In a seller’s market where property prices are on the rise and the amount of effort required to sell a property is not too overwhelming, the online agency model can prove effective” says Goldenberg in a blog.

“But as soon as the market shifted in favour of buyers and properties were no longer flying off the shelves, it became a totally different story. Essentially, Brexit changed the paradigm” he says.

Goldenberg’s lengthy argument suggests that the more struggling market since Britain voted to leave the EU meant that online agencies sold fewer properties than before - perhaps only 40 per cent of their inventory.

As a result, their customers called for an alternative to the pay-up-front model; therefore some online agencies introduced a pay-upon-completion model.

Goldenberg contends: “To be able to viably offer a no-sale-no-fee service, online agents needed to substantially raise their prices, resulting in the loss of their low-cost edge over the High Street. This means that in a large portion of the market, online agents are now not only in competition with each other, but are also in direct competition with the High Street, on a similar price point.”

Elsewhere in the blog he says: “Online agents are ending up in a situation where clients paying upfront fees for a new instruction are in many cases, funding the cost of servicing existing clients. If this were a fund management business, it could be described as a Ponzi scheme… This means that online agents rely heavily on a regular flow of new properties coming onto and off of the market.”

The viability of such a model, however, becomes vulnerable when the market slows - and Goldenberg seems to equate this with the Brexit vote.

He also personalises the issue towards Emoov’s former chief executive Russell Quirk.

At one point Goldenberg writes: “Even Russell Quirk himself realised in 2016 that his leave vote was a mistake and could potentially put a nail in the coffin of his own business.”

Later - referring to an article by Quirk saying online agencies had been less successful than he had anticipated - Goldenberg states: “To many in the industry, it seemed that Quirk may have been requesting a cease-fire to allow him to sell his business to one of the traditional players that he had been bashing for so long.”

It’s all part of the industry’s post-mortem on Emoov which has shone a light on the viability of the whole online sector; meanwhile TheHouseShop itself is crowdfunding to raise money for its expansion.

  • Andrew Stanton PROPTECH-PR A Consultancy for Proptech Founders

    Whilst I do not think online agents can be seen as a Ponzi scheme, in that some vendors have seen a return on their investment, eg they got sold and completed having paid into the scheme, for many though that is not the case, and increasingly some people are feeling that paying upfront may be the next PPI scandal in the sense that vendors are paying upfront for no return.

    So I think Purple Bricks and other pay upfront online agencies are going to come under increasing scrutiny as many vendors appear to be paying upfront and receiving nothing in return, and the figures appear to be very large.

    If you look very closely at this independent analysis commissioned by Purple Bricks by the data experts twentyci which cover the financial year 2017 to 2018, there seems to be some contradictory claims. In the twentyci report, and I quote ...

    Purple Bricks were looking for a reliable, respected and independent data source to establish answers to a set of questions about their performance in the financial year 17/18′
    And Purple Bricks are …

    ‘No1 at selling houses: 81% of listings sold within 12 months’

    Then there is a helpful graph in the same report which shows an annual picture of Purple Bricks results, it shows 64,000 new instructions, 48,000 properties sold subject to contract and it shows 38,000 properties exchanged.

    Now the ratio of exchanges to new instructions 64,000 to exchanges 38,000 is 59%, so Purple Bricks are not selling 81% of the instructions.

    But the worrying thing is, if the company gets 59% of vendors exchanged, it fails to get 41% sold or exchanged but still charges them on average £1,100 as an upfront non refundable fee, which is 41% of 64,000 vendors at £1,100 or 28.86M of fee for nothing.

    Readers of this are going to say the figures are wrong and skewed etc, but twentyci also did a similar report on Emoov and Tepilo, post the recent failure of these two online companies.
    And the WHICH organization recently had sight of this twentyci report and said that the conversion rate of the online pay upfront company was 53% of instructions to sold subject to contract, if you then discount the 53% by 30% the usual industry fall off for cancelled sales you get to an exchange rate of around 37%.

    WHICH states that …

    ‘Major online estate agent Emoov, which also owns Tepilo, has gone into administration, potentially leaving thousands of home-sellers out of pocket by as much as £2,995. James Cowper Kreston, the firm appointed to act as administrators for Emoov, says the company currently has 5,000 properties listed for sale or sold subject to contract.

    Of this total, around 80% have paid upfront for the service and are at risk of losing money from the collapse.’

    Also, WHICH states,

    ‘Exclusive data provided to us by TwentyCi shows that over the past 365 days, Emoov had approximately 8,000 new instructions. The firm accounted for approximately 0.5% of the estate agency market in 2018.

    Around 53% of new instructions received by Emoov typically went on to be ‘sold subject to contract’ and the average price of a property listing was £375,000. Tepilo’s figures are rolled into this data as its activity is merged with Emoov.

    Now for a very long time I have been saying that online pay upfront agents should be telling potential clients the true conversion rate of their service, and I wrote a recent article using data from Rightmove on – Tuesday November 13 – (prior to the collapse of Emoov and Tepilo).
    It is roughly gives a market snapshot of the then six major online brands (two under the ownership of Emoov).

    These were the figures from Rightmove.

    Doorsteps – 2,054 properties listed, 1,321 for sale, 733 under offer not exchanged, 28% conversion of listed to sold subject to contract.(Minus 30% cancellation rate gives exchange rate.)
    Yopa – 5,501 properties listed, 3,539 for sale, 1,962 under offer not exchanged, 35% conversion rate.
    Purplebricks – 37,531 properties listed, 21,142 for sale, 16,389 under offer, 43% conversion rate.
    Emoov – 2,504 properties listed, 1,696 for sale, 808 under offer, 32% conversion rate.
    Tepilo (owned by Emoov) – 1,740 properties listed, 1,162 for sale, 587 under offer, 33% conversion rate.
    HouseSimple – 1,140 properties listed, 763 for sale, 341 under offer, 30% conversion rate.

    You will notice that Emoov and Tepilo, had a conversion rate around 32%, which if you take the 53% figure being instructions converted to sold subject to contract as in the twentyci report, and then say the normal fall through rate for the property industry of 30% between sold subject to contract and exchanged was slightly higher for these two brands, say a 35% fall through rate you get to the 32% exchange rate, reflected in the Rightmove figures which would mean 68% of vendors mostly paid upfront for nothing.

    Also the auction/estate agent who 'bought' the Emoov/tepilo listings has said that many vendors actually paid nearly £1,500 upfront, rather than less than a £1,000 as was the low headline figure being offered by the onliners. The added upfront fees were for viewings and other services.

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    “In a seller’s market where property prices are on the rise and the amount of effort required to sell a property is not too overwhelming, the online agency model can prove effective” says Goldenberg in a blog.

    What vendors don't realise and high street agents know all too well is that finding a buyer is the easy part. Getting the sale to completion is probably 90% of the job and it is where we really earn our money. You don't get this with online agents who take your money upfront and then move on to the next mug who thinks he has got a great deal!

  • Babonday Brian

    Brexit not so bad after all them. Bhhhhhh


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