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.