Purplebricks co-founder Michael Bruce says traditional agents sell only around 50 per cent of the homes that they list, so spend half of their income from commissions underwriting the costs of the home owners who fail to sell.
In a long and detailed podcast produced by Irish workplace compliance consultancy Legal-Island, Bruce - now chief executive of Purplebricks worldwide - says the traditional agents’ business model of no-sale no-fee is “fundamentally unfair.”
In the podcast he says: “No sale, no fee only benefits one person - that's the person that never sells. Therefore, everyone that does sell underwrites the cost of those who don't.”
Bruce tells listeners that if they look at a traditional agency “they sell something like around 50 per cent of what they take to the market.”
This is, incidentally, almost exactly the figure alleged by City consultancy Jefferies as being the proportion of homes sold by Purplebricks. In February this year an analysis of one month’s listings on Purplebricks Jefferies concluded that it sold 51.6 per cent of its homes within 10 months.
In this new podcast, Michael Bruce continues by saying: “If you're paying [a traditional agent] a £2,000 fee, £1,000 of that is underwriting the cost of the people who either don't sell or churn in the market. So, what we said is we want to offer something that's much more competitive, that's fair, that everybody contributes towards, that means that we can offer a much cheaper price.”
Bruce also addresses the claim made by some critics that the flat-fee upfront payment model removes any incentive for the agent to sell the property.
The Purplebricks boss says that his company’s Local Property Experts are “the very best people in the industry” who will only be successful “by seeing sold boards in their area” because every sold board spawns another two valuations.
“So, they live off sold boards. They earn more money when a property sells” Bruce insists.
He then counters his critics by saying it’s the traditional agent, not the hybrid flat fee agent, who lacks a real incentive.
“The reality is if you're an estate agent in a branch working for ... a corporate estate agency ... and you are currently incentivised by way of a commission, for every £10,000 you get more for a customer, you're lucky to be able to buy yourself one pint of beer for that incentive” he claims.
Bruce then adds: “So, the idea that they're getting thousands of pounds extra and they don't have an incentive to get the best price, all decent agents, their whole incentive is to sell a property for a customer and help get the very best price.”
Referring to recent data from the consultancy TwentyCi showing that online agents now accounted for some seven per cent of market share, Bruce went on to say: “We aren’t the most positively reviewed estate agent anywhere in the UK and we don't have the level of growth and success that we've got by not selling houses. We've got it through being very good and very successful at what we do.”