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TODAY'S OTHER NEWS

“Gaping holes” in Purplebricks business model, says ex-online investor

An expert who has invested in an online agency in the past has slammed Purplebricks’ business model.

James Max, who presents the weekday Business Breakfast programme on TalkRADIO, is also a chartered surveyor and an investor in the property industry; he has been a past member of the board of a company owning a traditional agency, as well as being an investor back in 2006 in a ‘disruptor’ online service with a Purplebricks-style fixed fee offer.

Writing in The Spectator, Max says the recent “sell” notes on Purplebricks issued by some banks to their investors are based on worries that are wider than the hybrid agency’s over-expansion in the United States and Australia.

“The model has gaping holes and the marketing budget is way too flamboyant. The departure of the firm’s founder and the drop in share price is just another indication that all is not well” writes Max, referring to last week’s shock announcement that Purplebricks’ founder Michael Bruce was leaving - or being forced out of - the firm. 

Max says traditional agencies can be expensive and it is understandable that some vendors seek to minimise their fees by using online agents - but he then dismisses all of the perceived ‘advantages’ which some attribute to online companies.

Firstly he says there is a difference between price and value.

“You can only get the right price for a property if you know your market and can create competitive tension. That, ultimately, is what a good estate agent will do. And a good estate agent has a reputation, track record and bundles of primary data of deals they have done to push the market. And with a percentage fee is motivated to sell at the best price possible” he writes.

Secondly he refers to ‘the hidden agenda’ - what he describes as estate agents as being ‘the oldest form of search engine’ picking up information from potential buyers to benefit their paymasters, AKA the sellers.

“A keen agent will spot who’s hot to trot, will forever be qualifying the data, gauging your response, working out your ability to pay, your financial position and therefore whether you’re a prospect, or simply a time waster” Max suggests.

Thirdly, he urges vendors tempted to use online agencies to engage in a true comparison of fees.

“Why would you fork out more than you have to? For most estate agents it’s no sale, no fee. Online agents have a fee regardless of success. They aren’t as motivated to sell. Then there’s the issue of getting the best price. If an agent isn’t motivated why would they push?” he asks.

And then, in a pivotal paragraph, he writes: “The simple answer is that online vendors are unlikely to achieve as good a result as a top estate agent. In a fast moving market where everyone knows all of the deals going on there’s an argument for saving a few pounds. When markets get tricky? That’s when an agent earns their fees.”

Finally, Max draws a difference between the forthrightness of a good traditional agent and the far more distant relationship with an onliner.

“A good estate agent will tell you things you may not want to hear. That some of your internal decor is tacky. That your home looks like a total mess and needs to be cleared up or that your taste in wall art is putting off buyers. Or that a market has fallen away. That personal touch is what you need. A good estate agent has real life data on who’s offering, who’s in the market and what kind of deal is going gangbusters.”

You can read the full Spectator piece here.

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    Really this is comparing what good Estate Agents do with PurpleBricks.

    The only trouble is bad Estate Agents overvalue and win the instruction. Therefore no competitive tension.

    This argument that a traditional Estate Agent gets a percentage fee so is motivated to get the best price is disingenuous. They have to sell or won't get any commission so will be encouraging you to take offers. They're not going to risk their commission to get you an extra £1000.

    If online Agents don't sell then they don't get business from "sold" boards - so this lack of motivation argument is just nonsense.

    The idea that Agents have all this data to hand. The ones I've had valuations from come along with the printouts that are available on Rightmove. Same as the online Agents.

    So really just an argument about a hypothetical good agent. Good agents won't win the instructions in the first place if they're pricing to get competitive tension so will go out of business.


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    Great article which sums this argument up nicely...

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    Crazy article as if even if you manage to squeeze 2% from a customer as if an agent thinking I will get more if I push this buyer up helping out the owner out is really bothered by the £40 plus vat for the company how much would that mean to him £4 on 10% of the fee. Come on get real.

    The high street still really does have a role to play and if the articles on here from Pauline Quirk are to be believed and Online will only hit 10% of the market why are the High Street bothered by PB, Yopa and Doorsteps concentrate on what you do well. not how rich the Bruce brothers are

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    Bitter much?

     
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    Listing agencies come and go with the markets. To my mind on line agents and PB was the first to make a go of it , are primarily devises to get an individuals property onto the main search engines without a traditional agent. If an individual could list his property directly on Rightmove for a fee of less than listing on PB or others, then the on line agencies would disappear over night.
    Yes in a strong market you can sell your identical semi on a good estate without an agent if you present and price your house correctly, but you still have to deal with the pre and post sale activities your self and risk loosing the deal. Apart from the benefits of using a professional agent with a good track record, going solo puts you directly in touch with your purchaser and the personal perils this will bring, which is the précis reason why you use an agent in the first place. Last comment : an agents fee looks like good value compared to the Governments fee, STAMP DUTY.

  • Paul Barrett

    Going solo would be perfectly achievable for many.
    But you are correct agent expertise is a valid thing.
    There is as you suggest far more to selling a property than just listing it.
    Of course many will feel perfectly comfortable in administering all aspects of their property sale.
    But if I can draw an analogy.
    I evicted 5 wrongun tenants myself.
    It was a PITA.
    If there is a next time I will use an operation like Landlord Action.
    I simply couldn't face doing all the paperwork etc.
    I think therefore that there is still plenty of business for EA for those vendors that simply can't be arsed to do it themselves in entirety.


  • Paul Singleton

    Online agents DO NOT have a database of buyers to call and encourage them to view, online agents DO NOT have a dedicated sales progression team that follows through to completion, online agents DO NOT negotiate on your ongoing purchase to save you money, online agents DO NOT go back to properties to get better photographs if the weather is better, online agents DO CHARGE you if you withdraw your property. The propositions are ridiculously different and yet the Purple Clowns state they are a ‘full service agent’. You what? Are you having a laugh?
    Go with PROPER agents every time and save yourself from CONmisery!

  • Paul Barrett

    Yep you make a convincing case for the normal full service EA.

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    Maybe the online market just does cater for the big boys such as Emoov and House Network and a smaller enterprise with less overheads is the better business model.
    Stuart Forsdike
    PCS Legal

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