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.