Is Purplebricks disrupting its own disruption play?

Graeme Salt Knowledge Centre Leave a Comment

Larry Schlesinger| Australian Financial Review| 26 September 2018

https://www.afr.com/real-estate/residential/is-purplebricks-disrupting-its-own-disruption-play-20180925-h15ua3

The decision by Purplebricks to lift its fixed fees to $8800 has reignited debate about the best selling option for vendors amid the weakening housing market.

It has also fired up its competitors with the country’s biggest real estate agency Ray White likening the Purplebricks offering to an expensive lead generator that makes its money by paying its agents “very little”.

“Our model of charging [a commission] on a successful sale has not changed. We believe in the success-based model and have concerns about any other fee structure,” Ray White director Dan White told The Australian Financial Review.

DIY platform forsalebyowner.com.au, which charges less than $1000 to assist vendors, said it was selling more than 100 properties a month on its platform including multimillion-dollar homes.

“The amount of money that vendors pay Purplebricks as a fixed-fee is still quite high, and whatever initial appeal that holds is largely lost as soon as consumers realise that that fee is payable even if the property does not sell,” said founder Colin Sacks, who runs the business with his wife Amanda.

“We think that our model is being embraced by the mainstream far more readily than Purplebricks or other alternatives to the traditional real estate agency.”

All-inclusive

Another low-cost operator, Brisbane’s Lowest Commission agency, which charges a flat all-inclusive commission of less than $4000 after a successful sale, is also growing and looking at expanding interstate, according to its founder Michael Turnbull.

“Money is tight for everyone and people are looking for alternatives that offer value,” Mr Turnbull told The Australian Financial Review.

Amanda Sacks from forsalebyowner, at a recent sale she helped negotiate in Balaclava.
Amanda Sacks from forsalebyowner, at a recent sale she helped negotiate in Balaclava.

The new $8800 Purplebricks fee, which kicks in on Monday – split between an upfront fee and fee payable on settlement – is almost double the $4500 Purplebricks charged when it launched in Australia two years ago and the third fee change in less than a year.

It comes at a time when the British disrupter’s reputation has been damaged by revelations, reported by The Australian Financial Review, that it ran a vendor-discounting competition among its NSW agents. Analysts in London said the new fee structure signalled to investors the Purplebricks model may not be working in Australia.

When it launched in September 2016, Purplebricks claimed an average saving of $11,500 based on a fee of $4500. An $8800 fee has cut that average saving to around $7000. But with house prices falling and agent commission falling as well, the actual saving would be even lower.

Ray White’s average commission is 1.9 per cent, which on a median priced $700,000 home is $13,300. However, on a home priced between $350,000 and $400,000 (over a third of Purplebricks listed on its website are in this price bracket) Ray White said its commission would be $8500, lower than the Purplebricks fee.

However, this excludes between $2000 and $3200 in marketing costs, which is included in the Purplebricks $8800 fee. Purplebricks claims to have saved vendors more than $12,000 on average based on more than 4000 sales to date.

A Purplebricks spokesman told The Australian Financial Review its new offer was still the most cost-effective way to sell a home.

“Our flat fee includes a best in class marketing package and sellers aren’t slugged with hidden costs along the way. We give a complete service, no less than the best real estate agents,” he said.

“While traditional agencies will have you think they have a standard commission rate, in reality every agent operates on their own terms and fees change depending on the value of your home and the area you live.”

But Dan White claimed the fixed-fee model used by Purplebricks and other similar models “tempted poor behaviour” by rewarding agents with an upfront fee for each listing. This, he said, was often secured by agents promising vendors an unrealistically high selling price.

Lead-generation

He added that while Ray White agents kept 51 per cent of any commission they earned, under the Purplebricks model agents kept only about 20 per cent of the fixed fee.

“For me Purplebricks’ so-called disruption is just about paying the agent less. Low-cost operators have been around for a long time, but Purplebricks is the first one to spend a lot to get leads and then make a margin by paying very little to the agent,” he said.

“And they don’t have any better technology to justify paying the agent less.

“Compare them to lead-generation companies like OpenAgent, which sells leads for 20 per cent of the agent’s fee. Purplebricks is similar in a way but they sell leads for 80 per cent of the fee.”

Ribbon Property’s Edwin Almeida said 1 per cent commission agents (and those offering commissions even lower) were becoming more appealing because their fees were reasonable.

“The low fee offerings charged by independent agents will become the norm, particularly as vendors’ equity dwindles away as the market falls,” he said.

Colin Keating, CEO of ASX-listed online selling platform buyMyplace, said the results of a recent survey of 2600 of its customers found that 86.5 per cent got the price they expected.

“Globally, DIY property sales has grown rapidly around the world, but Australia has traditionally lagged. This presents us with massive opportunity to grow DIY property sales.” he said.

 

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