Purplebricks: Cosmic Boom to Market Gloom
Estimated reading time 10 minutes
The arrival of online and hybrid estate agents in the UK market represented a ‘Big Bang’ moment by disrupting traditional practices with technology driven solutions. They represented a significant evolution in the real estate sector, blending the traditional high-street agent model with modern online approaches. This market has undergone various phases, from its emergence and growth to the current readjustment and consolidation phase.
The hybrid estate agent model in the UK began to gain traction in the early 2010s. This emergence was primarily driven by advancements in technology and changing consumer behaviours, where convenience, speed, and cost-effectiveness became increasingly important. At its peak the hybrid estate agents captured 8.2% market share of the UK’s residential property market but this has since been trending lower, 6.9% at the end of 2022 and according to the latest market data that share has declined to 5.5% at the end of 2023. The decline is across all property values and across all regions of the UK.
The largest agents in the market are Yopa, Purplebricks and eXp representing over 70% of all activity, according to TwentyCi.
What are the business models for online estate agents?
The ‘Pay Now’
‘Pay Now’ hybrid agents operate on a fixed fee model. Unlike traditional estate agents who charge a percentage of the property sale price, ‘Pay Now’ agents charge a fixed upfront fee. They provide customers with an online platform for managing their listing, but also assign local agents to each seller to offer personalised service. This approach aims to combine the cost-effectiveness and convenience of online services with the expertise and local market knowledge of a traditional agent. THE FEE IS PAYABLE REGARDLESS OF WHETHER THE PROPERTY SELLS OR NOT.
The ‘Pay Later’
This option aligns more closely with traditional estate agent models except the agent doesn’t have a physical office they work in a virtual office which like all the online agencies reduce overhead costs. The seller pays a fee only upon the successful sale of the property. This fee can be a percentage of the sale price or part of bundle fixed fee. The benefit here is that the seller doesn’t have to pay any upfront costs, and the payment is contingent on the successful outcome of the sale. However, this model will involve HIGHER FEES THAN THE ‘PAY NOW’ OPTION.
The ‘Don’t Pay at All’
‘With this approach the hybrid agent offer a basic package at no cost to the seller. This is the model Strike adopted and since it took over Purplebricks it is the model Purplebricks employs now. The sell your home for free package typically includes services like a property valuation, non-professional photos and floorplan, advertising on major property portals, a ‘For Sale’ sign, professional offer negotiation, and dedicated support through to completion. The revenue model relies on optional extras for example professional photos, higher listings, viewing services etc and referrals to partner services like mortgage providers, solicitors, and removal companies. ZERO FEE FOR BASIC SELLING SERVICE, UPGRADED EXTRAS COME AT A PRICE
The top 3 online estate agents
They combine the elements of a traditional estate agent with an online platform. This hybrid model allows customers to manage their property sale largely online while also providing the support of local real estate agents. Unlike traditional estate agents that charge a percentage of the sale price, YOPA charges a fixed fee. This fee is transparent and is known for being lower than traditional high street agent fees. YOPA offers a range of optional services, such as professional photography, detailed floor plans, and premium listings on property portals. These services come at an additional cost. Yopa require a 16-week sole agency which means you cannot advertise your property with any other agent until after this period.
Yopa presents a cost-effective alternative to the traditional estate agent which appeals to sellers who are comfortable with using digital platforms and looking to save on estate agent fees.
Downside the agent is not incentivised to sell the property, the fees are generally upfront and you pay whether you sell your property or not. On closer inspection of their website Yopa now appear to offer 3 service options 1) no sale, no fee 2) Pay Now 3) Pay Later (this one relies on sellers using their conveyance referral).
Like with Strike, Purplebricks business model they are also earning fees from referrals to lawyers, solicitors, surveyors, auction houses, removal companies, utilities, lettings and financial services.
eXp operations are conducted virtually, agents working with eXp are essentially independent estate agents, they are self-employed and operate under the eXp brand. They are given flexibility and autonomy in their work, along with access to the company’s extensive data base and online resources. One of the key attractions for agents working with eXp is the revenue sharing model. Agents earn commissions on sales in the same way the traditional agent earns commissions and the agent can also earn additional income by recruiting new agents.
The success of eXp’s model relies heavily on attracting and retaining productive agents as they work on a commission split, with a cap on the amount an agent contributes to the company from their commissions each year. There is also potential for income through revenue sharing and opportunities for equity ownership.
Strikes purchase of Purplebricks marked a significant shift in the industry as the market leader in online estate agency aligned more closely with Strike ‘sell your home for free’ model. Sellers can start the process at no cost and have the option to pay for add-on services in much the same way as Yopa. If you want professional photos, floor plans, premium listings, hosted viewings, EPC and listings on Rightmove Purplebricks will charge you additional fees for each of the options chosen which must be paid at the time of the service (these fees are non-refundable ie Pay Now model). Additional fees incur an anti-money laundering check that you will be required to pay for. The sole Agency with Purplebricks is shorter than Yopa at 13 weeks.
To generate revenue Purplebricks relies on ancillary services and referrals. This includes recommending services such as mortgage advice, solicitors, insurance, and other home-related services to their clients. They receive commissions or fees from the providers of these services for every successful referral.
Is the future Purple?
Online and hybrid estate agents are facing consolidation and significant challenges Strike’s purchase of Purplebricks for £1 highlighting how major players are beginning to dominate the market. Coupled with the demise of Emoov, Doorsteps, Tepilo, Hatched, etc.
At a time when homeowners have been struggling with inflation, rising living costs, increased mortgage repayments and a slowing property market that sellers would have rushed toward the most cost-effective Pay Now, Don’t Pay at All online estate agents. But given the declining proportion of the residential property market that the hybrid estate agent is capturing this would appear not to be the case.
Cost of customer acquisition and marketing
The high costs of customer acquisition and marketing, which often outweigh the fees charged to the homeowners selling their house challenges the profitability of the business. The latest media campaign by Purplebricks to establish brand recognition and trust via television adverts, billboards, online advertising, social media are necessary expenses. They are needed to attract and retain customers as there is no physical shop front to gain with which to gain that visibility from.
Technology development and maintenance
Then, there is the continuous investment that is required in technology to provide user-friendly platforms, efficient property listing services, and effective customer relationship management tools. The technological upgrades are continuous requirements and a significant operational cost factor.
Cost vs expertise
Homeowners of higher value properties are signalling that they more interested in employing an agent with local knowledge and expertise in order to secure the highest possible price for their property as opposed to choosing either of the lower cost options where the fixed fee or no fee reduces the estate agent’s incentive to sell the property for the highest price. Purplebricks average sale price in 2022 was £240,000 which misses a massive segment of the property sellers selling property above this number.
What is the longevity of this low fee based model?
There are question marks as to how long Strike/Purplebricks will/can continue to operate with losses in the tens of millions. At this stage the answer is for as long as the shareholders and private investors are willing to pump millions of pounds into them.
Could the traditional Estate Agent act as the next disrupter? Offering an additional upfront fee service alongside their traditional service.
The various business models — ‘Pay Now’, ‘Pay Later’, and ‘Don’t Pay at All’ — each have their advantages and drawbacks. Yet, with the decline in market share and the financial struggles of major players like Purplebricks, it’s evident that the low-fee or no-fee models face significant hurdles in achieving long-term profitability.
The future of online estate agency appears uncertain. While there’s potential for further evolution and adaptation, these agents must find a way to sustainably manage costs while delivering value and expertise to homeowners. This might involve a shift towards higher add-on costs, an increase in upfront fees, or even a hybrid model that merges the best of both traditional and online methods.
The supernova of the online cash house buyer
It is impossible to discuss online estate agents without mentioning the emergence of the online cash house buying companies which offer a faster more streamlined way to sell properties. A cash house buyer can be a great alternative to an estate agent, they buy any house in any condition, whether that is a problem property with squatters, a home with subsidence or one where the owners are facing legal and financial concerns.
A cash house buying company provides a service to sellers who are looking for quick house sales, looking to sell a flat fast, have a garage or land that they want to dispose of; they can also have the ability to buy a property portfolio in one go.
They provide the one stop solution to homeowners, landlords or investment managers, anyone that wants to avoid the traditional hassles, delays, costs and pitfalls of selling through an estate agent. When you sell to a genuine cash house buyer there are no property chains, no lenders to await approval from, no surveyors and the property owners’ legal fees and costs are zero as the cash house buying company pays for them.