Paul Smith column: ‘Wheels are starting to come off online agents’ bandwagon’

So the internet-only model isn’t all it’s cracked up to be!

Who knew? Certainly not all the investors who’ve ploughed millions into the founders’ pockets and are still waiting for a return on their investment.

Or the customers who’ve been duped into believing they’re getting a good deal when their properties remain unsold but they’ve coughed up hundreds of pounds. Or the isolated staff who are trying to earn a crust facing long hours and heavy workloads.

The wheels are most certainly starting to come off the online estate agents’ bandwagon. With rumours of two leading internet agents contemplating a merger, there’s a strong feeling that no-one can make a go of it and actually make a good profit when fees have sunk so low, yet marketing costs in many cases run into the millions.

We’ve done our own analysis of all the online agents in the towns where we have branches. It transpires that only 6.26% of all properties for sale are with internet-only agents.

The top five online agents between them account for 90% of the online market in those areas. The remaining 15 online agents had just a handful of properties for sale in each case. How they are surviving is anyone’s guess.

Which led me to look at some of these agents’ accounts at Companies House. These publicly-available records show Purplebricks, Housesimple and eMoov all reporting a loss in their last accounts, while Tepilo’s profits have taken a major nosedive. Hope value is turning into no-hope value!

How will Purplebricks fare in the US when Foxtons failed when they went to New York with a discount model a decade ago and instead drained their coffers of cash? Will LSL’s £20m investment in Savill’s-backed YOPA – which also received millions in investment from the Daily Mail earlier this year – generate the rewards that are being sought?

I fear it will take more than the Chancellor’s Stamp Duty cut to transform the fortunes of these businesses. High marketing costs will always outweigh the income that’s generated, making the future uncertain for a business model that hasn’t yet proved its worth.

Every agent is going to have to change but I don’t think anyone has the right model yet. The new currency is speed, with an instant service that will give the best customer experience.

However, if you don’t like change, you’ll certainly hate extinction!

Countrywide on the ropes

There can’t be any greater example right now of a poorly executed online strategy than that of Countrywide. They’ve finally admitted that their online model – competing with their own high street brands – has had a catastrophic impact on their business. So much so that they’ve now pulled the plug.

They say it’s temporary, but unless they’ve got a few magic tricks up their sleeve, they’re going to struggle to conjure up a new action plan that’s going to turn the tide on their failing business model.

Now Berenberg Bank has warned that the business is almost ‘uninvestable’, reiterating my own comments about the warning flags that have been flying over Countrywide for some months now.

Can they reverse the tide of their misfortunes with the current leadership at the helm? Surely change is coming – and it wouldn’t be a day too soon.

Why reviews are so important

How many of us look on review sites when making hotel reservations or buying goods and services online these days? I would hazard a guess that most people do nowadays.

Which reinforces the importance of gathering excellent reviews and testimonials from all of your customers, to help others make an informed choice about the quality of service you offer.

We’ve pulled together data from a number of different sources that say nine out of ten consumers read reviews online. Just over two-thirds say that positive reviews make them trust a local business more – and nearly everyone says they would hesitate to use a business with negative reviews.

Interestingly, almost half feel that a review must be written within one month to be relevant and they will read up to ten reviews, rarely more, in order to form their views.

Where word of mouth used to be so important, we are now so reliant on electronic word of mouth.

The agent that ignores their reviews, good or bad, is missing a trick. Our very future lies in the hands of our customers, who won’t fail to pass on their stories of incompetence or mistrust if things don’t go according to plan.

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40 Comments

  1. Deequealy

    Good points Paul,

    I am sceptical as to how some of these companies may be able to pull off the experiment. By that I mean how long will it be before investors realise that the have been funding loss making businesses and allowing the executives of those companies to reap rearwards without ever delivering profits.

    There is a DCLG consultation going on at the moment, Improving the Home buying and selling process, you may wish to read it and in particular Page 8. I have participated in the consultation and was struck by apparent dislike of estate agents accepting referral fees from conveyancers and mortgage brokers. I understand that Purplebricks picks up £350 per matter referred to conveyancers, a client referral could result in more than one matter if the client is buying and selling.

    If the government has a mind to ban such referrals it could significantly hit Purplebricks income.

    You are right about Countrywide. Alison Platt has wrecked that business, she has driven out the incumbents who knew how to operate a profitable property business and now her imported executives are leaving in droves. Income is plummeting, her experiment with a hybrid offering has stalled, suggesting a miserable failure. There is only one way these shares will go in the next year or so before someone buys the group and breaks it up.

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    1. Garret2

      It’s interesting to take note of who is stoking the fire of indignation around the issue of estate agents accepting referral fess…

      Look closely and you’ll see it’s organisations that themselves make significant income from conveyancing & mortgage referrals.

      Just saying!

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      1. NewsBoy

        Referral fees should go the way of tenant fees. Unless they do there can be no transparency in this business. Come on Government – get something right for once and ban referral fees altogether.

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    2. David Cantell

       
      Banning something that is not disclosed in the first place is no easy task.
       
       
      We make recommendations which is exactly that no kickbacks, just an introduction to highly competent individual or company. I will not put my business in another’s pocket nor will I try to fill my own pockets by doing so.

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  2. The Blame Game

     

    There’s nothing more I can contribute to this as Paul Smith’s article adequately sums matters up. Especially with these two lines:

     

    Every agent is going to have to change but I don’t think anyone has the right model yet.

     

    However, if you don’t like change, you’ll certainly hate extinction!

     

     

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    1. P-Daddy

      Likewise Blame Game, I find myself agreeing with Paul Smith on this and the other points he makes. I almost felt like saying TOWIE!!

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  3. David Cantell

     
    Banning something that is not disclosed in the first place is no easy task.
     
    We make recommendations which is exactly that no kickbacks, just an introduction to highly competent individual or company. I will not put my business in another’s pocket, nor will I try to fill my own pockets by doing so.

     

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  4. NewsBoy

    A very informative and interesting article as always. The one point that could be missing is how catastrophic a buyers’ market will be for the call centre agents. I’m taking a wild guess but based on our staff, I think about half today’s negotiators have never experienced anything other than an out and out sellers market. This market change leading up to a difficult Brexit will be an eye opener for them and, quite possibly, an eye closer for the call centres.

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  5. GeorgeHammond78

    Mr Smith – people who live in glass houses………

    You should go incognito and take a look at your own lettings operation. Beyond poor. Doubtless by playing the pile it high game, it’s very profitable but do you serve the best interests of your Landlord clients? Not from what I’ve seen, whenever I’ve taken over a disgruntled client of yours the wealth of complaints are legion (and from what we’ve seen of the underlying references, documentation, legal prerequisites etc., they appear to be well founded).

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    1. Votta583

      Georgehammond78

      its very easy to say “when I’ve taken over your disgruntled clients” because you will never please every client and each one has their own expectation, many of which cannot be managed due to a poor mindset. I have taken over many clients over the years where an agent hasn’t really done wrong other than fail to manage an unrealistic expectation.

      i have can personally say that the Lettings operation is exceptional and I’m a huge critic on how things should be done correctly

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  6. Property Paddy

    I don’t agree with Mr Smith,

    There is a viable model out there that all independent estate agents can employ.

    You have your standard percentage model, costs more but you only get paid on results or you have the low cost upfront NON REFUNDABLE model with limited service i.e. vendor does the viewings and progresses the sale.

    In the same way when you rent a property through an agent they either offer full managed service (costs more) or introduction only.

    To sell it to the vendor is really quite simple, if you ask the vendor if they would rather manage the sales process themselves and save a lot of money then why not try it out? If the vendor really wants the full service then pay the full fee.

    After all time is money, the more time you spend on a property the more the fees.

    It does work but you do have to qualify the vendor correctly otherwise you’ll get negative feedback just like the on line agents do (they do, don’t they?)

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  7. AgentVX17

    Trust me…By 2020….Online vs High street will be 50-50 % market share.

     

     

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    1. Property Pundit

      HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

      Funniest post this year. Not even Dick & Dom would stretch it that far!

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    2. Beano200062

      Trust who? Oh you…… Im sure someone will be revisiting your meaningless post in a few years to show you how utterly out of touch you were/are.

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    3. proagent54

      Is someone looking to just create a little reaction here?

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    4. cyberduck46

      One thing I hadn’t realised though was the precarious position some Estate Agents are in.

       

      I was looking at a partucluar Agents’ accounts at Companies House and end of year cash at bank and in hand, going back years is sometimes less than £20 and one year there wasn’t even an entry. In that time shareholders funds had gone from a positive amount to (I think from memory) around £280K in the negative with £200K at one point being taken from the “pay back within a year” account to the long term debts account.

       

      The Agent in question is often telling us how good an agent he is. So perhaps the better an agent you are the less money you make? When I looked at market share of another Agent in the same location it was noticeable that they had increased market share whilst this particular agent was listing about 7 properties compared to 40 or so in May the year before.

       

      I’m not making any predictions but if there are a lot of traditional agents on the brink then a downturn might be enough to finish them off and this will perhaps give a boost to the online agents and traditional agents with a viable business plan.

       

      I’m not sure Paul Smith substantiates his claim that “Wheels are starting to come off online agents’ bandwagon”

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      1. Property Pundit

        ‘I’m not sure Paul Smith substantiates his claim that “Wheels are starting to come off online agents’ bandwagon”

        I do.

         

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      2. Chris Wood

        And yet, despite the personal loss and challenges that agent has faced in his life, military service and health (physical and mental) over the past 15 years, the same agent showed a larger genuine profit last financial year than a certain PLC did and did so without the backing of millions of pounds worth of investors money to spend on advertising. He also posted his accounts on time.
        There are plenty of agents who have and, no doubt will go to the wall in the coming year or so of all business models. There will be many reasons for those failures but, the only ones I look forward to are the failures of businesses who trade outside of the law, mislead consumers and try to gain an unfair advantage over law-abiding agents.

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        1. PeeBee

          “He also posted his accounts on time.”
          No doubt the stress of moving (or not) will be blamed for such a basic business error…

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    5. PeeBee

      2020, you say?

      At least you’ve picked a year with an extra day in it to give your prediction something of a fleeting chance.  If I were you I’d have gone for 2030 – and that would have given you some hope… but it would depend upon 25% growth year-on-year which hasn’t happened; ain’t happening – and ain’t gonna happen soon.

      Even if you think big – and combine that hope with some c0ckamamie belief that the whole population of the county that has Norwich as its’ ‘capital’ would simultaneously list their properties for sale with online listers…

      …you’re still working on Norfolk’n hope.

      SO, pray tell, AgentVX17 – do you want right until 31 December 2020 before you are force-fed your words by the giggling masses – or do you predict a quicker miracle and therefore look forward to getting it over with a bit sooner?

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      1. AgentVX17

        As a High Street agent, I would never like 50-50 figure but as an Online Agent,  this number looks great!

        Last year it was 95-5% but this year???  Do some research.  🙂 50-50…Ohooo YES 🙂

         

         

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        1. PeeBee

          You REALLY want to give that stuff up – it’s fried yer brain, kiddo!

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    6. Property Paddy

      2020 ? 50/50?

      lot of meaningless numbers !

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    7. Chris Wood

      I used to teach Nuclear, Chemical and Biological Warfare and I seem to remember a rather nasty nerve agent called VX that affected the nervous system and brain function. Have you ingested some by any chance?

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  8. Malcolm Barnard

    Russell Quirk hasn’t graced us with his presence on here today but he couldn’t resist a dig at Paul Smith on Twitter! Worth a look at his page: @emoovceo

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    1. Property Pundit

      Trustpilot – Need I say more?

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        1. Property Pundit

          What? A broken link? I’ll save everybody the trouble, they have SIX reviews on TP and some are not flattering, is this what we are supposed to enjoy?

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    2. PeeBee

      Someone care to enlighten me – The Quirkster spat his dummy out a while ago and blocked me on Tw@tter!

      Diddums.

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  9. dompritch134

    Malcolm Bernard you spend half of your time having DIGS at PB so perhaps you should be looking in the mirror buddy.

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    1. Property Pundit

      What does that even mean?

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      1. dompritch134

        Can you not read my anonymous troll?
         

        ‘Russell Quirk hasn’t graced us with his presence on here today but he couldn’t resist a dig at Paul Smith on Twitter! 

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        1. PeeBee

          “Can you not read my anonymous troll?”

          It doesn’t sound like it’ll ever get on the Best Sellers list – and let’s face fact… whilst fiction is definitely your forte, you will never win a Pullitzer based on past or current effort.

          But tell us where we can get a copy and I’m sure we will give it a quick once-over for you, dom-boy.

          My guess is you’re just looking for a freebie spelling and grammar check – is that right?
           

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  10. Estate_Agent_Memes

    We are all online agents – we would now be dead without the internet. PAY ANYWAY will never last. PB will struggle if/when they lose their approx £350  legal referral fees.

    Just sit tight, do what you’ve got to do until all of the ONLINE ONLY/CALL CENTRE AGENTS amalgamate into 1 or 2 “players” who will then have a negligible share of the market.

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  11. PeeBee

    AgentVX17

    Don’t suppose you’d be prepared to divulge how long you were a ‘traditional’ Estate Agent for, would you?

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  12. Hotwells84

    Had a CV through from a online franchisee last week. Suggests grass is not as green. Quick bit of research showed them covering a patch of roughly 20×15 miles. Several posts on social media declaring themselves proud they had just finished a viewing late in the evening or on a Sunday. I expect his wife and 3 kids thought something different. Poor chap must be run off his feet!

    At least he is earning good money? Well he started in July and already wants to leave so probably not. The charge excluding VAT is £700. How much of this does he see? Viewings are an extra charge at £250. Just imagine the joy of fighting through city traffic to an 8pm appointment every night to earn that extra crumb. At least he gets out of kids bath time! So he’s running round like a mad March hare at all hours of the day and night keeping numerous customers happy and driving 20 miles for a viewing. I doubt the earnings over those months pay much more than the fuel used in the car.

    Not sustainable…..

     

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    1. Property Pundit

      Not sustainable…..

      Totally agree. Staff turnover will rocket once they look at their bottom line at the end of the year and consider what it’s taken to get there. ‘Self employment’ is fantastic but not when the standard of living/quality of life drops. Some will flourish of course but the numbers will be insufficient to keep that particular model going in the longterm,

       

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  13. PaulC

    Well, thought I would pile in.

    First, Paul I enjoyed reading your post an agree with most points.

    Certainly, we think this coming year will be a bloodbath and see some real consolidation across the industry both on the high street and online-only nationals/regionals.

    I don’t think referral fees are going anywhere and if they do, they will be gained through marketing agreements and or alternative business structures. So anyone hoping for the big PB’s demise due to regulation you’ll be holding your breath for a long time.

    50/50 by 2020 Sure I agree we are past that today aren’t we. (Progressive / Dinosaurs)

    The high street “showrooms” are really just local offices.  Isn’t it something crazy like 98% of private buyers find their next home online?

    We will sell 750+ homes this year without a showroom but we are local. Are we online? 92% is within 15 minutes of our branch. Wait we have a shop window

    Gosh it’s confusing.

    The ONLY difference is we do not have any homes displayed in our window (We couldn’t fit them all in). Instead, we have a digital client area but it’s not used because customers search online.

    We are all online agents, let’s move on..

    Some of us have local offices that customers can come and see us, some of us do not. That is the top and bottom of it.

    The reality is a boatload of branches will close, the average fees will continue to fall across the industry as desperation kicks in and that means only the lean mean efficient businesses will survive.

    Personally, I am dead excited but believe the only way many of us will survive is joining/merging together and from my experience so far most will leave it too late.

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  14. PaulC

    On the staff turnover at PB, yeah it’s not all rosy in a quiet market but they can afford to backstop their agents and PB know their peoples’ importance.

    Sure the up and down workload won’t be for everyone but our industry tends to churn anyway. I am not sure the onliners will be massively different to the the traditionals. Some I know love it, some find it hard. Meh

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  15. Rivero

    “Which reinforces the importance of gathering excellent reviews and testimonials from all of your customers, to help others make an informed choice about the quality of service you offer.”

    https://uk.trustpilot.com/review/www.haart.co.uk

    Oh Dear

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