Traditional agents could learn from Purplebricks business model, says leading industry figure

Someone who sells through Purplebricks – which yesterday announced that fund manager Neil Woodford has upped his stake from 27% of 28.31% – may end up saving very little on what they would have been charged by a high street agent.

Peter Knight, founder of the Property Academy, puts the saving at potentially just £247.

However, he also argues that Purplebricks, with far lower operating costs and a hefty conveyancing pay-out, will have turned more of a profit on the deal.

He suggests that high street agents could learn something from the business model.

Knight’s analysis is interesting given that Purplebricks has yet to make a profit.

In the UK, it says it made £300,000 in the six months to the end of October last year, but launches in Australia and the US have been costly.

Purplebricks is due to announce its next results on December 13 and has already said that its performance will be in line with expectations – suggesting a sharp rise in earnings in at least the UK.

Knight’s new analysis does not enter the argument that Purplebricks has no incentive to obtain a higher price for its sellers.

His figures make some assumptions, notably that the average traditional agent’s fee is 1%, which is what the Academy’s latest Home Moving Trends Survey found.

In the absence of sales figures from Purplebricks – although Knight points out that he can’t find any traditional agents who publish both their listing and completes sales numbers – he assumes that 50% of all properties listed do not sell/complete within 12 months.

He also assumes the seller will have paid the Purplebricks fixed fee of £849 – £1,199 in London; plus 40% will have paid £300 for a viewings package; plus half of those who do go on to sell pay a £350 admin fee if they have not gone with its conveyancing partner, which Knight thinks pays Purplebricks £350 per case.

Based on the Land Registry’s average house price of £225,956, a high street agent would charge the vendor £2,710.

Regardless of house price and based on this formula:

£849 + (£300 x40%) = £969 x2 = £1,938 + (£350/2) = £2,113

£1,199 + (£300 x40%) = £1,319 x2 = £2,638 + (£350/2) = £2,813

Purplebricks would be charging an out-of-London seller an average total of  £2,113 and a London vendor an average total of £2,813.

Knight says that on this basis, Purplebricks charges an average of £2,463 per completion – just £247 less than the average traditional agent.

Furthermore, the average traditional agent may not be receiving a conveyancing commission at all, let alone one worth £350 per case.

In addition, the typical estate agent office costs around £25,000 in rent and rates, equating to £250 per completion for an office with 100 completions a year.

Knight goes on: “One of the biggest criticisms of the Purplebricks model is that those who don’t sell subsidise the costs of those who do.

“However, couldn’t the reverse be said of the traditional model? And aren’t the higher priced properties also subsidising the cheaper ones?

“I’ve yet to meet an agent who can demonstrate that the costs associated with selling a £400,000 property are double those of selling a £200,000 one.

“Indeed, aren’t they identical other than, with some agents, internal commission payments? So dare I say that as much as the Purplebricks charging model can be criticised, so too can the traditional model.”

Knight argues that there are advantages to Purplebricks’ fixed fee model that traditionalists might learn from.

These include the fact that people negotiate an agent’s percentage fee, but less so on a fixed fee.

“Indeed, I believe no one has ever done a deal on a Purplebricks fee,” says Knight.

Knight’s fuller and thought-provoking piece can be found here:

four-i Newsletter Issue 200

x

Email the story to a friend

42 Comments

  1. ArthurHouse02

    Peter Knight seems to miss the point. Its not all about money…..with a traditional estate agent you get a better service. It is surprising he missed this point bearing in mind his large scale best estate agents guide thingy!

    Report
    1. Bless You

      Exclusive..  purplebricks invented by rightmove, so they can keep charging every agent in uk £1000 to advertise their own property. Lol. Pb are already walking dead. 3% market share in every town is not enough to defend their ridiculous 850 million valuation.

      Report
    2. P-Daddy

      He has missed the declaration in the half year figures, where they stated the average charge per client was around £1,100. If this figure is REAL i.e. £247 saving per client …that would be dynamite!! It will only be the case in the lower value areas of the country, it will be significantly higher in London and south east as well as major cities around the country. On the question of company valuation, its due to the hype of overseas and of course the fact that 2 big institutions are loading up; time will tell and the day of reality will will dawn if there are no real profits produced…other than by EBITDA .This is the key point about the PB offering; from their report to the Stock Market earlier in the year. :-

      Unlike traditional agents, where customers only pay upon the sale of the property, which effectively means that those that do sell pay more in order to cover the costs of those that do not sell, Purplebricks believes it is more equitable that everyone should pay, charging a flat fee at instruction. This helps to avoid the industry issue of timewasters and those that are merely ‘testing the water’ and underpins the low, flat fee model.

      Report
      1. Thomas Flowers

        “Indeed, I believe no one has ever done a deal on a Purplebricks fee,” says Knight.

        Actually, Peter – Pie saw one invoice, presumably for a month, from an LPE in an article on 12th July 2017 where this LPE had 4 £200 refunds because of complaints.

        Makes you wonder how many of these had written a bad review which may have been removed and not reinstated?

        Indeed, it makes you wonder how many refunds have been repaid in total as their average transaction fee ought to be considerably higher than £1,100 with all the add-ons?

         
         

        Report
  2. JustPlainSavage04

    We know already they could learn something but unfortunately, they spend most of their time posting on here!

    Report
    1. ArthurHouse02

      Got to do something whilst i am getting ready to sit in my £25000 a year office

      Report
    2. dompritch134

      Or getting angry on twitter with a reviewer accidentally posting in the Australian TP link instead of the U.K.
      it really gets a little sad.

      Report
      1. ArthurHouse02

        I dont get angry Mr Pritch, i leave that for others. But on that subject i have no idea why so many UK people are reviewing OZ PB, guess PB are sending out the wrong emails again 🙂

        Report
        1. dompritch134

          Although the twitter trolls including the leader <cough watch out for claiming expenses> will continue on mass.

          Report
          1. Bless You

            Dom, purplepricks happiest customer spending a strange amount of time impartially defending them again.  Who are u? Where r u, ? I bet chris could track u down with his army background.

            Report
            1. Property Pundit

              30 seconds on the Companies House website should do.

              Report
  3. dompritch134

    This assumption of high street agents striving to achieve a higher figure is complete fallacy.

    The average joe sales neg on a 10% commission would on average get £13 for an extra £10k achieved.

    extra £10000 on sales price at 1.3% – £130

    neg @ 10% commission  – £13

     

    So the incentive of an extra £13 gross, or get the deal done and sales targets nearer to being hit, I wonder which is more appealing?

    Also the recent evidence pointed to the fact PB achieve a HIGHER price than the national average formestae agents

     

    Report
    1. undercover agent

      Agents take pride in achieving the best outcome for clients and the systems they use helps them achieve this.

      I regularly see agents achieving £10k more for clients. I would say a good agent typically adds 5% on the sale price for the vendor, hence the higher fee for bigger houses.

      Report
      1. dompritch134

        See that is just your assumptions and opinion.
        here is some real evidence that this article is wrong.
        https://www.moneywise.co.uk/news/2017-06-01/online-agents-outperform-average-–-not-top-–-high-street-rivals
         
        The consumer group analysed data from 10 leading online agents – including PurpleBricks, eMoov and YOPA – and found that online agents achieve 95.85% of the original asking price versus a national average of 95.69% from high street agents.

        Report
        1. undercover agent

          I might argue that good agents give their clients higher starting prices (a classic negotiation technique) and so also finish higher. Where appropriate. 
          Agents who start low to get a quick sale could be doing clients a disservice, but your stats would show 100% of asking price and sold within a day. Hence I respectfully  question the value of your stats on this matter. 

          Report
          1. dompritch134

            Or that your so called good agents are over Valuing stock, (higher starting prices), to secure an instruction on a 16 week contract and look to price reduce as soon as possible?
             
            Oh no this would never happen with these angels who are high street agents. Can I live in your world undercover agent it seems great there

            Report
        2. RealAgent

          I think you’re being a little hard on yourself Dom. PB get 100% of the price…. paid by sellers regardless of outcome!

          Report
        3. Garret2

          Dom – That’s a fair reference study to bring up.

          BUT….

          Before you make any business decisions based upon it, do yourself a favour and:

          1. Have a read of the methodology that tool uses.

          2. Have a little play with the tool to experience it’s accuracy firsthand.

          3. Consider the effect portal juggling would have on the output of a tool such as this.

          Report
    2. ArthurHouse02

      There is a bigger picture than that Dom. As it matters more to a high st estate agent that the sale goes through, there is more incentive to achieve a higher price to avoid potential pitfalls down the road. I have sold hundreds and hundreds of properties for a figure higher than the owners bottom line, or the figure they had told me they would accept. This gives a little flexibility should the buyers survey create problems. So achieving a higher figure is not just about bringing in a little more commission, but also about providing the best service.
      Having said that, this £13 you talk about, is quite significant to that neg if you times it by the 100 sales Mr Knight talks about

      Report
    3. Robert May

      Maths isn’t a strong point is it Dom?

      A 5% increase in the price achieved for a vendor does what to the profit margin of the agency on that deal?

      increase it by 5%

      increase by 10%

      increase by 25%

      Don’t know, maths is hard!

      Report
      1. dompritch134

        I’m talking about the negotiator who closes the deal and the incentive for them to achieve the highest prices.
        Reading comprehension is not your strongest point Robert (do you know who I am) May.

        Report
        1. Robert May

          I love it that you can’t do the maths and  have attempted to macho it out with an insult.

          You are funny!

           

          Report
  4. Simon Bradbury

    As is often the case, Peter Knight offers a challenge for the (so called) High Street estate agent to at least contemplate analysing their proposition to potential clients and learn from other  business models. I believe that the (again so called) ‘onliners’ have taught us a lot…

    Refine and clearly communicate your proposition to customers.

    Analyse your cost base – and I mean really analyse it.

    Have convenience for customers at the very core of your business. (Can potential vendors directly book a valuation appointment with you, directly online for example?)

    Whilst a number of estate agents may have already ticked those three boxes and more, many have not in my view, and will suffer the consequences in the long term. This approach, combined with a resolute determination to deliver real and relevant personal customer service, something that ‘onliners’ find difficult to replicate, is where the fight for the hearts and minds of customers is being fought.

     

    It’s simply far too simplistic to portray ‘onliners’ as bad and ‘High Streeters’ as good. We can learn so much from each other, and that, in my view, is the challenge from Peter Knight.

    Report
  5. AgentV

    This story, as always, is generating lots of generalisations.

    There is, however, one simple formula that works in the current market. Generating more interest in a property creates more viewings, more viewings means more offers, more offers means higher offers….which means the very best sale price achieveable.

    However, best presentation to generate maximum interest, doing typically over 40 viewings, occasionally 70 to over 100, and dealing with multiple offers in a fair way…..takes time…a lot of man hours. Add in doing everything necessary post sale to achieve completion rates well above 90%….and it all adds up.

    You simply cannot supply that kind of service in our area for under £2,000.

    However I note that figure  sits well comparitively with Mr knight’s calculated figures. 

    I reckon using this approach and methodology often achieves sale prices £5,000 to £10,000 above what would otherwise result…..more than justifying the cost of our ‘full service offering’.

    Report
  6. GPL

    Simon Bradbury

    ”Refine and clearly communicate your proposition to customers.”

    Let’s be absolutely clear on Purpletricks.

    It’s a business built on eyecatching/misleading marketing, it’s supposed to be cheap but isn’t, it’s supposed to be the same as a High Street Estate Agents but isn’t …..however it does have lower costs to itself yet overcharges customers.

    Taking on board the “let’s all learn from PB” pitch that we are being offered today.

    Then let’s all learn….. long, long, long overdue that we get a collective/UK wide message about Our Industry….. that may be as simple as a graphic/slogan with a homeseller having a bucket of cold water poured over their head, bystanders looking amazed, pointing and saying “you just handed them a £1000!!! ….whether they sell your home or not? Are you mad!!!”

    To ignore eyecatching marketing of a company that claims to be a competitor and the consumer is fooled by that claim, and then to dwell on the numbers…  it’s effectively giving Online Listers a free/unapposed opportunity to grow their market.

    Tell me this…. at what point does Our Industry come together to promote itself?

    The Purple Elephant in the room is that Our Industry has NO Collective Message ……it’s time to get one!

     

    Report
    1. AgencyInsider

      Years ago there used to be an organisation that would have carried that torch GPL and was ideally placed to stand up for the industry – and would have done so when it was run by people with character and spine.  What was it called? Oh yes, The National Association of Estate Agents. Whatever happened to them I wonder?

      Report
      1. GPL

        ….and of course, respectfully, that’s my point AgencyInsider

        Report
    2. Ric

      “It’s a business built on eyecatching/misleading marketing, it’s supposed to be cheap but isn’t, it’s supposed to be the same as a High Street Estate Agents but isn’t …..however it does have lower costs to itself yet overcharges customers”

      Do they use the same branding company as the “Leave Campaign” did? PBrexit

      Report
    3. AgentV

      …..at what point does Our Industry come together to promote itself? The Purple Elephant in the room is that Our Industry has NO Collective Message ……it’s time to get one!Collective Adaptable Intelligent Marketing is something I have been banging on about for months now. We have the products in development that will help enormously. We just need independent agents to join in together to make it happen.

      Report
  7. hodge

    Here we go again. Personally i think PB can teach people that change is required and are doing so.

    Back in 92 I took over a part of the Cornerstone empire and it was losing money hand over fist. My background was financial services so most of the estate agents looked upon me with that familiar ‘what do you know about estate agency ” face. Most estate agents are still wearing the same face today.

    I stood alone in putting together a fairly radical plan and commenced to put to bed the local Portsmouth property paper costing £1100 per page and we started our own paper at £300 pounds per page.  I introduced a minimum fee of £1000 (remember in 92 we sold flats for 30k) This was considered suicide by the management of cornerstone as agents were charging 3 or 400 pounds. . Within a month Countrywide almost copied us with £950 fee.  Just 6 months later we were one of the most profitable subsidiaries.

    Not to let it rest i also put together a mortgage deal with Bank of Ireland who agreed to pay agency fees as a cash back so those in negative equity could move (assuming fees were the only sticking point)

    When Abbey national wanted to sell Cornerstone only 2 subsidiary Directors made a buyout bid and we were on e of them.

    My Point!  Agency has not changed in all of the years and i don’t see many companies looking to tie down Rightmove who have just made £166 million on the back of agents who have been sucked into spending more year on year. Your rents are reviewed cost of living increases and agents need to look at being a business and cutting costs and living for the next decade.

     

    If you don’t invest in a plan thats radical today you will become extinct and thats all i have to say about that

    Report
    1. AgentV

      Hodge….there are some of us who are trying to help promote change, and we need all the support we can muster. Are you interested?

      Report
  8. Chris Wood

    There is little that cannot be learned from all of our competitors both positive and negative of all business models and sizes. Neither is there anything intrinsically wrong with the PB model*, just the manner in which they conduct their business.

     

    *as I have so often said and is so often ignored/ forgotten by some posters.

    Report
    1. cyberduck46

      >Neither is there anything intrinsically wrong with the PB model
       
      Chris, didn’t you say that cheap agents are costing consumers around half a billion pounds a year?
       
       

      Report
  9. cyberduck46

    The listed advantages of the PB model are:

     

    People don’t negotiate so much on a fixed fee, indeed I believe no one has ever “done a deal” on a PB fee.
    If a client and agent do negotiate on the fee, (actually make that, “if the agent discounts their fee”), then it will be for a smaller amount than is currently typical. Reducing a fixed fee by 10% is half that of going from 1.25% to 1%, which is a 20% discount.
    When the tenant fee ban comes into law then it makes even more sense to charge landlords a fixed fee per month for full management. As tenants typically seek to stay longer in a property then the set up fees become less important overall if there’s a higher monthly management payment.
    It’s so much more transparent – something all consumers say is really important to them.
    It’s fairer – every client pays the same, or as with PB charging more in London, there’s a justification for any increase.

     

    Add on to those:

     

    1. If you do your own viewings you save a further £300 on top of the £257 mentioned.

    2. The higher the value of the property the bigger the saving so everything from average to top of the range results in a saving.

    3. If you use your own conveyancer you can shop around and make further savings.

     

    This is based on all assumptions in the article being correct.

    Report
    1. AnotherPlanet365

      Frankly, I would certainly negotiate with Purplebricks on their fee as the circa £1000 is grossly overcharging the consumer for a cheap/Virtual only service

      Time that Purpletricks reduced their fee to £99 then one can align their value with the product/service

      It’s already started, Online Property Listers slashing their fees to undercut each other, apart from being Purple in colour Purpletricks are merely a cheap format Virtual offering bloated by dubious marketing. The see saw of their share price indicates that investors aren’t sure when their bubble will burst.

      Neil Woodford’s latest share purchase is around £1.50 per share less than this Summer’s high. The rollercoaster rolls on however when you have a massive shareholding small changes make substantial financial difference either way – I suppose the skill is balancing the yin & yang versus reaching for the parachute and jumping forth

      £99 for Purplebricks, then the public know what they are actually getting – cheap and purple

      Report
      1. cyberduck46

        >Neil Woodford’s latest share purchase is around £1.50 per share less than this Summer’s high. The rollercoaster rolls on however when you have a massive shareholding small changes make substantial financial difference either way
         
        It’s a good job he’s a patient investor then. Make note of the name of his trust “The Woodford Patient Capital Trust” which holds most of his holding in PB. Companies held in this trust often need further investment and he typically does so because he’s in it for the long term.

        Report
        1. Robert May

          I thought the Woodford patient bit referred to the fact some investments are victims needing intensive care to recuperate.

           

          Report
        2. AnotherPlanet365

          The funny thing about “Trusts” cyberduck46 is that I personally have a DIS-Trust of them!

          I left a company when I saw “issues” developing and lo & behold it went bust to the tune of several hundred million… oddly the owner was on The Sunday Times Rich List and his personal fortune was carefully ringfenced in a trust! All the employees, 3rd parties, other companies were left paddling in sh*t creek, however, to this day, he enjoys a very luxurious lifestyle, all carefully funded from his trust!

          So, note make a note of this cyberduck46 – when you see the word “Trust”, it’s just a word.

           

          Report
    2. PeeBee

      “1. If you do your own viewings you save a further £300 on top of the £257 mentioned.”

      Oh, dear, ducky – you need to wipe off whatever it is obscuring your view through those rose-tinted purple-rimmed specs balanced precariously on your bill, and read the methodology again.

      Then say nowt… as you’ve already taken ‘looking the numpty’ to an entirely new level.

      Report
  10. Beano200062

    I don’t do sales anymore, just lettings. I have (indirectly) investments in PB. So in a way you could say it is more in my interest to argue on the side of PB. However, I have seen and done most things in the market and it goes like this:

    When I was involved in sales I can remember numerous times achieving by negotiation/skills of the trade a better price than was expected- or sometimes warranted. Were I a PB LPE I know this would not have happened (why would it?). The client is clearly going to have more chance of achieving best price using the motivated agent who has allocated (a lot more) man hours to the job.

    PB use dubious tactics to market their product. Smoke and mirrors come to mind. Whether its calling themselves proper estate agents, hiding the fact you pay if you don’t sell, or the joke/manipulation that is their reviews, there’s can be no denying this either.

    I would be a lot more comfortable taking the profit from my investment in PB knowing that it was earnt through honest endeavour, but it hasn’t been.  I see trouble ahead. I wont be investing in anything attached to Mr Woodford in spite of him having a good reputation in the industry.

     

    Report
  11. PeeBee

    As soon as Mr Knight stated that he was reliant upon information provided by Mr Pryor I lost all interest.

    Figures plucked out of thin air ain’t my bag…

    Report
  12. Robert May

    where did he state that? You’ve read the newsletter haven’t you? Wasn’t there enough in these numbers  to save you looking?

    Report
X

You must be logged in to report this comment!

Leave a Reply

Thank you for signing up to our newsletter, we have sent you an email asking you to confirm your subscription. Additionally if you would like to create a free EYE account which allows you to comment on news stories and manage your email subscriptions please enter a password below.