The property market is slowing, Purplebricks and other ‘disrupters’ are putting pressure on fees, and a big agent listed on the stock market has seen its value plummet over 75% in the last two years.
Meanwhile, the publicity seems to be going all the disrupters’ way.
No, this isn’t the UK but Australia.
The scenario, however, may ring a few bells – particularly as UK shares website Motley Fool carries criticism and the analyst rates the stock a ‘sell’.
Newspapers the world over love nothing more than a case study, so step forward Aussie couple Lyn and Brian Boyd who sold their home with the help of DIY website forsalebyowner.com.au
They say they saved loads of money, that the sale itself was a piece of cake, and they will probably never use an estate agent again.
Most Australians do still use traditional estate agents to sell their home, paying between 1.5% and 2%.
However, says the Financial Review, most Australians would also like to save money: “This desire has aided the growth of a wave of digital disrupters, led by London giant Purplebricks, which launched its fixed-fee, high-tech offering in Australia just over a year ago and claims to be growing ahead of expectations.
“To date Purplebricks Australia has sold over $1.1bn of real estate – about 2,200 homes – charging an average price of $5282, and has recruited 105 real estate agents. Customers can track their campaigns online and don’t have to fork out thousands of dollars in advertising.”
Purplebricks is apparently not the only one making waves, however: OpenAgent supplies leads and takes 20% of an agent’s commission if a sale follows, while NextAddress connects buyers and sellers direct.
Australian agents last year saw a decline in the total amount of commission fees earned – for the first time in five years.
Australia’s only stock market listed agent is McGrath: it is the third biggest, and since going public, its shares have lost 75% of value.
By contrast, London-listed Purplebricks is now worth about £1bn – far more than that of Countrywide or Foxtons, both of which have seen millions wiped off their value – and is now the biggest UK agency by listings.
Melbourne buyers’ agent David Morrell believes the writing is on the wall for many Australian estate agents because vendors don’t believe they get value for money from their services.
“Many of the old dinosaurs in the industry are not prepared for [disruption] or have no idea how to deal with it,” he said.
Meanwhile, in the UK, G A Chester on shares website Motley Fool has criticised Purplebricks for not revealing its actual sales.
Chester says: “Purplebricks never tells us how many properties it actually sold in any period. Previously, various figures it gave made it possible to at least estimate the number. My calculations of the average sale price suggested that either the company was cornering the market in trailer park homes sales or that a rather large proportion of instructions weren’t being converted to completions.
“Obviously, if you’re charging a fixed fee but fail to complete the sale in too many cases, you’re not going to have a sustainable business in the longer term.
“In its latest results, Purplebricks omitted two numbers it had routinely published previously that enabled the aforementioned estimate of average sale price. Conversion from instruction to sale agreed (which had been climbing and reached 83% in the last full year) was entirely absent from the recent H1 results. As was a corresponding figure for the full-year: “Sale agreed in the UK every 9 minutes 24/7.
“Sustainability and valuation
“In addition to the omitted information in the latest results, the table below — based on numbers Purplebricks does give — adds to my concern about the sustainability of its business model.
|H1 2015/16||H2 2015/16||H1 2016/17||H2 2016/17||H1 2017/18||H2 2017/18*|
|UK revenue (£m)||7.2||11.4||18.3||24.9||39.9||44.1|
|Revenue growth (H1-H1 and H2-H2)||800%||338%||154%||118%||118%||77%|
|UK marketing spend (£m)||(6.6)||(6.3)||(6.6)||(7.8)||(10.1)||?|
|UK marketing spend increase (H1-H1 and H2-H2)||—||—||0%||24%||53%||?|
* Based on FY guidance of £84m in H1 results
“As you can see, the company is having to increase marketing spend quite dramatically, while revenue growth is decelerating, also quite dramatically. For me, this trend appears ominous for the market’s future top- and bottom-line growth expectations, with the shares trading at over six times forecast revenue and 160 times forecast earnings for the company’s 2018/19 financial year.
“Due to the eye-watering valuation, my doubts about the long-term sustainability of the business model . . . I rate the stock a ‘sell.”