A slowing housing market could be as bad for ‘disruptors’ as those they are seeking to disrupt.
Writing about the rise of online estate agents in The Spectator, long-standing property journalist Ross Clark says the “business of selling houses is in big trouble”.
Clark does not dispute that the estate agency business needed disruption.
Indeed, he says it was “crying out to be disrupted” and goes on to say that the new generation of “online pretenders seems to be breaking through – while established agencies are beginning to look sickly”.
Foxtons and Countrywide share prices are down, whereas Purplebricks’ shares have boomed from £1 a year ago to around £3.50 now, having touched £5 in July.
The big selling point of online estate agents is that they don’t charge a percentage commission on sales, says Clark.
But the snag is that “with an online agent you pay whether the property sells or not”.
He goes on: “That raises questions as to how much incentive your ‘local property expert’ has to find you a buyer. But even if he works his little white socks off, in a slow market there are inevitably going to be unsuccessful vendors faced with bills they would not have had to pay had they gone to a traditional agent.
“That’s why I wouldn’t be so sure about the fortunes of online agents. Signs of a slowing market persuaded me to take my 150% profit in Purplebricks shares a couple of months ago. I have retained my holding in Savills, the only other estate agency share I own, because its upmarket international profile puts it in a different space.
“Purplebricks has been a great boom-time business, but one that could fall flat on its face in leaner times.”
The main problem with the market is that people are simply moving less often, says Clark. There is only two-thirds of the business that there was ten years ago: “Throw in a load of budget-priced competitors and it’s a recipe for misery.”
He concludes: “The outlook for the property market doesn’t look great, but the estate agency business looks far bleaker.
“This might be one disruption where the disruptors end up getting just as hurt as the people they are disrupting.”
https://www.spectator.co.uk/2017/11/time-the-estate-agents-pulled-their-little-white-socks-up/
Comments (19)
I wonder how Northern and Shell are feeling about the return on their investments at Tepilo Ros and Nick? I see they have restated how they book income and sure have burnt cash….
zzz zzz zzz If you weren’t otherwise informed you would swear reading some of the comments here that the online disruptors never achieve a sale.
In response to Cyberduck
If you paid for a very expensive new computer and got a discount, as advertised, without realising that in the small print on their national TV marketing campaign that this discount meant that the manufacturer’s warranty was null and void.
How would you feel if you then had to pay full cost for another computer that actually worked?
This scenario is actually illegal, so why should pre-paid agency users be treated differently?
Are pay anyway models simply a version of a double-headed coin as they win either way?
Thomas,
I can only speak in regard to PurpleBricks and your analogy is way off. Typically with PurpleBricks you will speak to an LPE and then if you go ahead will choose whether to pay now or pay later.
No small print involved. You click on the option you prefer.
In my experience the fact that I pay whether I sell or not was made clear when speaking to the LPE. This is in stark contrast to my experience with traditional agents over the years where the rate of commission and terms of the contract are the last thing they appear to want to inform you about.
Absolutely when i have agents marketing a property for me, none will give me a commission rate until the valuation has been undertaken.
They size up the client to see what they may get away with, eg. old dear with little negotiating skills 2% & 30 something professional 1%.
With hybrid agents you know the fee upfront and transparent, you are paying for a service.
Come on cyberduck and dompritch PB’s national TV advertising was ‘misleading’.
The ASA agreed hence the reason why they have now had to add (in really small print at the bottom of their adverts) ‘Flat fee payable regardless of sale.’
I have a suggestion for the advert which would make it so much more transparent. When the lady sticks her face in the cake and sits upright perhaps the other lady ought to say ‘however, you pay the same fee regardless of sale at which point she sticks her face in the cake?
Fair’s fair?
With regard to fee omission, don’t forget to add viewing fees (ASA /NTSEAT ruling) £360 deferred payment fee and Close brothers agreement as did 3 out of 5 LPE’s on watchdog – apply this 60% across the board?
If PB is so much more transparent why don’t they promote their fee on TV?
Do PB call it a fee as it may prove problematic to call it a ‘commission’ with so many people paying for a service that does not complete?
The traditional model is not bulletproof but is it more likely to survive in a tougher market?
Thomas,
The ASA gave their opinion on the case. They deemed that it was misleading because the public are used to NSNF and the average homeowner would consider this to be the case for PB too.
Of course that is an arguable interpretation but there’s no means of redress and also no obligation to abide by the decision.
Adverts are only a part of the whole process and whilst you can technically argue that it was misleading and would cause the average homeowner to get in touch with PB I really don’t think you could argue that it would cause the average homeowner to be misled into thinking they don’t pay if they don’t sell when they go on to actively choose between paying now or paying later.
These things need to be put in perspective. Far worse things going on in the world than arguably being misled into getting in touch with a company and if you look around the internet you will find all sorts of statements (and also non disclosure of material facts) on Estate Agent websites which arguably cause consumers to get in touch with a particular agent.
Embarrassing even for you Dom.
I have said in the past that an easy market flatters…now lets see what happens! So far they have proved there is a market for cheap fees when so many believe that the sale happens on line…which as we all know is the tip of the iceberg. There is an irony that the reason why the larger onliners have worked is because they have budgeted big spends on old fashioned advertising like tv and radio…it gave them brand awareness quickly, but that is cash hungry. They will rely on the internet generation in the future if they don’t run out of cash first and their shareholders tire of jam tomorrow
>The regulators should never have allowed these companies to use other peoples money to finance this attack on the fairest customer service offering ever…..no sale, no fee.
How is it fair that those who do sell subsidise the cost of those that don’t sell?
Two different models offering choice to the consumer.
In reality you’ll find it’s actually a ‘no brainer’ to list with an online agent because traditional agents are falling over themselves to try and poach the client with offers of lower rates.
Did I not read recently that Arun Estates were offering to reduce their fees by the cost of an online agent if you listed with the online agent first and didn’t sell?
“How is it fair that those who do sell subsidise the cost of those that don’t sell?”
How is it fair that those who don’t sell subsidise the cost of those that do sell?
Like I say two different models offering choice to the consumer.
Both are fair if the consumer is well informed and understand the differences.
At the moment you have online agents pointing out the pros of their model and the cons of the traditional model and traditional agents highlighting the pros of their model and the cons of the online model. Over time, with the help of independent publications like Which? consumers should be in a better position to choose the best model for their own individual circumstances.
The fee you have paid to Purplebricks has been offset by an unsuccesful Purplebricks vendor about 5 miles away who was in 37% negative equity on her flat and was conviced to list even though there was 0% chance of her selling at the price suggested by an ‘expert’ who had only 9 months total industry experience. Are you seriously telling me you are comfortable paying the same fee as someone far less fortunate than yourself for them to recieve nothing but failure and stress while you enjoy property profit and good times?
Robert,
>Are you seriously telling me you are comfortable paying the same fee as someone far less fortunate than yourself for them to recieve nothing but failure and stress while you enjoy property profit and good times?
I’ve heard it all now. Traditional Agents are the Robin Hood’s of the property world. Taking from the rich to give to the poor :). Let’s ignore the fact they take their percentage cut on every deal shall we 🙂
I am certainly not happy paying an Agent a percentage of the value of the property I am trying to sell. How does that make sense? How can the fee paid be proportional to the value of the asset?
Then factor in all the secrecy over commission rates and whether they are negotiable and you start to see what really has been going on all these years. A local Estate Agent by us rented his house out to Tiger Woods when the British Open was here some time back. That says a lot doesn’t it?
I sympathise with anybody who has had a bad experience with an online agent but there are poor traditional agents and unscrupulous traditional agents (as we repeatedly see in Articles on here) so I don’t see individual cases as being relevant to the discussion over models.
Perhaps we should start talking about the agents who run off with their clients’ money or fix prices so that 6 of them on the same road can stay in profit?
It was a simple yes/no question. I find strange anyone could have so much difficulty typing Yes or No.
“Let’s ignore the fact they take their percentage cut on every deal shall we”
errr let’s ignore it because they don’t; NSNF agents only take a % on their completed sales or where they have fulfilled their obligations under the terms of the contract.
OK Robert, some one word answers for you;
>Are you seriously telling me you are comfortable paying the same fee as someone far less fortunate than yourself for them to recieve nothing
Yes.
Am I comfortable with somebody (more or less fortunate) paying the same fee as me if the agent was negligent or misled the customer?
No.
Would you be happy paying an Estate Agent a percentage of the value of your property (on top of stamp duty) if they were a non-profit organisation sanctioned and administered by the government?
Yes
We’ve already seen how you dismissed the lady who clearly didn’t understand her contract and had to pay a traditional agent £4000 after selling to her son after the agent had failed to find her a buyer after 18 months. Your attitude: she signed the contract she has to pay.
It’s quite obvious you don’t really care about injustice but are using this woman’s case to further your own agenda. Hopefully if there is a case to answer she will enter into a confidential settlement agreement and any damages that have been caused will be catered for.
I find it quite amusing that after paying my fair share of taxes over the years including stamp duty you try and make me look selfish for trying to save on the excessive commission traditional agents want to charge me. Helping them to drive around in a big Mercedes and live in one of the best properties in the area.
ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ
Wonderful we can now see your motivation; envy!!! You are jealous of the local, successful, agent who owns a car you perceive to be materialistically better than most, who lives in a house that is better than most.
Presumably that agent has bought those status symbols as a result of their successful business. They have a good business that has sold for vendors who have recommended that agent who has sold more homes, a process that has been going on for years. What I find slightly perplexing is your evangelical worship of a bloke who has bought and boasted about buying an even better car than your local agent yet has done so after posting cumulative pre tax losses of £26.26 million.
I am not making you look selfish we are having a discussion and I am simply saying how I see things differently to you.
Your envy is working against you, it stopped you listing your property with the agent who can clearly demonstrate they can sell property in your area and can do it so well they are running a profitable business.
You’re not the only person in this country to have paid taxes and stamp duty, a lot of people have paid a lot more having worked harder than you, some will have paid more taxes working less hard than you. I am not trying to make you look selfish but I am trying to make you understand that your unwavering support of Purplebricks might be a little misguided and contrary.
In respect of the little old lady who had to pay a commission on contractual terms she signed where were her compos mentis attorneys when the lady was entering a contract she either didn’t read or didn’t understand. I find it hard to believe the son you mention also lacked the capacity to contract, so although you are attempting to paint the vendor and her son as being duped I suspect that isn’t the case.
I don’t disagree there is bad practice by agents of all business models. The work I am doing is exposing that and without calamity or protracted legal process stopping a lot if it. It’s possibly because I am doing that to benefit agents you despise for their success that I can’t have any respect for the way you think and carry on.
Envy is a terrible thing!
In other words the real disruption to the market is that 10,000s of call centre first users are now paying for a service they do not receive and may end up paying two estate agency fees.
How many sellers paid for failure or paid two agency fees during the last property crash?
Is this progress?
The regulators should never have allowed these companies to use other peoples money to finance this attack on the fairest customer service offering ever…..no sale, no fee.
As none of these nationwide models has yet to turn a real profit this goes to show that fees in the UK are amongst the best value in the developed world which may be why PB have significantly increased their fees and looked at other much more expensive markets in OZ and USA?
Come on you so-called disrupters, if your offering is really better- go head to head with traditional estate agents and offer the choice of no sale, no fee.
The Government are banning tenant fees should pre-paid agency fees be next?