Two years ago the outlook for online and hybrid estate agents looked very rosy. Over £250 million in private and crowdfunded investment cash was rolling in and Purplebricks looked unassailable as it gained market share in the UK and footholds in both the US, Canada, Germany and Australia.
But now everything has changed. Purplebricks has quit Australia, cut some of its services, seen its market share increases come to a standstill in the UK, and it may yet disappear from the US.
Emoov and Tepilo collapsed into administration, Hatched was closed after being bought by Connells, House Network is struggling after nearly going bust and Yopa has been implementing cost cutting measures as its cash-burn has accelerated.
“This isn’t simply a matter of profitability though and I think the nation’s home sellers have woken up to the fact that if you pay a low fixed fee, the service will match the price and you might not even sell at the end of it,” says Marc von Grundherr of Benham & Reeves.
“There are many positives the traditional sector can take from the rise and fall of the online sector, such as greater tech integration in order to enable a smoother sale process, however the failure to gain any meaningful ground where market share is concerned tells you all you need to know about the future of the online estate agent.”
Many traditional agents who grumbled from the side during the rapid, investor-backed rise of these online and hybrid estate agents used to look old fashioned.
But one of their key predictions is turning out to be accurate. The 20% market share that online agents claimed they would take remains stuck at approximately 7%, the most recent research from TwentyCI reveals.
This is because online and hybrid agents appeal more to those selling homes at the cheaper end of the market outside the London and Home Counties housing bubble.
The research reflected this – for example 10.32% of homes were sold by online agents in the West Midlands during the first quarter of this year, while in outer London it was only 5.62%.
“Gaining traction in southern regions including London continues to be a challenge for online agents,” says TwentyCI. “Given the larger percentage saving to be made on fees when selling a higher value property, it is perhaps surprising that those selling more expensive homes are staying loyal to the High Street model.”
Russel Quirk, former CEO of Emoov and now PR guru, says: “There is this massive psychological resistance from the consumer to paying a fee which is too cheap, given the enormity, sensitivities and protracted nature of the transaction”.
“It’s almost that traditional agents and the fees they have charged for generations, are – to use a Stella Artois analogy – reassuringly expensive compared to Purplebricks and HouseSimple.”
David Johnson, MD of prime London agency INHOUS, says that for his clients there’s also a security element to it – they don’t want to have to deal personally with potential buyers tramping in and out of their homes.
“I just can’t see the online model working in the £1 million-plus prime London property market,” he says.
“And remember that for many of London’s international vendors paying a 1.5% to 2.5% commission looks like good value compared to their home countries where, for example in the US, they can pay up to 6% sales commission, so Purplebricks doesn’t make sense to them.”
Quirk also makes the point that the fees paid to traditional agents come out of ‘theoretical money’ gained when the house has been sold three months after the property is listed, while the hybrid agents charge up front and vendors have to pay ‘real cash on the table’.
The question on everyone’s lips within the industry is, what happens next?
Industry insiders estimate that to make money, an online agent needs to capture at least 3-4% of the whole market – as Purplebricks has done.
Even if they do collectively grab 10% of the property market one day, this leaves room for, at best, two major players – Purplebricks and possibly one other.
This assumes that the remaining 1% of the market continues to be taken by what’s unkindly called the ‘bottom feeders’ in the market such as Doorsteps.co.uk, 99Home and Settled, all of which have gained significant volume, but nothing near the better-known brands.
This suggests that at least one of Purplebricks’ main competitors will struggle to make it through to profitability.
“I think online agents will eventually have to resign themselves to being a niche proposition dominated by one large market player and a handful of smaller ones,” says Quirk.
“I think if eMoov and HouseNetwork hadn’t tried to expensively keep up with Purplebricks then our fortunes would have been somewhat different.”
The online estate agents who have survived cannot assume that it’s now a clear run to be No.2 behind Purplebricks.
The terms ‘hybrid agent’ and ‘online agent’ can be misleading. A better term favoured by industry watchers is ‘low fixed-fee’ agents who in the main charge extra for viewings and other often standards services provided by traditional agents. Saying they don’t have branches is also problematical – because many traditional ‘hub’ agencies such as Humberts don’t have high street branches any longer. Claiming they are ‘online’ too isn’t accurate;
r example Foxtons now conducts much of its sales and letting admin through its digital platform in much the same way Purplebricks does.
Sohail Rashid, a long-time online agent watcher and CEO of ViewMyChain, claims the current climate for the up-front fee model is the most difficult one for it to be successful in.
“There’s lots of hesitancy and nervousness among consumers about whether they can sell their property in this market, which lends itself more to a commission-based sales strategy rather than up-front fixed fee,” he says.
“Saying that, there are more people who are prepared to pay an up-front fee than there were five years ago, but still the sector has not been as successful as everybody expected or feared it would be.
“These online agents haven’t’ realised the return on investment they’d hoped for or seen the cost per acquisition come down, which is a worrying time for investors.”
But if online agents are looked at differently then perhaps they have, and will be more a ‘success’ than they are given credit for. The spread of fixed fees, whether paid up-front or not, has begun to spread among traditional agents.
“If you were to look at how many consumers are paying fixed fees to sell their homes then it’s going to be a significant percentage,” says Rashid.
“Online agents have also disrupted the market in other ways. There have been massive changes to how traditional estate agents offer different price options to customers, including fixed fees.”
But by any other measure online and hybrid agencies have, must to the relief of most traditional agents, not wiped them off the face of the earth as had been feared.
“It seemed to me that all online and hybrid have been doing all along is battling to gain market share at any cost and then hoping they could do something with it afterwards, but I just don’t think that’s going to happen,” says Trevor Abrahamsohn of Glentree Estates.
This market reality now appears to be hitting the online agents and their investors head on. Let’s see what the sector looks like in another 18 months.