Advertisement

Traditional estate agents live on

Online estate agents are yet to take over, but the high street should take the opportunity to adapt.

905_MW_P09_Purple
Purplebricks: made a pre-tax loss of £26.1m

EasyProperty launched in 2014 and soon after staged a funeral procession down the streets of London, supposedly mourning the death of the high-street estate agent. Quite apart from being a mildly irritating PR stunt, it also appears that the claim was somewhat premature.

The main appeal of using an online agent is that it should work out to be a lot cheaper than using a traditional one. The internet has disrupted the process of selling most other goods, mainly by cutting out multiple middlemen, so why shouldn't it work for selling houses too? And given the generally low regard in which estate agents are often held, it seemed to be an industry ripe for a new business model.

Much-needed disruption

Yet it seems that customers have a while to go before they are fully convinced. While property listings giant Rightmove has certainly transformed the way that we look for property (it's by far the most dominant property listings search engine), the disruption of the sales process is taking rather longer. Online agents are responsible for just 8% of all property exchanges, reckon consultants TwentyCi. Purplebricks (which is 27%-owned by fund manager Neil Woodford) comfortably dominates the online market, with a 74% share, although in the longer term it hopes to garner a 10% share of the market as a whole.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

The journey so far hasn't been easy. In the year to April, Purplebricks made a pre-tax loss of £26.1m, driven mainly by overseas expansion costs (its UK operations turned a £6.5m profit, but its Australian and US arms saw losses of £11.8m and £16m respectively). The company has also come in for criticism from broker Jefferies, which suggested that it is not as successful as it claims to be in converting listings into sales an important distinction given that it charges upfront.

Steady progress

Still, Purplebricks claims it sold 3.1 times more properties than the next-largest UK estate-agency brand in its latest financial year (and more than any single estate-agency group). UK revenue almost doubled on the same figure for the previous year. The firm also has plenty of cash available to fund growth.

It's also too early to write off Purplebricks's rivals. At the end of May, loss-making online agents Emoov and Tepilo merged in a £100m deal. The new company plans to list in the autumn and should fall into second place behind Purplebricks in terms of the number of properties on its service. Smaller companies are also adapting their models in response to criticisms of the industry. Yopa (part-owned by Savills) now offers a no-sale, no-fee option, while easyProperty allows people to pay an upfront listing fee of £295, with a further £595 due on sale.

And to be fair, it's not as though traditional estate agents are riding high right now. The UK housing market has cooled off significantly, and partly as a result both Countrywide and Foxtons have seen their share prices fall by around 80%-90% over the past five years. So it may be a while before we see online agents achieve their full potential, particularly if potential sellers are inclined to play it safe with a traditional agent in a slow buyers' market, rather than paying a fee upfront then running the risk of being unable to sell. We suspect that neither the high street nor online agents will emerge as the ultimate winners for quite some time yet.

Advertisement
Advertisement

Recommended

Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/economy/uk-economy/601421/post-covid-life-will-look-remarkably-similar-to-pre-covid-life
UK Economy

Post-Covid life will look remarkably similar to pre-Covid life

Everybody is speculating on how life will look once lockdown is lifted. My guess, says Merryn Somerset Webb, is much the same as it looked before the …
29 May 2020
Visit/investments/property/601411/can-the-uk-housing-market-escape-a-slump
Property

Can the UK housing market escape a slump?

The Bank of England is predicting a 16% slump in house prices.
29 May 2020
Visit/505721/the-death-of-buy-to-let-property-is-a-useful-cautionary-tale-for-all-investors
Buy to let

The death of buy-to-let property is a useful cautionary tale for all investors

Investing in buy-to-let property was once a perfectly valid thing to do. But the government killed the market. John Stepek explains what investors sho…
29 May 2020

Most Popular

Visit/economy/eu-economy/601422/heres-why-investors-should-care-about-the-eus-plan-to-tackle-covid-19
EU Economy

Here’s why investors should care about the EU’s plan to tackle Covid-19

The EU's €750bn rescue package makes a break-up of the eurozone much less likely. John Stepek explains why the scheme is such a big deal, and what it …
28 May 2020
Visit/investments/stockmarkets/601423/as-full-lockdown-ends-what-are-the-risks-for-investors
Stockmarkets

As full lockdown ends, what are the risks for investors?

In the UK and elsewhere, people are gradually being let off the leash as the lockdown begins to end. John Stepek looks at what risks remain for invest…
29 May 2020
Visit/investments/funds/601385/in-support-of-active-fund-management
Funds

In support of active fund management

We’re fans of passive investing here at MoneyWeek. But active fund management has its place too, says Merryn Somerset Webb.
25 May 2020