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