Real Estate

The Purplebricks puzzle: online agencies suffer despite hothouse market


This has been a blockbuster year for the UK housing market. Average prices have smashed through previous highs and look set to end 2021 at least 10 per cent up from where they started it.

Total sales will reach 1.5m, according to estimates by property platform Zoopla, more than in any year since 2007 when the housing market was running hot ahead of the financial crisis.

So why has Purplebricks, the biggest online-only estate agency, not fared better during this frenzy?

Listed in 2015, the company promised to disrupt the tired world of property sales. With no high street presence, it deploys roving “local property experts” to market homes, for which it charges a flat fee of £999, or £1,499 in and around London. This is payable even if they do not sell, distinguishing it from traditional agents which charge a commission.

The company is among a crop of online property groups that launched midway through the last decade, confident they could do to traditional agencies what Uber had done to the black cab.

One competitor, easyProperty, announced its arrival in 2015 with a mock funeral procession through the streets of central London. The company hired orange-clad horses, a cart and a jazz band to suggest that the death of the traditional agent was nigh.

Purplebricks, easyProperty and other online agencies did quickly eat up market share, accounting for about 8 per cent of all UK property exchanges in 2018, from just over 2 per cent in 2016, according to data company TwentyCi.

Supported by investment from Neil Woodford and German media company Axel Springer and with a flexible workforce and no costly leases for a branch network, Purplebricks spent heavily on marketing.

The Aim-listed group remains the largest standalone agency brand, accounting for almost one in 20 UK sales last year.

But the expansion of Purplebricks and its online peers has run aground. From their high point of about 8 per cent of exchanges in late 2018, online agents have slipped back to less than 7 per cent of the overall share, according to TwentyCi.

Costs have increased too. Purplebricks has historically relied on workers it regards as self-employed — local experts who could set their own hours and use the Purplebricks platform but who were not eligible for the benefits of full-time employment. Now the company is shifting to a costlier full-employment model.

That shift is one factor behind a profit warning last month that sent the company’s shares tumbling.

It comes as hundreds of current and former Purplebricks agents prepare to launch a pay claim against the company. They say that, despite being designated as self-employed, they were to all intents and purposes treated as full-time employees and should therefore have been entitled to holiday pay, pensions benefits and sick pay.

The claim will be filed this month and follows similar, successful actions against Deliveroo and Uber by their former workers.

Purplebricks said: “The second half of 2021 was challenging, with our move to a fully employed model coinciding with a significant fall in new instructions in the market. However, the changes we’ve made internally have put us in a much stronger position and we’re already beginning to see the early signs of a recovery as homeowners choose to use Purplebricks.”

But the company’s recent struggles also owe something to the runaway house sales. A glut of demand has resulted in a shortage of homes to sell. Purplebricks said last month it was being instructed on 40 per cent fewer sales than in the previous year.

“Stock is a real issue in the market at the moment,” according to Chris Millington, an analyst at Numis.

Chart showing that strong demand during the pandemic has reduced the supply of homes for sale. Average number of unsold houses on estate agents books (per branch)

A lack of homes to sell — particularly in the wake of a stamp duty holiday that is likely to have accelerated demand and brought forward many purchases — will bite across the sector, according to analysts.

But Purplebricks, which is paid when instructed on a sale rather than at exchange, was likely to feel the impact earlier than others, said Sam Cullen, an analyst at Peel Hunt.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.