It would be easy to adopt a dedicated online approach to buying and selling houses, but Purplebricks is mindful of the fact that not many people want to hand over the whole process to a computer alone. And this is where the hybrid approach comes in. Purplebricks uses local property experts with detailed knowledge of their area to visit properties and provide valuations. The key difference here is that this agent stays with the customer all the way through the process, whereas with conventional estate agents this may not be the case.
These agents are paid a fixed fee for each instruction and can earn commission on the sale of additional products and services. Customers can also view the progress being made by accessing the website. This will give progress on bids made, the number of interested parties and everything else. Crucially, customers can gain access at any time to speak to someone. Purplebricks reckons that nearly three-quarters of customer traffic takes place at times when conventional estate agents would be closed.
Perhaps the biggest attraction is the price. Whereas conventional estate agents may charge as much as 3 per cent of the selling price, Purplebricks charges a fixed £798 instruction fee. Additional revenue from conveyancing, mortgage referrals and insurance brings this up to an average £1,080, including VAT. That's a whopping saving on the average conventional estate agency bill of over £4,000. Purplebricks is also likely to benefit from increased penetration of the London market where, in certain postcode areas, the charge is already higher at £1,158 per instruction. It also scores over conventional estate agents because, whereas they are only paid commission on the sale of a house, Purplebricks' instruction fee is non-refundable. This fee can be paid upfront, or, at no additional cost, until the earlier of the sale of the property or 10 months from instruction. The deferred payment is financed by Close Brothers, which it pays to Purplebricks the next working day. To compensate for the cost of this financing, customers using deferred payments are required to use Purplebricks' conveyancing service for the sale.
So, embracing some of the best aspects of pure online and conventional agency practice, why don't existing agents follow suit? Changing the business model or running a parallel offering simply wouldn't work. Estate agents are tied down to a chain of offices and attendant costs. Changing to a fixed price structure overnight would be too expensive. It's worth pointing out that the advantages of operational gearing are significant in an expanding market, but transactional volumes have been falling, and so the gearing argument also works the other way. A 10 per cent drop in revenue translates into a much bigger drop in cash profits.
Some relief for conventional estate agents can be found in diversification, notably acting as a letting agent, and generating commission from surveying. But there is little to suggest that the shift away from dealing with a traditional estate agent is not set to continue. Online agents account for just 3 per cent of the conveyancing market at the moment, and, since its launch in April 2014, Purplebricks has cornered nearly two-thirds of that market, making it the largest online agent and the fourth largest of all estate agents.
Interestingly, all the people who switched from using a conventional estate agent said they would never switch back. The scope for expansion therefore is considerable, and the company is actively expanding its band of local property experts and has expanded into Scotland. A marketing exercise is currently under way to improve brand awareness. Further expansion will be tied to the number of local property experts, and working on a steady increase here, the number of instructions received is expected to rise 10-fold in the next two years.
So does this change the estate agency game? The short answer is yes; the long answer is also yes, but it will take time to convert buyers and sellers to the new model. Given Purplebricks' meteoric rise in penetration terms, it looks as though this could be a shift away from the traditional estate agency model.
