A war of words has erupted in the estate agent sector after a damning report from hybrid estate agent Purplebricks (PURP) was roundly condemned by the Charter for Independent Estate and Letting Agents (CIELA). Accusations about over-charging were countered by question marks over completion ratios. Yet it's clear that the traditional estate agency model has a fight on its hands.
However, the key to the gloomy outlook for the traditional high street estate agent is not competition from online agencies - these account for only 5 per cent of all transactions - but the slide in transactional volume. With a largely fixed cost base, estate agents embrace a high degree of operational gearing. So profits rise much faster than costs when transactions are high, but fall significantly when transactions are weak because the cost base is largely fixed.
London-focused estate agent Foxtons (FOXT) recently slashed its dividend and warned that unless business picks up, profits this year are likely to be lower again. Countrywide (CWD) skipped the final dividend altogether, but is trimming costs and closing branches while also offering a fixed fee online service. On the other hand, Purplebricks has expanded into Australia and recently raised funds to start a US operation.