Purplebricks is Uber-like threat for Foxtons

Lower fees from online rival creates challenge

LONDON: Britain’s estate agents have a problem. They’re encumbered by their own bricks and mortar.

For firms like Foxtons and Countrywide, the rise of online-only rivals like Purplebricks is more than a headache. These upstarts charge lower fees and don’t run branch networks. That leaves traditional players with a choice: cut fees too or lose market share.

Purplebricks, which is backed by money manager Neil Woodford, went public in London on Thursday. The online estate agent charges sellers a flat fee of £798 ($1,189) and a bit more in some pricier parts of London. On average, its fees are £1,080. In Britain, the seller alone pays the realtor’s fees.

Traditional real estate agents typically charge about 2.5% of the sale price in Britain. In London, the hottest area of the market, the average asking price is £616,000, according to Rightmove data. That puts the average fee at about £15,400.

Purplebricks has been operating for less than two years. It’s yet to record a profit, and whether it turns out to be another Uber remains to be seen. In the year through April 2015 it had £3.4 million of revenue. In the five months after that, sales jumped to £5.7 million.

It has a market value of £226 million, less than half that of Foxtons and a quarter of Countrywide. Foxtons had a profit of £14.4 million on £71.1 million of revenue in the first half. Purplebricks has online competitors too, like eMoov and Tepilo, which have struggled to make headway. They all face the obstacle of who shows the prospective buyer around the house if the agent won’t do it. Sellers may not have time or want to take the personal risk of inviting strangers around their homes.

Even if Purplebricks remains a minority player, its model adds to the pressure on fees for incumbents, especially those with a big presence in London, such as Foxtons, which focuses on mid-market properties in the capital.

That’s because the most expensive properties are largely in London. The price of a home in the capital is more than twice the average in the rest of the UK, and more than three-and-a-half times the price in the cheapest regions of the country, according to Nationwide. That means the spread between the fixed fee and the percentage fee is at its widest in the capital.

Purplebricks started its operations outside the capital and only moved into London earlier this year. Traditional real estate agents cite the power of their brands and knowledge of the market to defend their model.

“Our client base naturally places very high value on quality and is primarily motivated by the net proceeds of their transactions rather than the fee alone,” Foxtons chief executive Nic Budden said in July when reporting earnings.

Foxtons also has lettings businesses to fall back on: the company generated 47% of its first-half revenue from lettings, the same proportion as it gets from sales. Purplebricks’s own lettings business is still in its infancy.

But concern remains that buyers and sellers will try to cut their costs, especially as the vast quantity of house price data now available to the public online undermines the traditional role of agents in helping clients value their property. The exception to this might be at the very high end of the market, where every property is unique and it’s hard for buyers or sellers to find a comparable sale.

Low-cost, online upstarts have disrupted a whole raft of traditional business models — just ask a London cabbie about Uber’s impact. Even if Purplebricks falls short of achieving that level of success, incumbent real estate agents certainly need to be wary of the upstart waiting on their doorstep.