Why online estate agents are failing
They replicated the model we’re used to and didn’t innovate enough. The gap in this market remains
In need of some renovation. Would benefit from light work. Located in an up-andcoming area that still has a few challenges. As the online estate-agency Purplebricks puts itself up for sale amid widening losses and a collapsing share price, the jokes write themselves. Purplebricks, one of the pioneers of online house selling, floated almost a decade ago. By 2017 its shares were above 500p. Since then, they have fallen to less than 10p amid heavy losses and management upheavals. Last week, the firm said it was actively looking for a buyer. With losses potentially as high as £20m this year, it remains to be seen whether any emerges.
The British online estate-agency business is not looking very attractive right now. A whole series of once ambitious start-ups have floundered. Emoov closed down despite a tie-up with two of its competitors. One of the largest of the traditional agents, Connells, closed down its web offshoot Hutched only two years after taking it over. Rightmove remains in respectable shape, although its shares are down significantly from the 2021 peak, but it is essentially an advertising site. Share in its rival, OnTheMarket, are stuck at less than half the IPO price. Overall, the sector has taken a beating.
Seeing off the digital upstarts
That is a surprise. Of all the industries ripe for disruption by the internet, estate agency would be at the top of anyone’s list. The industry is widely disliked, with a reputation for bogus descriptions and sharp marketing that annoys both buyers and sellers. And the fees are typically huge – an average of 1% of the sale price plus VAT, and sometimes as high as 4%, which would amount to £14,000 on an average property selling for £295,000 once tax is included. If that does not leave room for innovation and improvement it is hard to know what would. Even so, traditional agents seem to have seen off the online upstarts.
Sure, there are some obstacles that have helped them to survive. For most of us, our house is by far our biggest asset, and the amount we sell it for makes a huge difference to our net wealth. We may not mind booking a holiday online or ordering a take-out meal, but we are far more reluctant to commit to a purely online service for such an important asset as our house. There is just too much at stake, and too many potential pitfalls, and even if we find them irritating, the traditional estate agents at least know the local market and how to navigate it. On top of that, the economy has hardly been welcoming. It was a lot easier for the new web-based agents to carve out a niche for themselves when the market was booming; now that interest rates have started to rise and house prices have stalled, it will be a lot tougher.
Even so, there should be a market for an alternative, especially one that reduces the astronomical costs. The problem is that no one has yet found the right formula. The online agents simply tried to replicate the traditional estate-agent formula except with lower fees and without the heavy costs of running a network of high street branches. In the end, Purplebricks was not very different from traditional agents. If everything went well, it was a slight improvement, but only a very minor one. And if things did not go well, that could easily lead to a lot of problems. Much the same was true of the other online agents.
The Spotify of selling houses
The lesson of the two decades since the dotcom boom is that successful web start-ups are a lot more than just an online imitation of the service they are competing against. Facebook and Twitter are nothing like an old-fashioned newspaper or magazine. Netflix is nothing like the TV channels we were familiar with two decades ago. YouTube, Uber, Spotify, you name it – all offer a very different experience to what consumers were used to. The companies that break through don’t simply put an old model online, and try to save some money in the process. They-rethink the entire business from scratch. The estate-agency market is still wide open for an operator that can do likewise with property.