After some extraordinary recent
market valuations, some financial analysts, such as Jefferies, the firm
that advised Zoopla on their flotation, have warned that online estate
agent Purplebricks is set to underperform. In a note in early June,
Jefferies noted that their business model was about listings, not sales,
commenting: “The numbers in the business model look very attractive,
however it is our view they don’t add up. With no reward for actually
selling a home, all eyes are focused on winning instructions, especially
if Local Property Experts want to get close to the advertised On Target
Earnings.”
For those of us who are not professional investors, this is an important insight. Our touchpoints with estate agents are normally about moving home, and we select and employ them to secure us a positive result - not to flatter us and then fail to deliver what they promised.
Most experts in the property industry will tell you that marketing
property on the major portals is relatively straightforward: the key
skills of a successful agent focus around qualifying buyers, property
presentation, constant re-assessment of local prices, understanding
important local details such as school catchment areas, matching
databases, managing chains of buyers and sellers, dealing with
solicitors and surveyors, and literally holding together complex deals
over the 18 weeks it currently takes on average to complete a
transaction.
In the case of the so-called pure online agents,
their model is that you pay a non-refundable sum (normally the best part
of a thousand pounds) up-front, whatever the outcome. When you don’t
sell or the offers secured seem very low, this may no longer look like
such a good idea. Your potential saving has become a non-recoverable
cost and valuable time may have been lost.
The
vast majority of ‘clicks and mortar’ agents (as in reality, all estate
agents are online) receive a fee only when they find a buyer or tenant
and complete the transaction, so their interests are entirely aligned
and mutual with their client. They receive a higher fee for a better
price achieved. You only pay them when they meet expectations, and as
the vendor or landlord you can walk away at minimal or no cost, should
you feel that they are not fully focused on your particular case. This
‘stacks the deck’ heavily in favour of the vendor, which should
encourage and reward regular communication and good service.
So
the two models actually start from completely different positions and
motivations; if the new online websites can perform to the same high
standard as their more established counterparts, then a revolution
really is at hand. Unfortunately, many vendors who choose pure online as
‘a quick and easy option’ may find themselves wiser - but poorer and
frustrated.