‘Broke’ agents leaving Purplebricks in droves

Property Investment Advisor

Vendor Advocacy Melbourne

“Broke” real estate agents are quitting British disrupter Purplebricks in droves as the fixed-fee agency’s low-margin, high-turnover business struggles to achieve enough sales amid a slowing Australian housing market.

Research by The Australian Financial Review found at least 27 agents had quit Purplebricks Australia since March with overall agent numbers now down to 88 from 105 reported by the company in October when it filed its British interim results.

Purplebricks territory owners (franchisees) and agents, who spoke to the Financial Review, said they were struggling to make a living and were preparing exit paths after the $100,000 to $180,000-a-year salaries they were told they could earn failed to materialise.

Employment contracts seen by the Financial Review show Australian agents earn just over $1000 out of the $5000 to $6000 upfront fee vendors pay when they list with the Purplebricks.

The Australian Financial Review reported that “The concept is brilliant, but the business model is wrong for Australia,” said former Purplebricks Newcastle agent Steve Bashford, who quit in May.

“There is a big difference between what they promised us and what we achieved.”

“There’s no money in it. The business model is flawed,” said a current franchisee.

“I’ve sold 50 properties in 18 months and I’m broke,” said another agent who recently quit.

Purplebricks Australia CEO Ryan Dinsdale told the Financial Review 16 agents had left since March, but said some were still working for franchisees as “sales assistants”. He said more than 80 per cent of agents were earning a “good income”.

“It’s a new model in Australia with a new way of doing things so it won’t suit everyone,”

Mr Dinsdale said. “We are really pleased with how the business in Australia is going.”

He confirmed franchisees and agents sometimes had to contribute to the cost of customer refunds because there was a “shared responsibility to provide exceptional service”.

Purplebricks a flawed model

A former Purplebricks agent told the Financial Review he was expected to list 10 new properties every month and convert 40 per cent of appraisals into instructions.

“The company cares only for listings and is pushing staff to do what they have to [get them],” said the ex-agent.

However, with homes sales slowing and the property market weakening, many Purplebricks agents now have a backlog of listings as unsold properties are carried over from one month to the next.

In an analyst piece in 2016 UBS’s Mark Fielding and Heidi Richardson emphasised how crucial the successful recruitment and retention of local property experts were for the Purplebricks model.

“We see risks in the rapid expansion of PurpleBricks, as the model has proved successful to date, but is untested at a bigger scale. We estimate that a local property expert at PurpleBricks needs to sell three times as many properties as an average estate agent branch sells in order to achieve claimed salary levels, and a typical branch would have at least four employees – suggesting that an LPE could be selling 12 times as many properties as a typical sales agent.”

And this is where the problem starts to get out of hand. In Australia agents are finding it harder to sell property with falling prices and lower volumes. The average value of property transactions in November 2016 – when PurpleBricks was in full flight – was about $1.35 billion a week, according to Domain. But that has fallen to around $500 million per week now.

When selling is harder and agents can’t move a certain amount of stock they end up being barred from taking on more listings under PurpleBricks. That presents a problem for PurpleBricks which gets its payment upfront from listings.

Equities analysts at Jefferies, Anthony Codling and Sam Cullen also raised early concerns.

“For us the arithmetic for PurpleBricks still does not add up.

“The model appears to reward listings over sales, but we believe that sales rather than listings will underpin the value of the shares and that costs will need to increase in order to increase sales.” 

Misleading customers

Earlier this month, WA Today reported that REIWA — WA’s peak real estate body — has called for an investigation into the conduct of competitor Purplebricks after claiming the business “misleads” customers by implying they do all the work of real estate agents, but without commission.

Real Estate Industry WA president Hayden Groves said Purplebricks was overselling itself to potential Perth customers.

“What we were seeing is that Purplebricks has been advertising for a long time comparing themselves with regular real estate agents … the reality is it is quite different,” he said.

“I think that what’s deceptive about their advertising is that they’re claiming to be proper real estate agents, and that goes to the heart of it.

“They are not acting like a professional agent should be doing in terms of seeing the transaction through to settlement, ensuring they’re getting the best price for their client and ensuring that they are promoting the property.

“Purplebricks are simply not delivering that service. They’re advertising they’re proper agents and they’re doing everything else that a proper agent does. It’s not the same model, it’s as simple as that.

“That’s fine to have different model or methodology – we welcome them in that regard – but not to claim they do the same job as us.”

Mr Groves said the upfront fee model meant Purplebricks area experts were not motivated to sell properties, but win listings.

“I think a real estate sales person should be remunerated upon discharging their responsibility which is to actually facilitate the sale of the property in a professional way,” Mr Groves said.

“If you don’t sell it you shouldn’t get paid. Purplebricks is getting paid whether they sell it or not.”

“We would like Purplebricks to be held to account for the false and misleading advertising campaigns that they have been running on television and other areas. We would like that to cease.”

Pressure on profit

In its last financial results filed with the regulator PurpleBricks showed it had made a $5.1 million loss in Australia.

The company intends to announce its final results for the year ending April 30 on July 5.

The company is expecting that for the year it will report group revenues around 5 per cent behind consensus of £98 million “with the consequential impact on the operating profit line reflecting the operational gearing in the Company’s business model”.

The company said results from its Australian division “are on track”.

Is real estate really one of the least trusted professions in Australia?

Qualified Property Investment Advisor

Property Negotiation Tips

The real estate industry has a public perception problem, with new figures showing that agents have one of the least trusted professions in Australia.

A recent report by Roy Morgan revealed that only 7 per cent of Aussies rank agents highly for their ethics and honesty.

Agents scored just above advertisers and car salesmen as least trusted professions, but this put them as the third least trusted profession in Australia, below brokers, talk-back radio hosts and politicians.

Mint Real Estate director and Openn Negotiation co-developer Peter Clements said that the statistics are disappointing given the role of agents.

“I find it disappointing that while we work around the clock and across weekends to exchange one of the most significant investments and protected assets that a client owns, the public still doubt our trustworthiness,” Mr Clements said.

Mr Clements acknowledged that the public has shifted to educated citizens and the old selling processes don’t work anymore.

“In reality, we are operating with outdated practices that have been in use for too long without being adapted for the needs of today’s customer and current business environment,” Mr Clements added.

The director said that the public could now access all the information about prices, trends and more, and agents needed to step up their negotiation and promotion game.

“The negotiation process, especially private treaty, is renowned for confusing vendors and frustrating buyers by leaving them in the dark,” Mr Clements said.

Mr Clements added that agents had to be more transparent and allow buyers and sellers to see everyone’s price.

“Our old and comfortable ways are like hanging on to a safety blanket we don’t want to lose. However, to meet the demands of our customers in this day and age, we need to be trying new and better ways,” the director said.

Mr Clements said that the survey’s results were a wake-up call for the industry and an opportunity for agents.

“I, for one, know the essential part we play in ensuring the best outcome for everyone involved in a property transaction, and am willing to fight for our profession and I’m sure I’m not alone,” Mr Clements said.

Regions outstripped Melbourne in June quarter, as metropolitan price growth abates

Property Financial Advisor

Property Investment Advisor

New REIV data for the three months ended 30 June 2018 reveals that median house price performance in regional Victoria outstripped that in Melbourne.

While median house prices in the state’s regions rose 4.0 per cent to $419,500, they dipped by 0.6 per cent to $840,000 in the Melbourne metro area.

The result in Melbourne was due to a fall of 0.8 per cent in median prices achieved at auction, defying the median lift of 2.3 per cent in private sales of houses.

This overall correction was apparent in Inner Melbourne, where the overall median house price dropped 4.9 per cent to $1,459,000 and in Middle Melbourne, which fell 5.4 per cent to $974,500.

The Outer Melbourne house market performed more strongly, with the median edging up by 0.5 per cent to $681,000.

Unit and apartment median price in Regional Victoria increased by 3.7 per cent to $304,500, while the Metro median was up by 0.5 per cent to $604,000, indicating a continued interest in smaller properties.

REIV President Richard Simpson said that despite lower auction clearance rates and fewer overall sales, there were some sectors of the market that were still performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions. Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.”