Breaking Property News – 12/12/23
Daily bite-sized proptech and property news in partnership with Proptech-X.
Purplebricks.2 now sells your home for free – but at what cost to the backers?
PRESS RELEASE Solihull, 12 December 2023 – Purplebricks, the UK’s most popular estate agency1, will disrupt the housing market by allowing customers to sell their homes for free as part of a progressive new operating model that places more power in the hands of homeowners.
Following its recent acquisition by Strike, the estate agency group backed by Freston Ventures, Purplebricks today launches a new pricing structure that genuinely lets customers sell their home without paying a penny. All Purplebricks customers can benefit from the service, which includes a home valuation, negotiation, listing on a major portal, and an app that lets them control their listing and viewings. Customers can choose to pay for additional services as and when they see fit.
Alongside the new pricing model, Purplebricks will launch an advertising campaign on Boxing Day that highlights the stress many people go through while selling their home through traditional estate agents – and demonstrates that there is an alternative route by saying “goodbye to the bull and hello to Purplebricks”.
Unlike traditional agents, Purplebricks is fully transparent about the choices available to buyers and sellers. The new pricing model offers customers the choice of paying for a premium Rightmove listing or for hosted viewings. It also provides access to market-leading mortgage deals and conveyancing services. On average, UK homeowners can save £4,320 when they sell using Purplebricks.2
Under its new strategy, the Strike name will be retired and replaced by Purplebricks, reflecting the nationwide recognition of a brand that disrupted estate agency by giving customers the ability to control the sale of their most valuable asset. Purplebricks new operating model also includes an account manager to support customers through the process from start to finish, working alongside expert mortgage and conveyancing professionals. Purplebricks’ expects to achieve significant market growth as a result of this new proposition.’ ENDS
Andrew Stanton’s Personal Analysis aided by Zara Stanton
As all will know since early in 2017 I followed and commented in forensic detail on the trials and tribulations of Purplebricks.1. On a personal level I think that Michael & Kenny Bruce and the original team did in fact do a lot of good, they made it acceptable that there should be a listing fee – which I think all agents should charge universally, and they offered the public something new. (We can debate the other stuff – thousands of my followers know my thoughts on these so no point in covering them once again.)
So when I got a Press Release earlier today – one of about 10 a day we receive, I said to Zara my co-director shall we run this and she wagged her tail and we did the courteous thing, but it would be remiss if I did not add my own take on offering a freemuim model and what that looks like. So let’s do the mathematics on this business model, Zara get me the black pen for the whiteboard we need to do some serious figures.
Serious Figures
Each month the old Purplebricks business used to burn over £1M a month, even though it was getting instant cash flow from listing property. I am not sure of the end figures but let’s say Purplebricks in its last 12-months of trading listed 40,000 properties at £1,100 average fee = £44,000,000 of cash upfront coming in the year. So £3,666,666 from listings and still burning £1,000,000 plus means monthly drag is £4,666,666 plus a month to break-even.
If now they lose all upfront cash for ver, that means in the next 5-months, they burn £4,666,666 x 5 = £23,333,333. Then when first sale completes on no sale deal, if they are lucky they get some financial services, conveyancing services and other bolt on revenue, trickling in.
By the end of the year lets say with beefed up advertising which increases costs they list 50,000 properties. Under the old model that would be £55M in the hopper, instead they bank zero (?) but they get six months of other revenue streams let’s say list 4,166 a month, half complete, get 30% of conveyancing and 30% of the finance, on 2,083 sales x 6 months = 3,794 lots of conveyancing fees and 3,794 of financial services in six months, I put that at only £4,000,000 tops of combined revenue in.
So year one Purplebricks old model on 50,000 instruction that would be £55M + extra revenue from mortgages and conveyancing, and still make a marginal loss. Under new free model, it could generate only £4M of cash in. With costs likely to be £40m – £60m. So possible losses of £36m to £56m after 12-months of trading, plus any liabilities inherited from the old company. Maybe I will be proved wrong? Who knows as the model has yet to be tested, although Strike using this freemium model has eaten through multi-millions in losses to date.
And this is where I am scratching my head here, did Sir Charles Dunstone when at Carphone Warehouse use a freemium model to scale that business? I thought not. Sure you can buy the property market, and when you have 8% or 10% of that market (that most agents do not want the public looking for the cheapest fees possible with property stock to match), sustained by giving the service away for free, how do you monetise that? Exactly.
‘Remember 90% of vendors are not sensitive to fees on the whole, they are sensitive to having their homes sold, being cheap is not of itself a disruptive business model, it only disrupts the backers bank balances as the original backers of Purplebricks found out to their cost.’
I am thinking that maybe it was not the Strike model that needed to be adopted, rather the old Purplebricks model, plus some true digital innovation. It will soon be the end of 2024 so let’s look at the books then and see if Zara and I got the figures right.
‘Now is our Time’ – Jason Tebb CEO of OnTheMarket gives his positive views on the future
Over the past couple of years many have asked me whay I such an ardent fan of Jason Tebb CEO of OnTheMarket and the OTM portal itself; well take a read of what Jason has just posted in his own words and you can see that we have very similar views about how real estate is evolving and how that distribution of those benefits can be a huge force of good for all the stakeholders.
Jason Tebb, CEO of OnTheMarket comments that,
‘As today marks the completion of the deal with CoStar after months of hard work by the teams in both businesses, I have taken some time to reflect on our remarkable journey. As many of you will all be aware, Agents’ Mutual was formed in January 2013 with intention of creating a market-leading, national portal which would deliver services to its members at sustainably fair prices.
The company was listed on AIM in February 2018 and raised circa £30m to fund its growth and continue to develop its proposition to achieve its original aim. I joined as CEO in December 2020.
Almost exactly 3 years on and much has been achieved and there have been significant steps forward financially, operationally and strategically by:
The development of a ‘4 Pillar’ strategy of portal, software, data and market intelligence and consumer communication and monetisation.
The development of a suite of products, services and functionality to help customers grow their businesses.
A new brand, new website and new TV creative.
A group of commercial partners which combine to offer incredible value to our customers.
Our own software solutions
A focus on serious property seekers, with 71% of buyers reporting that they are confident they will purchase a property within 3 months (source: OTM PSI).
A focus on valuation opportunities for agents through our AVM and nurture services, resulting in a combined 95% increase in valuations over 2 years. (up 69% FY22 vs FY21 and a further uplift of 26% in FY23)
Over the past 12-months, despite the unprecedented macro-economic turmoil, we have continued to develop the portal as a direct result of a focus on delivering valuable products and services to our customers, whilst still retaining our core values based on fair and sustainable pricing. Our growth has helped bring serious and tangible competition into the portal marketplace at a time when agents need it most.
The strategic developments over the past few years have not only ensured the sustainability of the OnTheMarket portal, but placed the business in a perfect position to challenge the market leaders.
We are truly grateful for the tireless support of our agents over the years. I have spent hundreds of hours listening to and engaging with thousands of our customers via my Town Hall meetings and individually.
The feedback from these is almost unanimous; agents are pleased with our progress and are hugely supportive of our transformation and growth. But they want us to go even faster. With the support of our customers and the innovations and developments we have made to all aspects of the business, we have never been in a better position to do just that.
We were founded by agents as a competitive response to the negative effects of a duopolistic market and ten years on from OnTheMarket’s inception, agents continue to be passionate about the need for real competition. But now we have the potential to be much more than ‘competition’. Collectively, we are in the best position to now invest heavily and challenge our competitors.
During our discussions it became very clear that a combination of OnTheMarket’s agent friendly platform with CoStar’s proven track record of transforming similar platforms across the world, was a powerful and industry leading collaboration.
I was reminded of the original intentions of those brave group of agents who founded Agents Mutual. “To create a market-leading, national portal which would deliver services to its Members at sustainably fair prices.”
In my opinion, and as an ex-estate agent of 20-years, the collaboration between OnTheMarket and CoStar will enable us to deliver on this original aim.
We, as a company, stand at the threshold of a truly transformative opportunity—an opportunity to further strengthen our foundations, amplify our potential, and redefine the future of our industry. Our intentions are clear and resolute, and now that we have joined forces with CoStar we can set about combining our collective brilliance into a powerful force of innovation and excellence.
This new dawn for our business will continue to honour the legacy of OnTheMarket and its core ethos, while propelling it to new heights. We are driven by a shared vision of greatness, fuelled by the relentless pursuit of progress, and inspired by the extraordinary possibilities that lie ahead, to the benefit of our customers.
CoStar will bring industry-leading global expertise and significant financial firepower to invest in OnTheMarket, allowing us to accelerate our plans. Our shared values and commitment to our customers will provide agents unparalleled value and greater opportunities to enhance their businesses.
The acquisition is not merely a business transaction; it’s a pledge to do something truly transformational in the sector. It signifies our commitment to making a positive impact on the industry as a whole.
We have built the foundations to become the number one property search site in the UK and now with CoStar’s technology, expertise and capital, this deal allows us to turbo charge our strategy and for the first time in our history, go head-to-head with the market leaders. I am truly excited by what we can achieve together.
With the support of our agents, we will change the portal landscape, forever. The most exciting part of the journey is yet to come.
Andrew Stanton Executive Editor – moving property and proptech forward. PropTech-X
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