CIELA alleges that Purplebricks advertisements are misleading to consumers
CIELA accuses Purplebricks of breaching Consumer Protection from Unfair Trading Regulations
Are PB customers paying over £5m per year for properties that PB do not sell?
On day one of its existence CIELA, the Charter for Independent Estate and Lettings Agents, has written to Purplebricks to demand they change their misleading advertising and comparable savings claims. (Full wording of letter at end of release).
CIELA believes that many consumers are signing up to the Purplebricks service without fully understanding three key facts:
1. 22% of customers contracting with PB to sell their property lose their money, using PB’s own figures. 2. The savings claimed are not only over inflated (based on an unsubstantiated 1.8% no-sale, no-fee comparison), but are in any case not suitable for a like-for-like comparison when it is a success-only fee versus a non-refundable upfront fee that is not contingent upon a successful sale 3. The savings claimed ignore the fact that other professional agents, who employ full time negotiators, may achieve a higher price than amateur home-sellers negotiating on their own behalf.
CIELA fears that the financial harm being done to consumers runs into the tens of millions, when the lost fees are combined with the likely sale at an undervaluation of their property.
Although it states the 78% of their listed sales properties achieved a “sale agreed” status, PB’s annual statements conspicuously omit what portion of those properties went on to successful completion. The statements merely publish the full property value of all completed sales, which is irrelevant.
It is widely accepted in the industry that many “agreed sales” do not proceed to completion for a number of reasons outside the control of vendor or agent, such as a simple change of mind, an inability to secure finances or failure to sell another property.
Estimates on the national average “fall through” rate of agreed sales range from 25% – 35%. If this number is applied to the 78% quoted by PB in their interim report dated 5th Dec 2016, it would suggest a successful completion rate of around 55%.
However, CIELA fears worse. Given that the PB service does not include thorough prequalifying of would-be buyers or professional sales progression in-person when necessary, it is reasonable to assume that the fall through rate is likely worse than the national average.
Based on calculations using figures from PB’s own financial reports for the full year ending in 2016, it would appear that PB customers are handing over, conservatively, £5m per year in fees for properties that PB does not sell.
Accordingly, CIELA believes that PB’s misleading advertising and marketing is in breach of regulations and as a result, is harming not only the industry, but also consumers.
A response is yet to be received from Purplebricks, but it is CIELA’s intent to pursue this matter with the ASA if PB does not respond satisfactorily.
CIELA Founder Charlie Wright said “All corporate players in the property industry should be on notice: if you abuse your power or position and act unfairly or in a way that misleads consumers, you are harming the industry and are part of the problem of poor public perception. Where regulations are contravened, especially in respect of abuse of agents data, CIELA will act.”
Letter wording below:
“Dear Sirs,
CIELA alleges that Purplebricks advertisements are misleading to consumers, thereby in violation of portions of the UK Code of Broadcast Advertising, and the Consumer Protection from Unfair Trading Regulations.
While the statements made in Purplebricks advertisements are not factually inaccurate,they serve to mislead the reasonable, average consumer. The public perceives “agents” as individuals who sell homes and retain a commission upon a successful sale. Purplebricks flat fee is not comparable to that of a commission, and its savings claims are based on material assumptions that are omitted from the advertising materials.
I. Misleading Nature of the Improper Price/Savings Comparison:
A. Omission of risk of loss associated with flat fee: The Purplebricks flat fee guarantees that a home will be listed to sell or to let. It is non-refundable, regardless of whether it is up-front or paid later. Conventional agents charge a commission only upon a successful sale. To compare the two in television advertisements, and on the Purplebricks website, is irresponsible and misleading.
B. Absolute Number Average Monies: Purplebricks’s website champions an average savings of £6267 for London and surrounding area sales, and £3035 across the UK. In miniscule print, it explains these figures are based on a commission of 1.8% charged by non-online agents. CIELA demands substantiation of this percentage.
C. Omission of material assumption that final sale or letting price achieved would be the same, regardless of agent: Purplebricks omits a material assumption upon which its claim of savings depends. It does this in multiple locations on its website, and within its television commercials. The Purplebricks equation only functions if the hypothetical comparison agent would not have achieved a greater final sales or letting price. CIELA strongly contends that this is not substantiated, and that the omission of that material assumption itself is misleading.
II. Applicable Regulations:
Consumer Protection from Unfair Trading Regulations 2008 defines a commercial practice as misleading if it “causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.” Part 2 § 5 (1)(b). Part 2 Section (5)(2)(a) of the Regulations dictates that even if a practice contains factually accurate information, it is misleading if “its overall presentation in any way deceives or is likely to deceive the average consumer.”
UK Code of Broadcasting Advertising
– Rule 3.2: Advertisements must not mislead consumers by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner. Material information is information that consumers need in context to make informed decisions about whether or how to buy a product or service. Whether the omission or presentation of material information is likely to mislead consumers depends on the context, the medium and, if the medium of the advertisement is constrained by time or space,the measures that the advertiser takes to make that information available to consumers by other means.
– Rule 3.9: Broadcasters must hold documentary evidence to prove claims that the audience is likely to regard as objective and that are capable of objective substantiation.
– Rule 3.33: Advertisements that include a comparison with an identifiablecompetitor must not mislead, or be likely to mislead, consumers about either the advertised product or service or the competing product or service.
– Rule 3.39: Advertisements that include a price comparison must make the basis of the comparison clear.
III. Injury:
The misleading advertisements jeopardise the UK estate and letting industry’s reputation, as they promote distrust and dissatisfaction with the market, and they unfairly disadvantage independent estate and letting agents based on faulty and irresponsible price comparisons.
The advertisements harm vulnerable consumer homeowners, who are not fully aware of the risks they take on when entering into a contract with Purplebricks. A reasonable, average consumer equates payment to an estate agent with the obligation to sell or let their home, and Purplebricks’ false comparison to non-online agents perpetrates this faulty reliance. Further, failing to present consumers with the proper context of Purplebricks’ savings claim removes from them the ability to make an informed decision. It is undeniable that such a decision is one of the most important financial decisions that a homeowner will make.
IV. Requests
Television Advertisements
1. Remove existing advertisements from all remaining sites; 2. Refrain from comparing the guaranteed service that Purplebricks provides for its non-refundable fee to the service provided by non-online agents, who charge contingent-upon-successful-sale commissions; and 3. In future advertisements, communicate that the fee is non-refundable, even in light of an unsuccessful attempt to sell or let.
Purplebricks Website 4. Do not label the fee a “selling fee,” because it merely guarantees a listing, so label it as such; 5. Alternatively, communicate that the fee is non-refundable, or, not contingent on a successful sale; 6. Substantiate the 1.8% commission fee upon which the purported savings claim depends; and
7. Explain that the savings claim necessarily assumes that an on-online agent would not achieve more in a final sale amount than a Purplebricks agent.
We look forward to your prompt response on this important matter. We look forward to improving the industry together, and providing improved and transparent service to vendor-customers. Because CIELA considers this a high priority, be advised that we will submit a complaint to the Advertising Standards Authority in the event that we are not satisfied that you are taking reasonable steps to correct instances of misleading representations on your website and television advertisements.
Recipient Address: Purplebricks, Suite 7, Cranmore Place, Cranmore Drive, Shirley, Solihull, B90 4RZ.”
CONTACT DETAILS: www.ciela.co.uk samantha.westlake@ciela.co.uk M: 07866 505330
This breaking news story is shared with us by CIELA Samantha Westlake.
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