In the wake of UK-based real estate company Purplebricks exiting the Australian market, the spotlight now shifts to the future of the fixed-fee model and its place in the Australian real estate market.
Citing “increasingly challenging conditions” and “execution errors” as the reasons behind their departure after their emergence onto the real estate scene in August 2016, the company announced in a statement late Tuesday that the business had not delivered the progress expected.
Purplebricks’ inability to succeed in the market was not driven by a lack of interest, or fixed fee not being feasible, but instead by their complacency in bringing a foreign model to Australia and assuming it would work without any adaptation.
We are confident that Australians want to sell their properties for a fairer price and we have developed a proposition that supports this. In a world where vendors pay less, agents make more and the business is sustainable, everyone wins.
There is a huge appetite for fixed fee and Purplebricks proved it themselves with over 7,000 listings and 5,500 sales in under three years. In entering Australia however, Purplebricks naively brought in the same model that had proven successful in the UK. It is critical to have a market appropriate version of fixed fee for it to be a success.
In the UK, for example, people are happy to do their own open homes, which is a small, simple thing, but it impacts the process. Here they weren’t transparent about open homes being an extra fee.
Under their scheme, vendors were also liable to pay the full fee regardless of whether the property sold or not. This left no incentive for the business or the agents to actually sell properties. This may work in a booming market, but not in a declining one.
In October last year Purplebricks turned their fee structure around, modelling it on our business, Upside Realty, which is purpose built for the Australian market. The fee structure is paid on successfully achieving a sale, as opposed to their all upfront, regardless of success starting point. We see this as just one of the errors that Purplebricks made in expanding to Australia.
In order to grow as fast as possible, Purplebricks attempted to buy the market through huge TV and media spends of over $20m a year which obviously creates a very large hurdle for profitability.
They didn’t take advantage of nurturing long-term relationships with potential vendors and buyers using digital. People consider selling a home up to 12 months in advance, and trying to acquire customers at the point of decision-making in the sale of a home is a very expensive exercise — you’re trying to get a TV ad to hit them at just the right moment.
Purplebricks also quoted ‘increasingly challenging’ marketing conditions as a reason for their lack of success. We would debate that the market is an inhibitor for the growth of such a business. Whilst the market conditions have created a lower volume of sales post royal commission with finance tightening, we feel it is ideal for change and disruption but as a company you need to be very tight on execution and be efficient.
Upside is growing quickly with over 650 listings in Sydney and Melbourne and expansions into ACT and Brisbane this month. This is achieved through strong execution, hiring the right agents and living up to our promises.
Sustainable growth is key to Upside’s long-term success, we will not compromise on service quality to accelerate expansion. Upside is using technology to bring the price down without impacting service levels, in fact our back-office technology means our agents have more time to focus on each customer and their property. Like Purplebricks, Upside Realty has no commission structure, we offer a fixed fee of $7,500 for private treaty sales and $8,500 for auction.
More of Adam's comments on the exit of Purplebricks:
- Purplebricks leaves Australia: Was it a complete misunderstanding of the market that caused the British startup to fail? (SmartCompany)
- 'We'll take all the Purplebricks listings and agents' (Financial Review - Subscribers only)
- 'Crisis over': Purplebricks was doomed to fail in Australia, agents say (The Sydney Morning Herald)
- ‘Naive’ Purplebricks failed to tailor model to Australian conditions (The Australian - Subscribers only)
- Purplebricks was ‘destined to fail’ in Australia (News.com.au)
- Big name in real estate leaves the market, here's what it means for property investors (Smart Property Investment)
- Why Purplebricks’s ‘brute force’ tactic failed so spectacularly in Australia (Real Estate Business)
- Analysis: Is Purplebricks’s exit the death of fixed fees? (My Business)
- Purplebricks shuts down Australian operations (TheBull.com.au)