House Network was bought as a going concern in a pre-pack administration deal for £200,000 cash at the end of March. The buyer also agreed to take on responsibility for a debt of £1.5m owed to a bank, repayable at 9%.
Before its collapse, House Network had borrowed heavily, had millions of pounds in backing, and had ambitions to float on the stock market.
Payment in two tranches was duly received by the administrators from purchaser Universal Acquisitions Limited, which – in an extraordinary twist – days later announced cessation of trading.
The administrator, Michelle Mills of Hudson Weir, says that three offers were received altogether. The other two bids offered only £50,000 cash on completion.
The offer by UAL comprised £200,000 cash on completion; a £1.5m loan note in favour of Varengold Bank at 9% interest; a personal guarantee from the director of the purchasing company to cover interest on the loan note; and a 5% shareholding in favour of Varengold Bank in the purchasing company.
Details of the sale and how House Network got itself into such difficulties have been revealed in Mills’ report to creditors of the collapsed online agent, which EYE has seen.
It makes for jaw-dropping reading.
It details House Network’s initial success before opposition from other online agents, its plans for a stock market flotation, and how it planned expansion into the quick sale market, all before a bank pulled the plug.
The administrator’s report also details pressure from the portals, including a bill of £35,000 a month apparently owed to Rightmove.
House Network dates back to 2003, when it was founded by Mark and Julianne Readings.
The business took on experienced estate agent Graham Lock as someone with the expertise to support the concept, and he became a director in 2005.
The directors funded the business, which grew steadily over several years and was consistently profitable from 2006 until 2015. At peak, it had 65 employees, says the report.
However in 2016, House Network began to experience financial pressures due to competition from other online agents.
It also started offering services on credit, apparently via Shawbrook Bank, which impacted on cash flow.
In 2017, the company obtained a loan of £1.5m from Varengold Bank.
House Network was considering a launch on the stock market, with the report saying that the directors launched a pre-Initial Public Offering placement, raising £1.3m (£1,324,918) between October and December 2017.
During 2018, a further sum of £5.7m (£5,686,089) was received from investors.
The administrator’s report says: “The aim of the IPO was to raise funds to support the business and grow the company’s market share whilst competing with other online estate agents who had been aggressively targeting customers.”
House Network tried to diversify, and with the additional funding developed the iBuyer (Move Happy) platform.
iBuyer was set up to buy properties at a discount, says the administrator’s report. The company aimed to be “the first estate agency in the UK to purchase and sell properties utilising one platform”.
The company started market testing the proposition last December.
House Network had also tried to buy another, un-named, ‘fast buy’ business. However, funds for the acquisition did not materialise, and the company then tried to merge the two firms.
With cashflow a problem, by the end of November last year a new funding facility was agreed and £300,000 was received, with the aim to support trading so that the merged firms could be sold in early 2019.
However in January, talks broke down. House Network tried to raise further funds, secured on the basis that staff salaries were covered while directors went unpaid.
At the end of January, however, redundancies became unavoidable, and at the end of February, House Network was issued with both a winding up petition by a creditor, financing specialist Reditum SPV42, and a demand letter from Varengold.
Hudson Weir found there was no money to pay staff, who had not been paid for February, with no funds to meet March payroll costs. A number of staff had already left.
An additional pressure was also received from Rightmove and Zoopla, says the administrator’s report.
Rightmove had suspended the House Network account. House Network could have paid £10,000 to reinstate the listings for two weeks, but House Network “was not in a position to pay the outstanding invoices which were approximately £40,000 with a further billing of £35,000 per calendar month accruing”.
The report says that trading the business in administration was “not a viable option” due to lack of funds, the risks involved and the “pressing supplier and salary payments”.
A pre-pack sale was therefore agreed to be the best option.
The part of the report into the purchase by Universal Acquisitions Limited suggests that UAL is a “connected party”, with a “collection” of House Network shareholders. However, it makes it clear that none of these shareholders were involved in managing House Network.
The report also suggests that the purchasers should have taken advice from a ‘pre-pack pool’, but did not.
The report says that UAL “proposes to heavily invest immediate funds to assist cash flow” but has not yet given details.
Hudson Weir has now written to vendors saying: “As House Network is in administration and the purchaser of the company has ceased trading, you are no longer contractually obligated to House Network and are free to instruct other agents to sell your property.”
It has also warned: “Please note that we are unable to provide you with contact details for anyone who has already viewed your house as it is a breach of data protection regulations and we are not authorised estate agents.”
Owners who supplied keys to House Network have been advised to contact Viewber to arrange their return.
Hudson Weir has also told vendors to get in touch with Shawbrook Bank if they have an agreement in place.
The letter tells vendors: “Shawbrook have intimated that as House Network have not complied with their agreement to sell your property, then you are unlikely to be required to pay the fee currently owed.”
Just shows not enough pie for the Fors Sale By Owner /DIY operators like PB etc and that FSBO/DIY dont work long term on crowdfunding models.
Once Purple Bricks goes down in the coming months due to the £8m burn rate then it’s pretty much game over for mass scale operators.
Show the love to PB and make sure you click their Google Adverys to help with cash burn rate.
Happy Monday people!!
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”In the coming months”
If you genuinely think that, you’re plain and simply wrong. Even with basic maths knowledge.
This isn’t me supporting them, it’s just not going to happen.
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Looks like we actually need purplebricks to stop these other rats from operating.
Until the gov’t, rightmove and watchdogs do the right thing and make payanyway a criminal offence , these rats will keep on producing.
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Any rat that deals with payanyway should be boycotted by real estate agents.
Viewber, rightmove , zoopla , mortgage advice bureau, your for sale board firm.
There are alternatives.
It’s time onthemarket got everyone in a room together and decide if agents actually know how important this issue is now.
Kill rightmove …. and soon.
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It’s like reading a car crash. What a mess. Let’s hope viewber return all keys promptly so not to add to the stress.
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Ahhhh Disruption, when despite borrowing millions of other peoples money, you still cant make it work
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Still trying to fathom how House Simple believe it’s a great idea to sell homes in Yorkshire for free until the end of August. On top of television advertising.
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Lose leader, probably looking at floating themselves. Shows they have market penetration, as with everything its all smoke and mirrors. There will be a reason Sam Mitchell left a secure well paid job at Rightmove to go there. I doubt it’s the salary, probably very tasty share options.
If they float they get an injection of cash for 2 – 3 years to run the company. Also gives the directors a chance to dump shares over that period even if they do not perform well it makes them very wealthy people.
Look at it as an investment vehicle not a business. Same as PB, If they go bust tomorrow the Bruces will still have made millions in the process.
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^This^
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This has been expanded to the whole of North England (from The Lakes across to York, from Chester across to Peterborough).
Madness
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£35000 a month to Rightmove
The only winners
It’s time for a mutual rival
Interesting news item Ros.
Beware the on-line model peeps – if you think you have enough money to start one, then think again!!!!!
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“£35000 a month to Rightmove”
Works out at less than £150 per listing per annum.
Rightmove should be charging PB £1million a month on that basis!
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In the previous article, wasn’t it circa 1,000 House Network customers and therefore £35 per listing per month (£420 per annum)?
If it is £35 per listing per month, then I find it quite expensive compared to our own where I reckon we are circa £150 per listing per annum.
As ever, it would be lovely to know the truth so that it can be ascertained as to the viability of such businesses. It could be that “we don’t have premises” is more expensive than having physical offices.
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A previous league table suggest HN had approx. 2,500 – 3,000 listings in 12 months?
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So were they stuck with Rightmove on an annual figure based on a higher number of properties and as the business tanked they were still having to pay at a higher rate???
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They must have signed a contract on that basis – same as any other agent really.
If sales drop off you need to scale back costs – or trade through the dip.
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Rightmove charge onliners the ‘geographical pricing model’, which is one subscription per 40 properties (the average number of properties that are For Sale with a UK agent, so this can fluctuate, but last I heard it was 40)
So HN’s bill would have been worked out from the following:
Number of listings For Sale (note, NOT including SSTC): 1000
Divided by: 40
= 25
Multiplied by: £1,200 (approx monthly subscription fee)
= £30,000 per month
This is not taking into account any lettings that they might have done, or premium displays they might have ordered, etc
They all fluctuate slightly as HN were probably on a lower rate than new joiners because they have been around for so long, but that all adds up roughly.
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Thank you, Estateagencyonliner14.
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“Shawbrook have intimated that as House Network have not complied with their agreement to sell your property, then you are unlikely to be required to pay the fee currently owed.”
So Shawbrook Bank are taking a hit for the customers who opted for deferred payment but did not sell? This might make other lenders in the sector choke on their cornflakes!
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Thanks for the insight ….we rarely see that level of detail.
Personally I think things should be a lot more transparent when it comes to insolvency.
1/ Pre pack administrations can be very short notice things with very limited information available to any external parties.
2/ The purchasing company in this case, Universal Acquisitions Limited, has announced cessation of trading but neither companies house (co no 11879126) or The London Gazette seem to have any notices to that effect yet.
Certainly a bizarre set of events from the outside….
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The maths will be the same at purplebricks only on a much bigger scale. Proof if it was ever needed that the model doesn’t work.
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