Shares in Foxtons yesterday struggled for a second day running after analysts at Barclays warned that cheaper online estate agents such as Purplebricks are acting as disruptors in the sector.
Barclays queried whether Foxtons could continue to justify charging its fees, and said that online agents “will drive commission rates down in time”.
On Tuesday, shares in Foxtons fell by 4% and yesterday by another 2.07%, to finish at 236.80p.
Barclays expressed concern about sales volumes, fee levels and the fiercely competitive nature of the London market in which Foxtons largely operates.
Jon Bell of Barclays also said that while the general election result had removed the threat of Mansion Tax, “the extent to which volumes have rebounded since then is unclear”.
The bank’s analysis, which has implications for other agents, said: “Ahead of the important month of September, we believe that the company’s post-election recovery is likely to be patchy, particularly for estate agency, for four reasons.
“First, there is a lack of available stock in the market.
“Second, last December’s Stamp Duty changes raised the tax on expensive properties – although some way above Foxtons’ average price point, and there could be a ‘spillover’ effect on overall volumes.
“Third, the ‘normal’ level of annual transactions in the capital is likely to have fallen over time: we stay longer; we move less; we dig more basements.
“And finally, we believe there is some pressure on fees.”
Barclays also raised concerns about online agents and questioned whether Foxtons could continue justifying higher fees.
The analysis continued: “Online agents, such as Purplebricks, operate with little or no high street presence and charge much lower fees than traditional players. Growing quickly from a low base (we understand that online market share is around 3.5%), they are disruptors; new entrants changing long-established norms.
“Foxtons has an unstinting belief that its fees – likely to be the highest in the market – are supported by a premium service that delivers superior net returns for its customers.
“Our view is that in a ‘commoditised’ London market, where visibility over prices (expressed in £ per square feet) is high, online agents could start to demonstrate that they can deliver equivalent returns. Should they do this, then operators’ ability to charge more is compromised.
“We believe that new entrants will drive commission rates down in time, and that this will have repercussions for Foxtons, given that they underpin its very high (around 30% EBITDA) margins.
“This underlying attrition is in addition to that arising from a mix change: a greater proportion of new-build sales (15% of its current pipeline, higher than 10%-12% previously) on which commission rates are relatively low.”
While Foxtons is opening five to seven branches per year, a number of other agents are also upping their presence in London.
Foxtons share price is currently down from a high of 295p last August, but up from its 52-week low of 142.70p in November.
Other agents have been less troubled, despite – like Foxtons – delivering less than sparkling results for the first half of this year, after all reported a fall in transactions.
Countrywide shares yesterday dipped 1.46%, and LSL fell 0.28%.
Comments (34)
I believe that the best way to deal with low fees agents is to have an alternative, a-la-carte, service that undercuts them to a level they can’t compete with; which is why I have launched my budget service.
It is not, as some inflated egos may wish to believe, in response to the online disruptors. Their market share in my area (total market share for all online agents 2.9%) clearly shows they are not any sort of threat. In fact, my new package is in response to those agents who can only compete on fees, as their service and results are bettered by the minority of effective agents.
There is a market for a budget service with those sellers who have always believed all you need to do is to put up an advert in the press/ Rightmove etc and are happy to handle all of their own viewings, offer negotiation and sales chasing etc. We now offer that service at a highly competitive price (also negating the online model in the process as a bonus) For some, this is an effective and cost saving route that we, as agents must recognise. For most sellers, though, it is a false economy as all good agents know (and, we can now demonstrate with hard data) we add real value to the sale price and process.
The article reads. … …………………Growing quickly from a low base (we understand that online market share is around 3.5%), they are disruptors; new entrants changing long-established norms.
** It’s very easy to grow quickly when enough £m’s are poured in to a pitch that allows vendors to reach main stream marketing through budget operatives. Such operatives are mainly backed by City VC’s who will often raise and raise, highlighting some success along the way, getting closer to exit.
Many VC’s will exit at 3-5 years taking high funds out and retain a share interest.
The trouble can come when big VC funds dry up and expensive TV ads and best staff have left.
Budget models lack 2-3 massive things that traditional agents do. But traditional agents are not using the game play to their best advantage. ….
In the first 10 years online industry share rose about 0.2% each year. In the last few years it has grown about 0.75% a year so currently stands at about 3.5% market share. The prospectus’ for investors for online agencies have consistently boasted that online will control c 40% – 60% by 2020.
With this extremely slow rate of growth they will be lucky to have 7%-8% by 2020.
I wonder if there are any other industries that show woefully slow growth that are consistently being “bigged up” by analysts?
The reason is not that people don’t want to save money when selling/renting a property, it’s just they don’t rate the service offered by this sector.
“Where is the NAEA, ARLA, TPO, AM, PRS and CEO’s of major corporate agents?”
Come on, smile please – most of those organisations collect subs from Onlinies so they’re highly unlikely to issue damning statements – are they?
The only thing that NAEA have done which has any relevance whatsoever is to back OTM, which doesn’t feature non High Street Agent properties (WHICH, by the way, I still find strange to say the least…).
You refer to ‘AM’ – do you actually mean Agents Mutual? What do they possibly need to say?
As for CEOs of corps – well we already know that at least one major is considering offering an online-only service – so I wouldn’t exactly expect a total backing for our model coming from that direction, matey!
We HAVE a voice. We have MANY voices. Yours… mine… EVERYONE who posts here whose “unstinting belief” (credit: Mr Jon Bell) is that traditional High Street Estate Agents can, will and do offer a service which is worth its’ cost over cheap alternative offerings.
We have a choir of 20,000 offices.
Keep voicing it, smile please.
“The analysis continued: “Online agents, such as Purplebricks, operate with little or no high street presence and charge much lower fees than traditional players.” And very low service levels. the public NEED good estate agents. On lines are not good estate agents.
“Foxtons has an unstinting belief that its fees – likely to be the highest in the market – are supported by a premium service that delivers superior net returns for its customers.”
You see, Mr Bell – belief is EVERYTHING. Belief makes things happen. You need to take a bl00dy good look at the wonderful things that are achieved via the power of belief.
Unfortunately, on the flipside, there is much in our world that ‘belief’ has a hand in which affects the lives of many in anything but wonderful ways.
Belief has two faces, Mr Bell.
As for Online Estate Agents – well their belief is that they will win instructions because they offer “cheap”… “cheaper” – “cheapest”, even. Theirs is a race to the bottom.
Know what? I have “an unstinting belief” they will get there.
ARE getting there, in fact. Many may already be there…
We all agree this is nonsense but yet again the onliners get positive nationwide coverage.
When will a story come out in the mainstream press explaining the positive factors of estate agency and the pitfuls of online only?
Where is the NAEA, ARLA, TPO, AM, PRS and CEO’s of major corporate agents? Why are the journalists not doing a real comparison and highlighting the many real issues with online only?
We need a voice!
I think it would be an own goal, our industry defending ourselves against something MOST people just will not consider….
For the sellers who want Cheap (Because that is the only reason they go Online Only) let the Online Only Agents take them, usually at the vendors price also, hence they struggle to sell (as PDQ has shown) and we pick up the pieces get them sold and score the real marketing message!
Unfortuantley burying head in the sand will not work.
Onliners are getting far too much positive press, the more there is the more their share will grow.
Release a few of the horror stories and actually market our industry the way it should be and we can insure we will be here for years to come.
Fees are being eroded, more and more online boards are popping up. It needs nipping in the bud before we are all just listers.
you can only be talking of your own area (online boards) – now forgive me smile please, but if this is the case (and it is not near me) you need to get a grip of your own area and tell local people (the only ones that should matter to you) what the “truth is”. Fee erosion is happening with or without online only agents, we’ve just got to work smarter.
My most powerful tool for years have been “Sold” boards and will be for years to come….. just have more than any of your competitors and you will always get your chance to pitch why you are better than them. They called you out because they may already think this, actions speak louder than words.
Who is going to use me just because an article written by the NAEA says so, one written by the bloke who owns the local shop in my village would carry more weight….. but my sold boards just say “result achieved again”.
Forgive me for saying this Ric but your views are rather dated on this. Yes boards help, especially sold boards but times and thoughts are changing. We will not be extinct within next 5 years but in 10 years possibly. The onliners are whether you like it or not growing.
As for NAEA releasing an article thats too small, you need to have a permanent presence standing up for agency. Same way onliners have fallen on their feet with the national press falling in love with them and they get hundreds of positive stories.
When was the last time you saw a journalist in a big paper write about the merits of a high street agent. It needs to be addressed!
Just saying we are a service industry, we are different to this and that is ignoring attitudes and trends change. It needs nipping in the bud before it becomes more acceptable so its not such a big fight.
Not sure if you think I am some old dinosaur of an agent, who takes a while to boot up his computer in the morning, before realising I need to plug it in.
I do kind of get Estate Agency, Marketing, Social Media, Online Agency, I kind of get it all…. but some of the good old traditional values work wonders. If you think Sold boards are not up there as one of the MOST important, I would give up!
You probably didn’t see Stephen Jury’s twitter boast the other afternoon. COAR passive intermediary agency has no subliminal local presence so they have to buy it in, People like Sheraz Dar, Easy Chris, Stephen Jury are being paid to promote that industry sector, they are people who know how to manipulate journalists, they are “media friendly”; sharing their homework with grateful subject strugglers who simply hand it in as their own and hope not to get caught.
The industry doesn’t need one voice it needs the whole industry to be vigilant to what is going on under their very busy noses and for anyone who spots nonsense or false claim to politely redress fiction with a little fact and honesty.
According to Property Drum we are advised to play nicely with journalists, toe the line, be polite, not correct them blah blah blah. Yeah right! If there’s a Fox in the hen house, pass the shotgun!
Well said Robert, Now pass me that Gun!
“People like Sheraz Dar, Easy Chris, Stephen Jury are being paid to promote that industry sector…”
Ah – but don’t forget that for one of them at least that journey has come to an end – Mr EasyChris has taken a step back into his comfort zone and now promotes online gambling again!
Goes to show once again that all the ‘experience’, ‘success’ and bluffery gained and perfected in the outside world means squat when it comes to the ‘property and people’ industry. Just like all the super-salespeople who flooded into the industry in the late 80s that saw what they thought was an opportunity to enter, reap the benefits of their car/double glazing/insurance sales successes, they soon realised the mistakes they made and cleared out their drawers for career Estate Agents to take their places once again.
If journos – and in instances like this, ‘Analysts’ think that they can simply take the twisted statistical billshut of professional ‘marketeers’ and further slant it to suit their own agenda then not only will they open themselves to a barrage of well-deserved flak from those who know better but also bring the credibility of those that publish their works down into the same basement as the fees of those with nothing else to offer.
DISRUPTORS! He said it, thats it, nothing else to see here, move on
Two years ago, the online agents had, according The Neg Mag around 1.5% to 2% of the market. Now they have 3.5% according to this report. In an age where the internet changes things overnight, and the internet is everything, the ‘online’ or even ‘hybrid’ agents arent exactly pulling up any trees….. no its silly season in terms of news and I think this falls into tat catorgory (the Barclays report was probably written by some snotty 24yo yoooff in Canary Wharf who has never sold a house, let alone owned one).
In estate agency, the number one issue is, and always has been, how the hell do you get yourself to be one of the three agents called out for the free val/mkt appriasal … no free val = no listing = no sale = no money. That is what estate agents should be worriying about .. in my humbliest humble opinion
SPOT ON!!! High Streets will ALWAYS BE 1 of the 3 and more likely to be all of the 3 (even if the intention is to then go with the Online Only Model), making your company 1 of the 3 is the key.
What is missed far too often is these people using/thinking of using an “Online Only Agent” are not doing so because it is “Online Only” it is the perception it will be cheaper than the 1.5% to 2% they may be imaging is the fee they will pay….
This is why the savvy agents will always get a chance to sell the pro’s and con’s of High Street -v- Online Only, as the fact is, we can ALWAYS compete with Online Only BUT they can never compete with High Street Agency! that word again FACT!!
I should add, when I say compete I mean “Match” ie A good agent will ALWAYS offer more than them and can always offer the customer what the Online Only offers and extra.
Not wanting to put a spanner in the works or change the direction of the conversation Ric, but next year, (if all is to be believed on here) one thing the on liners will offer more than between 5000-7500 High St Agents will be Rightmove.
Lets hope when we are out there trying to gain that instruction in an ever more competitive market, the vendors are as dismissive of that as much as every agent on here seems to be.
Won’t be a spanner as won’t be next year! It will be 3, 4 or even 5 years at the current rate. Not saying it (OTM) will not work BUT the only way it will be next year is if all but the corps joined and that is not happening.
As Chris has demonstrated though, we all have a budget plan – for us it just isn’t the time to launch it as the budget agents take 1 perhaps a month from hundreds of instructions in our post codes, so no big panic for us at the minute, we would almost create a need for budget if we were to offer the option now. major own goal in our area…. but we are ready! as no doubt every MD on here has discussed and is too.
Apologies Ric, if its 3-5 years before any OTM agent pulls off RM, makes my point about on liners completely irrelevant.
Hi Disillusioned no apologies needed. As if it was next year you would be right! Online Only and Corps would have a field day, but Corps more than Online Only Agents.
As much as I support the AM cause – I am no way brainwashed by this….. I just thought (perhaps hoped) we would have had a better turn out for AM, after all, OTM’s success is in the hands of us agents and no-body else.
Jon Bell doesn’t even know where the 3.5% comes from [(we understand that online market share is around 3.5%)] it is a made up figure one that the likes of Stephen Jury at Emoov boast about spoon feeding to journalists.
When I said above it is group- think people like Neil Woodford and James Caan are getting money poured into COAR agency, £milions and £millions of investor cash to promote an emerging sector. When High profile investors claim an investment is sound it is expected others will follow. There is a natural instinct to follow such trends and it doesn’t take too much wit or skill to deliver a trending article which then gets published to reinforce the trend.
One of the interesting things to note is how the banks and analysts are connected to the products and services they are commenting on. Is seems a little disingenuous that journalists are not adding footnotes to articles providing details of connected interests or influences to articles; Agents would bear full wrath of the EA act if they failed to declare a connected interest to a property transaction so how come the media, bank and analysts are exempt from any form of similar regulations from IPSO or FCA?
OOOH ERRR – judging by the dislikes, I would say in best Corporal Jones fashion…
They don’t like it up ’em, Captain Mainwaring!
You will wear those ‘Dislikes’ as if they were medals, Robert!
I know; “my name will also go on Zee list”
Named dropped, I feel honoured.
Speaks volumes…
Sorry….. I’m struggling to take a bank’s view seriously….. with all the associated scandal involving banks….. do they really have the lofty position of being able to comment on another industry whilst projecting a “this is what WILL happen” attitude?
Sort your own business first!
Completely agree – laughable! Nothing more than a place to stash ye cash and that doesn’t even fill you with confidence they can handle that simple task well.
This is a but rich coming from a bank…..by the way, they charge a £999 to arrange a fixed rate mortgage (why?)…maybe they should look at their own extortionate fees!
(Why?) Help pay back the PPI claims!
you do understand that the part of a bank that is advising in this situation are different to the mortgage arranging side, different to the lending side and different to private (PPI issue) banking?
This is lazy group-think regurgitation of stuff they are reading in the newspapers. (the bit in brackets suggests they have been fed a number and are running with it)
The only bit that comes near to correct is the pressure on fees; fee erosion and the causes of fee erosion is something that has to be understood as does the organised promotion of COAR agency.