Opinion: Why investing in estate agency is such a big risk

This morning Purplebricks announced that together with Axel Springer, it is jointly acquiring 25.9% of a German online estate agency, Homeday at a cost of £22.3m.

The move signals Purplebricks’ entry into mainland Europe’s property market and Purplebricks and Axel Springer, via their new venture NewCo, have an option to acquire a further 28.5% of Homeday in August next year.

Homeday, launched in 2015, Homeday is based in Berlin, uses sub-contractor agents, and last year made revenue of  €3.5m and a loss of €3.2m. It projects to break even in 2021.

However, rather than spending even more money, surely it might be more sensible for Axel Springer, the German digital publishing giant, to  be questioning the wisdom of its investment in Purplebricks right now.

A hybrid estate agency may seem like a good fit for a company which has its aspirational sights set on being the ‘most successful digital publisher worldwide’.

But having invested £125m in Purplebricks in March, of which £100m was in shares worth £3.60 each, and purchasing a further 3m shares at a cost of £3.07 in July, taking its stake to 12.5%, it must be praying for an upturn in Purplebricks’ share value from its current £2.20, as I write.

By my calculations, that’s over £41m wiped off its investment in just six months.

Given that the share price had previously risen to just over £5, surely investors will be starting to get nervous about Purplebricks’ ambitions, particularly as it struggles to make inroads into the US and Australian markets.

Clearly investors need to be in it for the long haul – but after four years, Purplebricks are no nearer to making money and giving shareholders a return on their investment.

If I were an investor, I’d be getting jittery and starting to question whether the Purplebricks model really is fit for purpose.

After all, when Countrywide’s shares tumbled by half, shareholders were very quickly calling for the CEO’s resignation – and succeeded in their aim. Should heads now roll at Purplebricks?

At the same time, the Daily Mail & General Trust must be ruing the day it decided to invest in Yopa, pumping in another £20m in August, bringing its total to £75m, while LSL and Savills have also poured in millions.

Meanwhile Emoov, which merged with Tepilo in May, is now talking of floating on the Stock Exchange. Good luck with that! 

Connells closed its online agency Hatched in September, saying the ‘online-only/hybrid business model is fundamentally flawed’.

It’s not just the hybrids or online agents that are bearing the brunt of a stagnant housing market, extortionate advertising costs and sizeable competition.

A quick look through the results of the big agency groups shows all is not well.

Connells said at the end of 2016 it had ‘nearly 600 branches’. A year later, it said it had ‘expanded further’ to 591 branches!

It’s hard to tell whether its branch count has gone down or stayed the same; however, as it is owned by Skipton Building Society, a mutual organisation, members will inevitably be intrigued as to where its future growth is coming from.

Will it float? Or even sell?

LSL reported it had closed eight branches in the second half of 2017; profits plunged by half in the first six months of this year to £6.4m.

As for Countrywide, its shares are at rock bottom, just 11p as I write, with the firm bringing in an expert in restructuring and debt finance as a new director. What does that tell you about the future of Countrywide? In terms of branch closures, it’s only a matter of time before these surface.

Even Foxtons plunged £2.5m into the red in the first six months of this year, compared with a £3.8m profit for the same period in 2017.

Now it’s closing its iconic flagship branch in Park Lane.

The next six months aren’t looking any better, with pundits predicting a weak autumn for the housing market.

Sooner or later, shareholders of all these businesses will want a return. There could be fireworks ahead!

Why High Street is better than back street

Why on earth would the US-owned Keller Williams agency suggest that UK agents should ditch the high street in favour of serviced offices to save costs?

A central presence is one of the cheapest forms of marketing – even cheaper in many places than billboards – now that commercial landlords have had to reduce their high street rents in order to hang on to town centre businesses.

Agents don’t sit around twiddling their thumbs waiting for people to come in.

They use the high street as a base to conduct the same activities that you would if you were hidden away in some modern office block – out of sight and out of mind.

As for making an impression on your customers, being in a serviced office will hardly inspire confidence, nor is it great for those who need to use public transport to get to you.

If you do choose to rent a serviced office for your business, or even be based at home, make sure your pockets are deep.

Getting your name out there when the market is saturated will cost you serious money. You need eyeballs on your business – and repeatedly so. As the hybrid agents have found, marketing doesn’t come cheap.

* Paul Smith is CEO of Spicerhaart

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  1. Hillofwad71

    The history of listed estate agents  like political careers never seem to have happy endings for shareholders. Think DTZ Erinaceous and  for Prudential  shareholders where the parent   dipped their toes into the estate agents world severely burned buying disappearing turnover expensively.

    Savills of course being a notable exception  yet they have  chosen to invest in Yopa

    Axel Springer I think see their  investment in Bricks as a platform to go beyond  the estate agency world maybe a back route into the portals .  A formidable outfit with strong media links owning Bild and Die Welt and Fakt

    What is for certain  more than capable of  enforcing some regime changes at Bricks.Must  be raising a Teutonic eyebrow at Kenny Bruce’s newly acquired portfolio of personal interests  whilst meant to be spearheading global expansion.Acting like a Lottery winner buying a football club in N Ireland  and a string of racehorses in England with Mick Quinn whilst residing  in LA!

    Every post a winning one!!!!




    1. hodge

      Pru dipped their toes into agency and on the face of it lost money. However they have been dining out on all of the term assurance and endowment contracts sold for years

  2. htsnom79

    And yet still, unless and until you actually do the job, it’s money for old rope, dead easy, anybody can do it, estate agents earn a fortune.

  3. J1

    A little bias don’t you think.

    Some sensible observations with one glaring exception that the onliners have proved that some people will trust your business even if it isn’t on the high street.

    Well connected agents can make a good living dealing in smaller numbers of transactions at good fee levels off the back of a high level of personal service.

  4. Hillofwad71

    Well Bricks and Axel this morning have just announced first  foray into European Market  in Germany

    1. ArthurHouse02

      Anything just to announce “positive” news to the stock market to keep the share price propped up.

      1. Hillofwad71

        Positive or negative ,an important piece of news and underpinnig  the rationale of Axel’s investment in bricks They also took the opportunity of flagging up  that they are still experiencig  double digit t growth in UK So love Bricks or loathe them they are increasing market share beyond that of their online rivals   

        1. Robert May

          But to what end? Using investor subsidised fees as a loss leader  (about £2300 lost on  every sale or £1200 on every instruction) to  break an incumbent business model is fine as long as the investors have really deep pockets and a very strong nerve. The problem Purplebricks now have is their ‘Plum trees’; boards  in prominent positions that have taken root.

          There is a new message being announced to  every local market they’ve entered but don’t have one of the strong #local listing reps. “We can list your home on the internet, we are cheap, but that does not mean you will sell your home, especially at the ridiculous prices  some of you are asking”

          Taking a fee for a listing in a buoyant market is fine,but as this market hardens the blunt truths that affect both vendor and n.s.n.f. agents leaves fee to list agents coming across as ‘I’m alright jack, your 10 months is up, where’s our money?’

          Any firm who purports to be an estate agent but is merely offering a passive intermediary service is running the gauntlet of  negligence, especially in this market. Failing to properly advise a client because you’ve  done enough to earn a  listing fee isn’t enough to satisfy duty of care and skill, and that leaves  agents open to claims for loss!

          No sale no fee commissions naturally  adjust themselves to account for the risks in all markets. A fixed cheap fee set on a rising market will be tested by a falling one.

          If you still have skin in that particular game you are braver than me. At some point the fear of missing out has to be overtaken by the understanding that the King has been stitched up, but not necessarily with the finest threads the world has ever seen.


          The king is in the altogether, the altogether…….

          1. cyberduck46



            There is no loss in the UK market. £1200 per instruction is just nonsense.


            The advice from PB in a slow market will be the same as from a traditional agent. You can either reduce your price or wait.


            The end result will be that you pay PB about £1000 in advance/after 10 months or with a traditional agent £3000+ when you complete.


            PB can also change their model if need be. They have in Australia.


            1. AgentQ73

              Hi Cyberduck

              I think you misunderstood a question I asked last week, you said you had a proxy for monitoring new instructions for PB. I asked if you also monitored how many they sold, how many fell through, how many reduced, how many withdrew, how many completed etc ?


            2. Ostrich17

              Hi Cyberduck

              Last week you said:-

              “I would suggest you consider that of the auditor of PB’s accounts and annual report as most likely the one without a vested interest. They aren’t a two bit auditor who would be prepared to tarnish their reputation as well as bring suspicion on the rest of their clients for the benefit of one company.”

              Grant Thornton – also the auditors for Patisserie Valerie – perhaps you might want to revise your view 🙂


              Shareholders at the PB AGM on Friday ought to be questioning Grant Thornton’s failure to highlight the dramatic fall in UK instruction revenue to £ 799 inc VAT(which is now less than the minimum fee of £ 849).




            3. Robert May


            4. Blue



              Reduce your price or wait ?  That is the problem, that is all the listers have got. List it and fingers crossed someone stumbles along and buys it.  How about some actual marketing and selling, actually earning your fee ?

            5. GPL


              I’ll just run these 2 examples of what “loss” is in relation to a Purplebricks client, both of which I was directly involved in as I am a living/breathing/real estate agent who is out working at the Customer Coal Face.

              No 1, the Purplebricks “Expert” boldy tells the potential seller that High Street Estate Agency is Dead?! …..blah, blah, blah ……and then boldly provides his opinion on the property value – £100,000. Dear Old Me….. The High Street Guy chats with the client, talks about local market, potential buyers, how this particular type of property is “undervalued” to an extent (not knowing that PB were stumbling about at £100k) ……anyway, I give my opinion of £110,000 to £112,000 with the possibility of pushing towards £115,000. Client then talks about the 2 other agents who visited and would I match Purplebricks Fee. I asked what value they had placed on her property, and then the story came out re value/high Street dead etc. I laughed and said “No, of course I wouldn’t match Purplebricks Fee as they weren’t Estate Agents and had proved so” …..we chatted further, then I said “I’ve changed my mind, give me a £1000 now and I’ll take your house on …..and I said I would be happy to take her £1000 on the basis of I had been paid and didn’t really care whether it sold or not! ……..rather like PB!”.

              Anyway, we had a good laugh and I listed the property on my terms and sold it within a fortnight for £115,000.

              Example No 2, the PB Expert overvalued a Property, failed to guide the client on crucial points pre-marketing and then ended up recommending the client take £20,000 less than what he had valued it at. After almost 10 months the client came into my office for a chat,  ended up withdrawing from PB, having to pay almost £2000 for NO Sale! I then listed the property, asked the client to spend some time dealing with some issues with the property, then we marketed it and negotiated a sale within a few months, despite the mess that Purplebricks had made of the original marketing, and we sold it for considerably more than PB’s “you should accept this offer” advice!

              Perspective of Loss? …….on both of these occasions, from the clients perspective, Purplebricks turned out to be a Dead Loss! These are just the tip of the iceberg in my view, Purplebricks clients losing Thousands of £’s. Potential Homesellers are beginning to see through the Purple Marketing Fog – If you Value Your Home, probably your most valuable asset, TRUST YOUR LOCAL HIGH STREET ESTATE AGENT and ONLY PAY FOR SUCCESS!



              1. Robert May

                Hello GPL,  Mr Lawson read what he thought I had put. I didn’t say they lose  money I put money is lost .

                There is a difference he doesn’t understand

  5. ArthurHouse02

    The article in my opinion has some merits but i would disagree with needing to be on the high street. I think a good well run estate agency can be anywhere, though i would say being local and having a great knowledge of the area is important. The likes of PB, Emoov, Doorknobs etc dont fail because of their location, they fail because they dont offer very good customer service and will not get repeat business, arent able to keep their sales together (if they are bothered) and cant deal with customer dissatisfaction.

    1. Robert May

      Agency is a service industry that relies on trust and  good advice. Where there is a good listing rep who concentrates on a patch where they are known and are trusted and which they know well. the system works.  Sadly  for listing agencies finding that combination of factors is rare and those who posses those skills either have an agency of their own or are smart enough to ride out the troughs in the market, taking a salary from a corporate.

  6. man perero

    The purplebricks model is built on sand. By using distraction tactics they are somehow glossing over the fact that the share price has collapsed from £5.00 plus to £2.20.

    Share prices ultimately will reflect the fundamentals of the business… If PB continues to lose money the shareholders will take flight. Remember the old maxim …… Turnover is vanity , profit is sanity.

    Good estate agency will win out!!



    1. hodge

      Share prices are often just as a result of aitomated selling triggered by a news article or another related insustry having a bad day. It does not reflect the value per se.

      1. man perero

        On a day to day basis automated dealing may shape the share price. The fundamentals of a business involve profitability , gearing , any number of key ratios and dare i say dividend cover!!!!!!

  7. Anthony Hesse

    Acting like a Lottery winner buying a football club in N Ireland  and a string of racehorses in England with Mick Quinn whilst residing  in LA!

    Hillofwad71: Thank you for brightening up my day on a gloomy Monday morning in the middle of October!

  8. WiltsAgent

    Look up Quindell, they did exactly the same thing and then went bust. The directors made a fortune though.

  9. hodge

    Guys you do make me laugh. Rightmove are your enemy and they are and will be fleecing you for years to come.


    Purple bricks is a couple of guys with an idea and the balls to try it

    1. ArthurHouse02

      I dont think any of us begrudge the couple of guys trying their idea. For them personally it has succeeded tremendously where others with similar ideas have failed. I congratulate them on pitching an idea to people who have poured hundreds of millions of pounds into a business that overall is still loss making.

      What frustrates us is that they claim to be something they are not and a large portion of those hundreds of millions has been spent misleading the public (as stated by the ASA).

      1. hodge

        agents mislead the public every day


        1. ArthurHouse02

          You are entitled to your opinion Hodge, buts let’s just say some companies are less transparent than others.

    2. ARC

      Blimey Mr Hodgkinson we agree on something!

  10. hodge

    Of course Mr Vendor we will aim for the best price and thats why we charge 1.5% because of our care skill and marketing.


    Of course Mr buyer. They will take an offer especially if you use our in house FS so we can present it to the seller as a good offer.

    We can say your good to go


    1. GPL

      hodge? ……crawl back under your stone.
      You do talk complete b@ll*ks.
      What do you do for a living? ……lick pavements in the dead of night?! Go and lick them clean then!

    2. ARC

      He’s not completely wrong just slightly blunt about it I’m sure it’s dressed up better by most agents of all sorts.

  11. Property Paddy

    looks like PB will be below the 2 quid mark any day to me


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