Someone who sells through Purplebricks – which yesterday announced that fund manager Neil Woodford has upped his stake from 27% of 28.31% – may end up saving very little on what they would have been charged by a high street agent.
Peter Knight, founder of the Property Academy, puts the saving at potentially just £247.
However, he also argues that Purplebricks, with far lower operating costs and a hefty conveyancing pay-out, will have turned more of a profit on the deal.
He suggests that high street agents could learn something from the business model.
Knight’s analysis is interesting given that Purplebricks has yet to make a profit.
In the UK, it says it made £300,000 in the six months to the end of October last year, but launches in Australia and the US have been costly.
Purplebricks is due to announce its next results on December 13 and has already said that its performance will be in line with expectations – suggesting a sharp rise in earnings in at least the UK.
Knight’s new analysis does not enter the argument that Purplebricks has no incentive to obtain a higher price for its sellers.
His figures make some assumptions, notably that the average traditional agent’s fee is 1%, which is what the Academy’s latest Home Moving Trends Survey found.
In the absence of sales figures from Purplebricks – although Knight points out that he can’t find any traditional agents who publish both their listing and completes sales numbers – he assumes that 50% of all properties listed do not sell/complete within 12 months.
He also assumes the seller will have paid the Purplebricks fixed fee of £849 – £1,199 in London; plus 40% will have paid £300 for a viewings package; plus half of those who do go on to sell pay a £350 admin fee if they have not gone with its conveyancing partner, which Knight thinks pays Purplebricks £350 per case.
Based on the Land Registry’s average house price of £225,956, a high street agent would charge the vendor £2,710.
Regardless of house price and based on this formula:
£849 + (£300 x40%) = £969 x2 = £1,938 + (£350/2) = £2,113
£1,199 + (£300 x40%) = £1,319 x2 = £2,638 + (£350/2) = £2,813
Purplebricks would be charging an out-of-London seller an average total of £2,113 and a London vendor an average total of £2,813.
Knight says that on this basis, Purplebricks charges an average of £2,463 per completion – just £247 less than the average traditional agent.
Furthermore, the average traditional agent may not be receiving a conveyancing commission at all, let alone one worth £350 per case.
In addition, the typical estate agent office costs around £25,000 in rent and rates, equating to £250 per completion for an office with 100 completions a year.
Knight goes on: “One of the biggest criticisms of the Purplebricks model is that those who don’t sell subsidise the costs of those who do.
“However, couldn’t the reverse be said of the traditional model? And aren’t the higher priced properties also subsidising the cheaper ones?
“I’ve yet to meet an agent who can demonstrate that the costs associated with selling a £400,000 property are double those of selling a £200,000 one.
“Indeed, aren’t they identical other than, with some agents, internal commission payments? So dare I say that as much as the Purplebricks charging model can be criticised, so too can the traditional model.”
Knight argues that there are advantages to Purplebricks’ fixed fee model that traditionalists might learn from.
These include the fact that people negotiate an agent’s percentage fee, but less so on a fixed fee.
“Indeed, I believe no one has ever done a deal on a Purplebricks fee,” says Knight.
Knight’s fuller and thought-provoking piece can be found here: