A new report forecasts that the growth of no-branch agents over the next five years really will prove deeply disruptive for the industry as a whole.
The growth of online and hybrid agents will “impact traditional players, potentially driving branch closures” and driving industry consolidation, says the report released to investors yesterday evening.
High street agents will increasingly hybridise, and this, the report says, will have an impact on Rightmove’s per-branch revenue model.
The report, “The future of estate agency: Who wins?” by City analyst William Packer of BNP Paribas Exane, describes Rightmove and Purplebricks as “frenemies”.
It forecasts a transition to a hybridised industry consolidation, with the potential for a scaled Purplebricks to limit Rightmove pricing power.
The report forecasts that online agents will double their market share from the current 5% to 10% within the next five years.
But it also suggests that the online market share could be as little as 7%, or as much as 20% by 2022, and says it expects traditional agents’ share of transactions to “remain significant”.
If high street agents had an 80% market share, the report predicts that there would be just under 16,000 physical branches within the next five years.
However, cost savings could partially protect branch economics as the digital evolution of the industry progresses.
Importantly, the report forecasts that Rightmove and Zoopla could “offer quasi hybrid like functionality – for example to facilitate interactions between agents, vendors and home seekers”.
The report forecasts that Purplebricks will play a key role, and that Rightmove will remain the key winner as the industry evolves, because it is “broadly agnostic” to the industry structure.
That said, it warns that Rightmove is the most exposed player, compared with Zoopla which has been careful to diversify.
However, the report goes on to say that Rightmove’s Optimiser product is an important but under-rated growth driver for the firm, representing £20m of its revenue.
The report, which runs to 108 pages, looks hard at both Zoopla and Rightmove. While Exane concludes that Rightmove is its preferred player, it also ups its targets for Zoopla, which it says has performed impressively in less than a decade.
It says that property portals, especially Rightmove, “are an important vendor requirement”.
The ‘deep dive’ document also examines the argument that traditional agents manage chains, whereas online agents use call centres and their own platforms.
It says, too, that Purplebricks has a “structurally lower and more scalable cost than a traditional agent”.
It suggests that Purplebricks spends 50% of its revenue on staff and rent, whereas a typical traditional agent spends 65%. The report expects that gap to grow as Purplebricks scales through its Local Property Expert network.
The report also wonders how traditional agents can make more money. Suggestions include monetising more of the transaction.
However, it does raise “question marks over instruction conversions to transactions” where online agents, including Purplebricks, are concerned.
The real power at the moment still remains with the local independent businesses. What we need is a way of enhancing that power (maybe with a new network of like minded agents) and new software development to ‘disrupt’ against online listers on behalf of full service agents.
I have a feeling what Robert is developing will help enormously. We are working on something significant as well….which I truly hope will be a game changer.
Vive la independent!!!!!
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@AgentV – The real power at the moment still remains with the local independent businesses
BUT ONLY IF THEY USE IT. Most are nowhere near their true potential and sadly see other agents as a threat rather than their game change plan to turning the industry around. In some ways independents and corporates could change the game to their favour overnight. But many indpendents and corps are simply adding to budget agency that is also a false economy to consumer sellers bringing inferior service further to our mess of an industry.Given the right instance, even an Ape could outperform many lone agents with 10 years+ under their belt. The power for independents is wht they do with their future, not what they walk away from or fail to embrace.
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Agreed, but we also really need a complimentary product line (usp) that plugs straight in to our client and overall audience base to build new revenue streams. Cutting costs due to reducing fee incomes can only go on so long before ………
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At geoW10 – Its such an easy one for agents to do, if they embrace big data and the sharing economy.Played right the Purple’s and Tepilo’s and all the budget models have a massive flaw where cheap would be their demise. Agents need to look at what the cosumer needs.Budget is just a race to the botton at which point many founders and VCs will be exiting with £millions whilst agents that go budget get left to strucggle to pay their way or worse.
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Vendors who are attracted to the cheap fees, online model are attracted to them because of the perception that “it is all online nowadays, and all you have to do is upload your house and someone will buy it”.
Why do they have this perception ? because that is what they see. Sloppy “listings”, a few rubbishy snaps and some flowery copy. Nothing they couldn’t do themselves.
Your shop window is not that glass thing at the front of your office, it is whatever you do online, Rightmove, Zoopla, social media etc. Upping the quality of your content (pro photos, video, aerial shots, 3d & interactive floorplans, dedicated individual property websites) believe it or not, is cheaper than dropping your fees to “compete”. Honestly, I see kids on Ebay putting more skill and effort into selling a second hand bmx than some so called property professionals do on a £500k property.
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A gathering and perfect storm?
RM’s recent average property price index map of England and Wales was a real eye opener.
Draw a line from Bristol to the top of the Norfolk hump and a North/South divide becomes apparent
Average prices in the North are around £175,000 and £440,000 in the South.
Now apply say 1% commission scale to these averages and you can see that in a reduced listing market the Northern agents are on average cheaper than PB for a full no sale, no fee service?
It actually cost PB around £2,700 to list a property in their last reported financials?
Throw in reduced listing levels, lost instructions to the call centre agents, ban on tenant fees, RM’s charging structure and the CMA’s inability to protect traditional estate agents from any anti-competitive nature of investor backed, loss leading fees, over an excessively long period of time and you end up with a disaster of epic proportions ?
Robert May has already suggested that in his opinion over 4,000 agents cannot really afford RM at present.
Time everyone woke up to the facts that to replace no sale, no fee with upfront ‘commiseration’ fees will certainly not do agents, sellers, buyers or indeed HMRC any good?
Particularly when PB have to substancially increase their ‘fees’ once they have gained traction?
The backbone of estate agency is the small one or two branch local family business and this is being stretched to breaking point ,particularly North of this divide.
Estate agency in the UK is at least half the cost of other developed countries and their CMA equivalents have accepted that to make a reasonable return for a full service that is what it takes.
So come on regulators give us a break because without us the whole process will break down!
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GROAN !
Yes Purple will take over the world.
Er !
Have they made a profit yet? If not then they wont be around much longer to disrupt any kind of market.
Secondly as an estate agent I have no issue with PB taking 50% of the market because that means we have vendors with ample time, knowledge and energy to sell their property themselves.
Except they don’t, otherwise the PB’s of this world could have existed (almost) pre digital.
The reason I say knowledge is because nearly every person I have met who have used PB (or similar) have found they have to do most of the leg work themselves and said they probably wouldn’t use the on line model next time.
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Yes, but in the 20 years it takes for everyone to try PB at least once us normal estate agents will be caught up in the disruption.
It appears that most estate agents are blinkered to the inevitable.
I agree that most people might regret using PB or equivalent, but the UK population has been programmed by years of “2 for 1 deals” and price comparison websites to truly believe that cheaper is better.
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I have said for several years that I think that we might be in real trouble.
The problem at its very core (prepare for some big sweeping statements) is that the general public do not like or trust estate agents – I believe that they think that we are a necessary evil.
They also think that we are (on the whole) under-qualified idiots, liars, thieves, ne’er-do-wells, lazy, immoral.
Somehow we’re top of the most hated professions list again – the credit crunch isn’t even really over yet and people like bankers more than estate agents!
WOW!
As an industry we fight bitterly amongst ourselves in our local regions, rather than support each other.
MOST (not all) estate agency owners and companies have no idea that we have moved from just being in the property industry to being marketeers at the whim and mercy of the property portals.
The general public DO NOT CARE about us at all. And without a doubt that is our fault.
Granted some of you will be able to refute some of these statements – but generally across the UK it is true.
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I love the nugget that hasn’t been picked up in this thread…PB are our saviours! They will crush the existing revenue streams of Rightmove with the disappearance of large numbers of High Street premises…It forecasts a transition to a hybridised industry consolidation, with the potential for a scaled Purplebricks to limit Rightmove pricing power.
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Maybe that is why RM are looking at other revenue streams such as data sale and rating agencies for profit?
As a consequence of PB, If I were RM, I would be looking to form some sort of data alliance with the largest branch based hybridised estate agency network?
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