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Does Purplebricks (an online agent) threaten traditional real estate agents in Australia?

 

Digital disruption has come to real estate agents in Australian in the form of online agencies which are offering marketing and sales services to assist sellers in selling their property for a low fixed-fee. They are undercutting full service real estate agents which charge a sales commission.

Purplebricks is a prominent online real estate sales agent. It charges a fixed-fee of $4,999 in QLD, WA & SA and $5,999 in NSW & VIC for its basic service.

The average property price in Sydney is $904,000. The Purplebricks basic fee of $5,599 is much cheaper than the standard sales commission of $19,888 on that price, assuming that a 2.2% commission rate is payable.

In this article, we examine: what services Purplebricks provides for the fixed-fee; the mixed bag of advertising Purplebricks has used; and an overview of its latest financial accounts.

Following this article is marketing commentary by Michael Field.

What services does Purplebricks agree to provide to sellers in Australia?

In essence, it provides an online marketing platform and a ‘Local Property Expert’ to write up the listing, to conduct inspections and negotiate the sale.

This is an analysis of the fees and services in the Purplebricks Service Agreement:

The Fees

  • The basic fee for services is the appointment fee which is $4,999 (incl. GST) in QLD, WA & SA and $5,999 (incl. GST) in NSW & VIC;
     
  • The accompanied viewings service fee is an additional $770 (incl. GST), which is payable if the seller desires to have the Local Property Expert conduct all viewings as advertised;
     
  • The auction fee (which includes the accompanied viewings services) is an additional $1,370 (incl. GST) plus the auctioneer’s fee, which is payable for sale by auction.

Extra charges are payable for additional advertising, such as print media and brochures. An additional fee of 5% is payable for ‘marketing upgrades’.

The fees and charges are payable up front in one of two ways:

  • If the seller has the funds, they pay Purplebricks up front by cash or a credit card or a debit card. This is called the ‘Pay Now’ option.
     
  • If not, the seller takes out an interest bearing loan from the nominated credit provider, who pays Purplebricks up front. This is called the ‘Pay Later’ option. The loan is repayable by the seller on the first to occur of: the property is sold and settled; the property is withdrawn from sale; the agreement is terminated; if an Approved Conveyancer is not used; or twelve months passes from the date the Service Agreement is signed.

The fees and charges are non-refundable if the property does not sell.

Contrast the traditional estate agent. They will charge for marketing expenses up front. With the ‘no sale, no fee’ commission model – they earn their sales commission only if they sell the property, and receive payment on settlement of the sale (not upfront).

The Services

An online marketing platform which includes:

  • Standard listings on purplebricks.com.au, realestate.com.au and domain.com.au
     
  • A generic signboard
     
  • A platform for buyers to book inspections and communicate with sellers directly online
     
  • An interactive website with 24/7 assistance for sellers and performance tracking
     
  • Marketing reviews if the property is not selling
     
  • A trust account to hold deposits under Contracts for Sale

A Local Property Expert who looks after marketing the property by:

  • Providing an appraisal and setting a price range
     
  • Arranging professional photography and drawing up of floor plans
     
  • Preparing the listing with property description and price or price range
     
  • Helping with inspections and offers received from potential purchasers

The Local Property Expert operates as a sole trader or corporation under licence from Purplebricks. They receive a fee per listing from Purplebricks. They receive no payment for a sale. They are not employed by, or authorised to collect moneys on behalf of, Purplebricks.

Under the agreement, Purplebricks is appointed as the exclusive listing agent for the agreed period. No other agent can be appointed during the agreed period.

The Purplebricks advertising – What was allowed and what was banned as misleading?

In its advertising, Purplebricks has emphasised three themes: No fees, Fees Saved and Local Property Experts.

The advertising has attracted not only the public’s attention, but also the attention of the UK Advertising Standards Association (the “ASA”) and the Australian Advertising Standards Board (the “ASB”). This is a summary of their adjudications (with links):

The No Fees advertising

This advertisement was banned in the UK:

  • Advertising “Nothing to pay upfront” “NO UPFRONT FEES” was misleading because a fee was payable regardless of whether or not a sale was made. UK ASA Ruling on New Broom Ltd t/a PurpleBricks.com 30 March 2016

This advertisement was allowed in the UK:

  • In a TV ad Simon converses with an older man: “We sold the house”. The older man replied, “That’s great. Simon did you sell with Purplebricks?” Simon asked, “They are just online aren’t they?” The older man answered, “No, no, they are proper estate agents, you just don’t pay commission.” Simon said, “No commission. Oh. One minute, please.” He then got up from his seat and placed his head in a cupboard and screamed loudly. The voice-over stated, “Ah, commisery [sic]: the misery you feel when you spent thousands on commission but got nothing more for your money.” The ad did not mislead consumers into thinking that Purplebricks did not charge a fee for their service because they would expect to be charged a fee for service. UK ASA Ruling on Purplebricks Group plc 18 October 2017

This advertisement was allowed in Australia:

  • A TV ad featured a family at a BBQ sitting around a table in the backyard. The father in law asks – “Did you use Purplebricks to sell the house because they have no fees?”. The son in law says “No fees!! I’ll be back,”. He puts his head underwater in the nearby esky and screams in frustration. The ad was allowed because the overall tone was humorous and did not breach the Code on Community Standards for health and safety. AUST ASA 0340/17 Purplebricks Real Estate 9 August 2017 (note: the ASA did not consider whether or not the words ‘no fees’ were misleading – that is for the ACCC to decide)

The Fees Saved advertising

This advertisement was allowed in the UK:

  • The claim “You could save thousands*” “*Based on average estate agent’s commission - Source: Which? Survey 2011” was not misleading as it was based on average commission rates from a third-party source. UK ASA Ruling on New Broom Ltd t/a PurpleBricks 14 September 2016

These advertisements were banned in the UK:

  • The claim “£4,158 AVERAGE CUSTOMER SAVING WHEN SELLING” was misleading because there was insufficient information to make the claim. UK ASA Ruling on New Broom Ltd t/a PurpleBricks 14 September 2016
     
  • The claim “Fees Saved” testimonials on the Purplebricks website was misleading because there was insufficient evidence that the individuals who gave testimonials were broadly representative of Purplebricks customers. UK ASA Ruling on Purple Bricks Company Ltd t/a Purplebricks 5 July 2017

The Local Property Experts advertising

This advertisement was banned in the UK:

  • The claim “GET THE BEST PRICE - OUR LOCAL PROPERTY EXPERTS TAKE CARE OF IT” was misleading because no comparative price data was provided that a better price was achieved. UK ASA Ruling on New Broom Ltd t/a PurpleBricks.com 30 March 2016

This advertisement was allowed in the UK:

  • On the “MEET OUR EXPERTS” page on the Purplebricks website, was “Our Local Experts are some of the most respected estate agents in their local area.” Below was: “Find your Local Property Expert, for the very best service”. This was not misleading because ‘local’ referred to an individual’s expertise and knowledge in the area they served, not their physical location. And that a ‘Local Property Expert’ would therefore be an estate agent who worked within a defined geographical area with relevant experience within that area. UK ASA Ruling on Purplebricks Group plc t/a Purple Bricks 25 October 2017

Analysis:

The two TV ads (# 2 & 3) with their slapstick humour were part of the “Commisery Campaign”, along with the recent “cream pie” TV ad. This campaign was described in the Purplebricks Interim Results as “Probably the most successful industry advertising campaign ever”.

That is fortunate because many of its “Home Truths Campaign” ads, which were more factual, were problematic and were banned because they were misleading (# 1, 5, 6 & 7).

Purplebricks financial overview

Purplebricks was launched in Britain in 2012, in Australia in September 2016, and in the USA (starting in California) on 15 September 2017.

In its Interim Results Presentation - 13 December 2017, Purplebricks Group PLC states:

  • In the UK, its revenue was £39.9 million, (half year to 31 October 2017) up 118% over 2016, has 650 Local Property Experts and claims 74% online market share
     
  • In the UK, its net profit was £3.2 million, after cost of sales of £17.4 million, administrative expenses of £9.3 million and sales and marketing of £10.1 million
     
  • In Australia, its revenue was £6.8 million (half year to 31 October 2017), has 105 Local Property Experts and a sales conversion percentage of 83%

    In Australia, its net loss was £5.1 million, after cost of sales of £3.2 million, administrative expenses of £3.0 million and sales and marketing of £5.7 million
     
  • The heavy expenditure on sales and marketing contributed to a loss from operating activities of £8.2 million for the Purplebricks Group (half year to 31 October 2017)

Conclusions

With its ‘virtual office’ real estate sales model, Purplebricks presents sellers with a cheap alternative to the ‘bricks and mortar’ traditional real estate agency.

The Purplebricks advertising focuses on attracting listings from cost-conscious sellers. Purplebricks relies on online marketing services (and a sign) and the Local Property Expert to sell property.

Purplebricks does not have a database of local network of buyers and sellers (unless the Local Property Expert has); relationships with mortgage brokers, lenders and valuers (unless the Local Property Expert has); the shopfront presence or the close-the-sale-to-earn-a-commission imperative that a traditional real estate agent has.

Purplebricks has had a successful start in Australia. Since it started 14 months ago, it has had 2,325 listings, and has received revenue of A$11.9 million from sales of A$1.1 billion of residential property.

It is too early to tell if Purplebricks poses a significant threat to traditional real estate agents in Australia.

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