If there was ever an industry crying out to be disrupted, it was estate agency. Forever bottom of the list of most respected professions, the Essex boys in white socks who sell our homes have long been a byword for untrustworthiness. Why, then, has it taken so long to disrupt them?
The dotcom boom of 2000 wasn’t short of websites trying to steal business from high street firms. Yet none really succeeded. The big online success was Rightmove, but it doesn’t sell houses: it merely allows you to search for them from multiple agents.
Finally, nearly two decades on, a new generation of online pretenders seems to be breaking through — while established agencies are beginning to look sickly. In fact, some of those listed on the stock market are among the worst investments you could have made over the past five years. Foxtons, often seen as a bellwether of the London residential market, has tumbled from 400p in 2013 to just 78p now. Its market valuation is just above half the £370 million which its founder, Jon Hunt, bagged when he cashed out at the top in 2007.
Shares in Countrywide, which owns high street brands including Bairstow Eves, John D. Wood and Hamptons, were trading at 650p in 2013. They’re now at 121p. Meanwhile, AIM-listed Purplebricks, biggest of the online agents, has seen its shares boom from £1 a year ago to around £3.50 now, having touched £5 in the summer. It reported in September that revenues for the first half of the year had more than doubled compared with 2016.
The big selling point of online estate agents is that they don’t charge a percentage commission on sales. With no high street shops to maintain, they can afford to quote a flat-rate fee. Purplebricks charges £849, which covers taking photographs, making floorplans, organising viewings, negotiating a price and overseeing the sale to completion. It you want your ‘local property expert’ (Purplebricks has tried to dump ‘estate agent’) to conduct viewings it will cost you another £300.
House Simple charges a basic fee of £495 and eMoov £795; Tepilo charges £645 if you take your own photographs and £895 for a more comprehensive service. In most cases these are vastly lower fees than if you sell through a traditional agency, which will typically charge between 1 and 2 per cent of the sale price — easily £2,500 on a bog-standard suburban semi. It doesn’t help the image of traditional agents that four of them in Burnham-on-Sea, Somerset, were recently fined a total of £372,000 by the Competition and Markets Authority for colluding to set minimum fees of 1.5 per cent.
However, there’s a snag with online agents. Traditional estate agents charge commission only on a completed sale. With an online agent you pay whether the property sells or not. That raises questions as to how much incentive your ‘local property expert’ has to find you a buyer. But even if he works his little white socks off, in a slow market there are inevitably going to be unsuccessful vendors faced with bills they would not have had to pay had they gone to a traditional agent.
That’s why I wouldn’t be so sure about the fortunes of online agents. Signs of a slowing market persuaded me to take my 150 per cent profit in Purplebricks shares a couple of months ago. I have retained my holding in Savills, the only other estate agency share I own, because its upmarket international profile puts it in a different space. Purplebricks has been a great boom-time business, but one that could fall flat on its face in leaner times.
The entire estate-agency sector is a shrinking market. Over the past two decades house prices have surged, allowing commissions to grow fatter. Trouble is, we’re moving house a lot less than we used to — thanks in part to steep rises in stamp duty.
Before 2008, property transactions were running at 150,000 a month. In early 2009 that plummeted to just 50,000. But while prices in most parts of the country have recovered, the volume of sales has not. They are running steadily at 100,000 a month. In other words, there is now only two thirds of the business that there was a decade ago to be shared around the industry. Throw in a load of budget-priced competitors and it’s a recipe for misery.
The one bright patch for estate agents has been the growth in lettings, as more and more people are forced into the private rented sector. But here, too, there is a lot of pressure through the government’s proposed ban on charging fees to tenants: agents will struggle to recover lost revenue by charging landlords more.
The outlook for the property market doesn’t look great, but the estate agency business looks far bleaker. This might be one disruption where the disruptors end up getting just as hurt as the people they are disrupting.