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the property is withdrawn from sale; the agreement is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. |
