Proptech Weekly #59 — Why Purplebricks is the story that keeps on giving
MARCH 6, 2017 | RAYHAN RAFIQ OMAR
Purplebricks is the story that keeps on giving. Having wiped the floor with all other online agents in the UK, the firm has launched successfully in Australia and — in a surprise move — raised a monster wedge of cash from investors to take their model and brand to the US.
Cue the detractors, jealous with their comments of disbelief.
But surely it makes perfect sense for Michael Bruce, CEO of Purplebricks, to chase the 3–6% commissions in the US.
Yes, lowly UK real estate agents: your counterparts in the US not only have protectionist regulations meaning you need to be a licensed ‘Realtor’ but they get paid well. It’s entirely normal for a single real estate agent to be taking home seven figures a year.
Note that PURP.L is earning to ‘list’ property and not to sell it.
Yes, they’ve persuaded the public that the internet works. And that you don’t need to ‘pay commission’ to sell a property.
If you think about it, it’s easier to persuade someone to spend £1,000 today listing a property for sale than it is to sell your own ability to achieve a sale. The first has a clear outcome. The mental picture is clear and complete.
Having to justify that your job selling property is complex, and here are all the myriad things you do to make sure a property sells — well, that just doesn’t sell. Hence there isn’t a dominant agent in any single area of the UK. The public are saying they find it hard to believe what agents say.
In the US, this hasn’t been the case for decades: you hire a listing agent. You pay them to list your property. And you cannot by-pass them because you won’t get on the MLS systems and Zillow (think Rightmove and Zoopla) without going through a licensed Realtor.
Even better, PURP.L now have a track record of going from zero to dominating mindshare in two countries. Their grasp of how to conduct TV advertising puts all others to shame. You almost feel the pain of the Agents’ Mutual board when they look at the money thrown away on their paltry efforts to win at TV advertising.
I didn’t ever think PURP.L would generate a profit in the UK. The numbers don’t stack up: too little revenue for too much money spent earning that revenue.
But £1,000 fee in the UK isn’t their prize. They are earning over A$5,000 per property just to list in Australia (vs the agent average of A$17,000 down under).
And in the US, consider the crisis they must be suffering when journalists write that average commissions are dropping to the low 5% range: https://therealdeal.com/2017/01/13/average-us-real-estate-commissions-dropping-to-low-5-range/
Not only is the US a much larger market, but the ‘lowest’ commissions are over three times the average 1.6% commission achieved by agents in the UK.
I’m not writing all this to toot Michael Bruce’s horn — he’s perfectly capable of doing that himself.
What I’d like to say is if you’re doing and saying the same thing, you can’t expect a different result.
NAEA and ARLA aren’t going to get US-style regulation and lobbying with a rebrand to Propertymark. There will need to be a change of attitude to achieve a quantum leap step forward in effectiveness when it comes to standards.
If you want a clear example: lettings admin fees is a battle that is about to be lost. And it didn’t need to be this way. There are plenty of ARLA members behaving badly. If ARLA disciplined them and was mentioned in the press for keeping agents in check, then the public at large — and their politicians — would know there is a check and balance that works.
Simple things.
It won’t end with the loss of admin fees. The world is increasingly of the view that the internet is all you need to sell property. Purplebricks is putting tens of millions of pounds into TV advertising to cement this view.
Nested.com — another start-up — takes the view that if they earn more than the ‘guaranteed’ price they promise you, they deserve a profit share. Seems fair. If they outperform, they get paid a portion of the winnings.
If I were still running an estate agency, I’d be ripping off what Nested are doing with a slight twist: £1,000 to list your property. If it sells for the ‘guaranteed’ price or less, you don’t pay another penny. If it sells for more, we get 30% of the uplifted value.
Imagine how that would shake up the competition on your local high street.
A reason for tenants to keep up with their rents
“If missing a rent payment affected your credit rating, fewer people would miss rent payments.”
Those were the words Sheraz Dar gave me when I asked why on earth he would join Creditladder as CEO.
Just mull them over. He’s selling a service to tenants who are desperate for their rent payments to go toward their credit rating. So much so that there’s yet another petition: https://petition.parliament.uk/petitions/186565
And yet the net beneficiaries will be landlords: tenants will have genuine fear from the credit score stick when it comes to missing rent payments.
But there’s a double benefit to landlords: if tenants are less likely to miss rent because their ‘official’ credit score would be at stake, then why would landlords need anything more than a standing order to collect rent?
The rise of the DIY landlord caused the rise in admin fees, because of the need of. lettings agents to recover some of their lost revenue. And isn’t it funny that when these fees are about to be banned, that rents are finally going to be acceptable to Experian via intermediaries like Creditladder?
Even worse, if lettings agents don’t use a service like Creditladder, they’ll be worse off through having to chase more payments — or worse, lose business from landlords who in a few years find Creditladder is more recognisable as a standard than the likes of ARLA.
Openrent and why it doesn’t need a call centre
It’s quite a figure: 50,000 properties to let. That’s what Openrent said they achieved last year. And they’ve achieved that genuinely being the no-frills lettings agent: £29 to list, £49 to list and have all referencing and contract work automatically produced.
Their technology is so simple that — unlike every other online agent — customer landlords don’t call in very much for support and therefore the company doesn’t need a call centre.
Distant second Upad — the pioneer once-upon-a-time in this space — prides itself on having someone at the end of the phone to speak to. I think they miss the point of a low cost service.
Openrent has grown in the most low key, organic fashion. Most people still haven’t heard of the company. So it was quite the surprise that Openrent announced — on a Friday, which typifies how little Adam and Daz know about PR and attention — a £4.4m investment by Dan Jones on behalf of Oliver Samwer and his firm Global Founders Capital.
This isn’t Jones’s first proptech deal: Global Founders Capital are a significant investor in Goodlord (£2m), Nested (£1.2m) and HomeTouch (£700k). Disclosure: They have approached me multiple times to invest in Unmortgage.
For Openrent I have to say this is an odd deal. Their press release says this capital will help them expand the tech team and develop more products to save tenants and landlords money. At £29 to list and £20 for a reference check, how much more money can they save landlords or tenants?
Daz Bradbury, co-founder and CTO of Openrent, has always maintained that if Openrent succeeded, tenants wouldn’t have to go to Rightmove or have their time wasted by agents ever again: they’d just visit Openrent as a one-stop-shop for renting.
He first told me this a few years back when they had fewer than 1,000 lets a month. They’ve now — with no additional outside investment and until recently a team of no more than ten people — hit an average of 4,500 lets a month. So it is entirely plausible that this entrepreneur and his co-founder Adam Hyslop can absolutely achieve what they set out to. They’ve worked diligently and patiently, always growing the business in the most impressive manner. That they are now several times larger than Upad is no mean feat.
Someone once posed to me that if Openrent did viewings they would be huge. I countered saying that if Openrent looked and felt like every other agency, no one would use them.
You use Openrent because you want to spend the least and let with the least hassle, and that means conducting your own viewings. Letting through an agent is often a nightmare riddled with uncertainty. The biggest fear for a landlord is not that they won’t get paid — it’s that their property could be trashed by a rogue tenant. And that’s why landlords like to meet their tenants and Openrent serves an ever-increasing portion of the lettings market.
It’s interesting that Global Founders Capital have also invested in Goodlord as surely the number of letting agents will shrink thanks to companies like Openrent. With this new capital injection into Openrent, surely the prospects for Goodlord decline at the same time as Openrent’s shoot up?
There’s another reason Goodlord has to worry: ZPG.
What THAT acquisition really means
With the acquisition of Expert Agent, Zoopla now controls the data of more than 50% of letting and estate agents in the UK.
And just to be clear, these agents tend to be the ones that don’t look for a better way of servicing customers: they choose a software company and tend to stick with it and the monthly direct debit that helps to fund Zoopla’s profits.
So if you’re Goodlord and show off the lovely e-signature capability, I’m sure agents will say yes please. But when you turn around and say the agent has to change their whole way of working and their software supplier, the answer is probably going to be: “We’ll have a think and get back to you.”
This is why Fixflo has done so well: simple software, that integrates with everyone. And while this deal probably does impact Fixflo which doesn’t have a deal with Zoopla any more, it probably doesn’t impact Fixflo because the service still works for an agent regardless of their software provider.
I don’t have much of a view on Zoopla “controlling agents’ data” debate, because agents have never ever done anything useful with their data. So it won’t make much difference what Zoopla does or doesn’t do.
But I do have a view on agents using technology: they tend to not train their staff to use the technology they pay for. The evidence of this is that many agents use a paper diary to schedule viewings in their office.
It doesn’t matter how good your technology is — if there isn’t genuine buy-in from the end users then the usefulness of that technology won’t make it through to customers. Can landlords and tenants really say their experience has improved in the last ten years? Even my Pops now ‘gets an Uber’ instead of having to ask someone to call a taxi.
It won’t be long before he decides it’s easier to press the Openrent button on his phone instead of paying Rightmove a monthly fee. After all, he does the viewings himself.
Events in the property tech world
UKPA Cannes MIPIM Proptech Meetup — https://www.eventbrite.co.uk/e/cannes-mipim-proptech-meetup-16th-march-tickets-31538455369
— EG London Residential Summit — Wed 3 May — http://www.estatesgazette.com/eg-conferences/
— Future Proptech — Thu 4 May — http://propertytech.co
— Propteq Europe — Thu 11 May — https://propteq.com
— Inman Connect — 7–11 Aug — http://www.inman.com/icsf17/
