Purplebricks – What is really going on?

Purplebricks is one of a raft of new-breed estate agency companies making some bold and questionable claims in the property market at present but how many of these claims stand close scrutiny and are they even trading within the law?

Over the years there have been many businesses who have seen what they believed to be an opportunity to change the property market in the UK (more specifically England and Wales) but, despite making bold claims to the press and investors, have failed spectacularly. Remember The Prudential?

In the late eighties it was the insurance companies wanting to sell endowment policies on the back of mortgages with cross selling opportunities (remember endowment policies?).

More latterly, a new raft of entrants have leapt onto the scene throwing the current corporate buzzwords of ‘disruption’ and ‘proptech’. These companies are the online* agents, promising allegedly huge savings for consumers with the same or even better service than the traditional full-service estate agents and big profits for investors.

In this post, I focus mainly on Purplebricks as the largest of these firms however, I also refer to other firms and the model in general too. In 2014, Purplebricks promised investors it would have made £25 Million profit by the end of 2016 (though these figures were subsequently challenged by PB . However, Hardman & Co predicted more modest profits of £8 Million EBITDA by this financial year-end).

Fast forward to December 2016 and PB issued a statement claiming that they had made just £300,000 profit using the EBIDTA method of calculation for the half-year results, some way short of the previous figure. Their full year-end figures are due out on the 29th of June for their financial year-end April the 30th but many industry experts believe PB will have to work hard to have grown their income in a property market where instruction volumes have fallen so significantly and the market share of the online sector as a whole has shrunk from a claimed (but unverified) 6% in mid 2016 to a verified 4% in March 2017. Readers may also wish to see the sector claims in light of other predictions from EasyProperty and eMoov of market dominance by 2017-18 with 20% or higher market share by sector.

Are Purplebricks and the call-centre agents heading for a tougher time in the press and with the authorities?

Those who have read my blog or Twitter feed will know I have called out a number of call-centre agents over their claims on many occasions resulting in a number of rulings made against them by the ASA. Whilst it is bad enough that this sector appears to have more than its fair share of complaints upheld about misleading the public and, by extension, investors, there are other, potentially more serious issues that may yet play out.

In the case of Purplebricks, there is an ongoing issue of whether their self-described LPEs (Local Property Experts) are classed in law as local or, indeed, as ‘experts’. Purplebricks have since removed this claim but were only recently advertising for new LPEs’ to join the firm with an immediate start but with “no experience required”

Certainly, pre-IPO, PB had publicly claimed that all of their LPEs’ were “qualified estate agents”. It would be reasonable that the public or investors may make a transactional decision on the assumption that such a statement would mean that the LPEs’ all held formal industry specific qualifications such as these NVQs‘.  However CEO Mr Bruce, himself a qualified solicitor, knew full well that this was not the case at all (extracts of the correspondence between the author and Mr Bruce at the time have been lodged with Purplebricks solicitors, Schillings).

Then there is the matter of whether Purplebricks and their LPEs’ have been trading legally. Purplebricks maintains that all of their LPEs’ are self-employed franchisees. However prior to June 2016, none of these LPEs’ were individually registered with a property redress scheme, the Information Commissioner’s Office or HMRC for money laundering; all of which are legal requirements under the 1979 Estate agents Act. The author is currently awaiting a formal response on the LPEs’ legal employment status but believes that whether they are classed as formally employed or self-employed, it will leave Purplebricks looking at a possible investigation into their legal status surrounding trading, redress, money laundering, the sale of loans, VAT and associated employment and tax issues.

The claimed savings the public can make are also worthy of closer scrutiny, with PB seemingly very clear to muddy the waters and avoid using their own conveyancing partners firms data in its comparisons whose published estate agency commission figures** are considerably lower than the figures used by PB to estimate the alleged savings made by consumers.

Not only is the savings comparison flawed in its methodology (it is not a like for like comparison) PB claims savings on sold properties but steadfastly refuses to make figures available for how many consumers pay to sell but fail to do so – estimated to be circa £24 Million PA. Consumer and property journalists are now taking this seriously with many asking PB to shed light on their figures.

#PortalJuggling In a recent report on this activity, a number of well-known high street names including Purplebricks were mentioned as having very large numbers of property listings that were apparently anomalous. The author wishes to make it clear that he is not claiming or implying that any of those firms mentioned were deliberately undertaking such an activity merely that there were a large number of anomalous properties highlighted which bear closer inspection.

More disturbing is the use of heavyweight lawyers to silence critics or negative reviews. Purplebricks claims over 5,000 positive reviews yet a very high number of these are from unverified customers. Negative reports from un-verified customers however, are often removed within the hour.  Purplebricks recently removed their entire Facebook review page which certainly did NOT reflect five-star rating on Trustpilot and other review sites posters are not so complimentary about the PLC.

The author has been contacted by a number of customers who allege they were threatened with legal action for making negative posts on Social Media and on review sites and has screenshot evidence of these claims. There are also screenshots of reviews (since removed) by un-verified customers that allege they were not informed that by deferring payment of the Purplebricks fee, they would be signed up to a loan agreement with Close Brothers.

Furthermore, the author himself received a strongly worded email from heavyweight law firm Schillings threatening legal action for raising inconvenient facts and asking reasonable questions. All of the points raised by Schillings were rebutted with no further correspondence being received.

LPE numbers. LPEs’ were and continued to be recruited in large numbers however, what is not clear is how many of these are replacements for other LPEs’ who haven’t made the cut. Whilst the author does not have empirical evidence, there is strong circumstantial evidence echoed by other analysts that the turnover of LPEs’ is very high, suggesting that the promised rewards have not been forthcoming. Certainly, a cursory look at companies house suggests that there are not many who could be regarded as ‘long-term’ franchisees.

With Purplebricks year-end due within the next couple of weeks, there are many more questions unanswered than settled. Why, having made a categorical statement on BBCs’ money box that Purplebricks completes on 88% of all instructions, has Mr Bruce failed to provide any evidence for these figures?

A simple question Purplebricks. For every 100 customers who listed with you in the last financial year (your fee earning event) how many went on to sell (legally complete, not just sold stc) having had the buyer found via Purplebricks?  (There are a great many properties listed as under offer and sold by Purplebricks which are also listed as sold by other agents with a later listing date, suggesting that a significant number of sellers pay up front for Purplebricks, who fail to sell and then switch to high street agents who go on to successfully sell the property (legally complete).

UPDATE 21.4.17

Using publicly available data from Zoopla and Rightmove for the period Apr 21, 2016 – Apr 20, 2017 inclusive (the last 12 months) in the following postcode areas*** there were a total of 3,947 new instructions, of which, Purplebricks listed 91 (a 2.3% market share).

The average price quoted on listing by Purplebricks was £295,514

Purplebricks exchanged on just 23 properties during this time (giving a sale success rating of 25% or, a 75% failure rate. Take your pick)

UPDATE 24.4.17 For transparency and fairness, I have been asked to include the figures for all other agents success/ failure ratio during the same period. Between the same dates and exactly the same criteria, the complete dataset (including Purplebricks) exchanged on a total of 2,441 properties, a 62% instruction to sales ratio. Please note, the 38% of those customers who did not sell would, in the vast majority of cases, have not paid a penny to an estate agent.

So, using this data set, paying to list your home with Purplebricks suggests you have a 25% chance of selling. Whereas if you opt for the no-sale,no-fee model you have an average 62% chance of selling.

As has been pointed out elsewhere, when those who fail to sells’ costs are factored in to the lucky 25% who do, the cost to the average consumer who lists their home is almost identical between full-service agents and Purplebricks.

This means 68 customers paid at least £57,732 at a minimum of £849 per listing (excluding  any additional services such as viewings/ deferred payment charges etc.) but did not sell. What was their average ‘saving’? Purplebricks do not seem to factor these customers losses into their heavily advertised ‘savings’.

With Purplebricks aiming for 3,000 property listings per month nationally, this means (if these figures were repeated across the UK evenly) that 75% of these customers would pay in the hope of selling but fail to actually sell within a 12 month period. That equates to those customers paying a whopping £24,165,000 without selling.

The difference in price between the original quoted average asking price on listing (£295,514) and the average final price quoted when the property was marked as exchanged (£228,145) is a whopping £ 67,368* – 23% below the listing figure.

And the news doesn’t appear to be much better for those that did go on to exchange. Of the 25% who did exchange contracts, the difference between the average prices from all of the original listings and of all of the exchanged properties is £67,368* per property. A total difference in price of £1,549,464. Repeated nationally (using the same average figures as in West Cornwall) this could equate to a £606,312,000 difference between asking and selling figures for the 25% of customers who were successful in selling.
*A misnomer as all agents are online. A more accurate description of these firms is ‘call-centre’ estate agents as they work from a centralised or regionalised office with no public access.

*The difference in asking prices and selling prices may not be a true reflection of the price difference between asking and selling prices of the few properties that sold and could be explained by more highly priced homes simply not selling.

**Purplebricks conveyancing partner is the largest property conveyancer by volume in the UK. Accordingly, it has arguably the most accurate database of fees paid by agents in the UK. In 2015 Stephen Hayter Sales Director of My Home Move, published two articles which appear at odds with Purplebricks recently claimed average agents rates. The average percentage rates in 2015 were reported to be under downward pressure at that point and there is every reason to suppose that the average fee charged for a successful sale by a full-service agent in the England and Wales is now closer to 1% than the 1.8% or more claimed in many adverts.

***TR12 TR12 6 TR12 7 TR13 TR13 0 TR13 3 TR13 8 TR13 9 TR14 TR14 0 TR14 7 TR14 8 TR14 9 TR17 TR17 0 TR18 TR18 2 TR18 3 TR18 4 TR18 5 TR18 9 TR19 TR19 6 TR19 7 TR20 TR20 8 TR20 9 TR26 TR26 1 TR26 2 TR26 3 TR26 9 TR27 TR27 4 TR27 5 TR27 6 TR27 9

Update 17.4.17

Not the only example I’ve recently been sent/ seen but, this persons linkedin profile also suggests they went from zero estate agency experience to being a “local property expert” within a few hours.

IMG_0071


About Chris Wood: Chris is an estate agent with over 25 years of property experience. His business, PDQ Estates Ltd is based in Penzance and Helston, West Cornwall and was included in the Daily Telegraphs’ list of the UK’s top 20 best small estate agents “who go above and beyond to help their customers” in 2013. He is currently championing the fight against #PortalJuggling in the media along with a number of other agents, journalists and agency suppliers.

He has worked with all sizes and types of businesses from single office independents to the management team and board of RBS and Tesco.

A former President Elect of the NAEA and board member of NFoPP until he resigned in 2009, Chris has always championed the highest professional standards for estate agents in the UK.
No stranger to the media, he has appeared on various programs including BBC, News 24, ITV, independent and BBC radio and is a regular contributor to trade journals, local and national Newspapers. Chris is on KloutLinkedIn Ecademy Facebook and Twitter
Chris has previously competed in the National Laser sailing championships and, as a Sabreur with a top 300 UK ranking in fencing. A long-standing member of the Territorial Army; in 2010 he mobilised for a tour of duty in Afghanistan with 1 Rifles as part of 3 Commando Brigade but was medically evacuated back to the UK before deploying to his forward base with his unit and is now medically discharged from the army.

20 thoughts on “Purplebricks – What is really going on?

  1. Hi Andy. By all means. Thank you. Purplebricks – What is really going on?
    Purplebricks is one of a raft of new-breed estate agency companies making some bold and questionable claims in the property market at present but how many of these claims stand close scrutiny and are they even trading within the law? Over the years there have been many businesses who have seen what they believed to […]
    https://pzwoody.wordpress.com/2017/04/12/purplebricks-what-is-really-going-on/

  2. >there is strong circumstantial evidence echoed by other analysts that the turnover of LPEs’ is very high, suggesting that the promised rewards have not been forthcoming.

    Hi Chris,

    What is this evidence and what would be considered “very high” for an agent venturing out as self employed for the first time? Surely you would expect it not being right for a certain percentage of people? Not everybody is cut out for self employment.

  3. Hi John.
    If I were setting out on a new venture with the support and backing of a PLC with associated multi-million pound TV, property portal, press and internet campaign I would expect my chances to be in a successful, profitable business after three years to be better than for almost any ‘hot-start’ franchisee, let alone after just a few months.

    The turnover appears to be well into double figures which suggests that either the model is fundamentally flawed or that PB are possibly failing in their duty of care in the recruitment of and to new franchisees. It doesn’t appear that Purplebricks are members of the British Franchise Association however, their code of ethics makes interesting reading http://www.thebfa.org/about-bfa/code-of-ethics

  4. LPE’s are not franchises. Some are employees but most are self employed individuals and they all receive payment from PurpleBricks. “Well into double figures” doesn’t mean anything. That could be 20% or 90%. If it’s 20% then this would mean that the model has been a success for 80% which would endorse the viability of the model and might even suggest that the 20% it didn’t work out for were not up to the job.

    The article doesn’t really say anything concrete, just innuendo.

    Why do you compare an unverified market share to a verified one? This provides us with absolutely nothing.

    Why do you make such a big deal about estimates not being reached. If we look back to what you were saying 2 years ago you posted an article which claims “Cheap agents could cost UK consumers half a £Billion in wasted fees”. What is going on with that? You are claiming as low as a 30% completion rate costing homeowners £500,000,000. Well my own small sample of data shows that to be way off the mark for PurpleBricks.

    Also your figures for Hardman & Co estimates are out of date. probably from before the move into Australia last July. The consensus forecast of brokers estimate a loss of £8 million. Hardman & Co a loss of £5.5 million but remember this includes startup losses for Australia. I personally expect the UK operation to make about £2 million profit and Australia about £7 million loss. Just an estimate. We’ll see, there should be a trading statement shortly after the end of the month and results in June.

    As I say, I don’t really see what your article tells us apart from the fact that people aren’t very good at predicting the future. Of course there’s plenty of innuendo but nothing concrete.

    • It is very clear from Purplebricks’ own service agreement that LPEs’ are indeed franchisees John abd specifically mention resolving any disputes using the British Franchise Agreements code of conduct. There is little concrete information as Purplebricks are very good at ensuring there is very little concrete information to work on. Hence the article.

  5. Chris, if a competitor came to me and asked me questions about my business I’d tell them to get lost. Why do you think PurpleBricks have to answer your questions?

    Purplebricks are very open about the actual LPE’s they have and also the properties they are listing are there for everybody to see. It doesn’t take much effort to keep a track of these things and seeing as you are so interested I’m surprised you haven’t been doing this.

    Still why bother collecting evidence when you can cast aspersions?

  6. Jon, I think it unlikely that we will agree however, to answer your questions/ statements please consider the following.

    Purplebricks entered the property market rubishing a particular business model and many, many agents by making a number of claims and statements, some of which have already been shown to be misleading, not based on sound data or, either knowingly false or naive to the point of incredulity. It is not unreasonable to challenge those claims. There are also legitimate questions over the legality of the way it has operated and continues to operate in terms of redress, money laundering, data protection and employment law.

    I don’t expect a competitor to tell me it’s business however, when a competitor makes statements claims about how well it is doing or the savings it allegedly offers, I expect that competitor to justify them (incidentally, as do trading standards) with clear, reliable, transparent unbiased data. PB have not to date, in my opinion, done so.

    I do expect all of my competitors to work within the law in the same way they have every right to expect me to so do. I don’t believe that’s unreasonable.

    • Well in terms of legality, expecting is fine, but damaging somebodies reputation without proof is not in my opinion. Innocent until proven guilty.

      In terms of having to justify claims. Are we talking about adverts or any comments made? It just seems completely alien to me to claim somebody is making false claims (by innuendo or otherwise) unless you have evidence. The only way to stop somebody would be to use the courts which can be expensive even if you win the case. I’d be very surprised if Trading Standards ask every business to justify every claim made.

      You aren’t even asking PB to justify claims you’re asking them to make claims on their current conversion rates. Perhaps they should give you a weekly update? They have stated some time back in a radio show that their conversion rate was 88%. That doesn’t mean its currently 88% but if you doubt it then why not ask Trading Standards to investigate rather than repeatedly questioning it? I must admit I don’t really understand the amount of time being taken over a comment on the radio which 99.99% of people probably didn’t even hear and if they did they probably wouldn’t know if it was good or bad.

  7. Hi Chris,

    Could you also clarify what you are alleging in regard to the advert from Ian Taylor? It doesn’t mention he is looking for a local property expert. Perhaps the position relates to a more junior role? The person who visits for measuring and photographs perhaps?

    Did you make enquiries before posting your comments and the advert?

    John

    • That’s interesting John. In the version of this article that I have read the advert was placed by James Lavis who is the lpe for Bournemouth. Where abouts are based to be seeing a different advert? Also are you in any way shape or form employed, self employed a franchisee or related to the above of purple bricks? Your defence of them seems quite vercifarous.

      • James,

        My interest in PB is as an investor and after reading all of the “questions” elsewhere many times over the last few months I have research the true situation. LPE turnover, portaljuggling, estimated profits, growth of instructions & income and the number of listings that go on to sell with them as opposed to another agent. I am a long time investor, a Computer Scientist and also a customer of PurpleBricks which gives me a unique insight into how they and their software work.

        My conclusions are that a lot of people are being misled (the people in the Estate Agency Business being one group) that provide no actual facts and focus on out of date broker estimates, focus on the worst cases rather than the norm, talk of struggling to increase revenue, talk of illegality and general negative innuendo. At least Chris has toned down his attack on portal juggling “he is not claiming or implying that any of those firms mentioned were deliberately undertaking such an activity” but why even mention it if he’s not implying it?

        So what we’re seeing is spin, exactly what some are accusing Purple Bricks of. My point is that the truth is somewhere between the extremes and I wouldn’t hold shares if I thought PB were struggling to increase revenue and I’m looking at the data every day. The key is market share growth which according to my proxy, has increased by about 18% in the last 2 months.

        As for the advert, yes it’s the same one. No actual mention of recruiting for an LPE position is there? If the point being made is that the person sought is going to be working immediately as a LPE then it’s just lazy journalism based on supposition. Make some enquiries and you’ll find the truth rather than have to rely on innuendo.

        John

      • Right that explains the defence. To be fair to all sides in this “debate” it’s all spin the latest advertising campaign focusing on “commisery” is mainly designed to in my opinion mislead and probably to annoy estate agents. The pricing structure can’t really be compared due to the very different nature and structure of the process. With pb you are paying them upfront for the work they due regardless of success whereas the run of the mill estate agent gets nothing until all the work is finished. As far as I am aware anyone taking all the risk in any business tends to receive a greater reward when successful. I believe that the company will fall short on its original targets but let’s face it who doesn’t ! There is also some merit in the argument over local property experts and the definition. I previously mentioned James Lavis, now no argument can be made against him being a local property expert in the Bournemouth area having worked in it for over 10 years that I know off, the storey is not the same however in the Salisbury area where I live. There have been 3 different local property experts covering Salisbury since the companies launch all 3 having never worked in Salisbury itself as estate agents. It’s all spin and as long as people are honest in their presentations then all is fair in love and war. There will be people on both sides of the battle lines that are unscrupulous but not all. Let’s face it estate agents have been tarred with the evil brush for as long as I can remember. The full accounts when published will undoubtedly make interesting reading, I wish you well with your investment.

  8. Hi Chris, Great article. I would suggest it takes 10000 hours to become an ‘expert’ at anything (http://sethgodin.typepad.com/seths_blog/2008/12/10000-hours.html) I don’t think PB really thought about/cared what an ‘expert’ might be but used the word to give potential clients a misleading confidence in their offering. PB probably employ/use very few ‘experts’ in property and even less ‘local experts’ – shamefully misleading IMHO. I am not anti-online or anti-PB (they give consumers more choice) but let’s keep things factual and honest and not the current bullcrap that comes from their adverts. Tom @ Jungle Property

  9. >I would suggest it takes 10000 hours to become an ‘expert’ at anything

    Hi Tom, perhaps this is why the person being sought wasn’t being labelled an expert? In typical estate agents how do you gain that experience? Perhaps this is the case with the person being recruited by PurpleBricks too? It said they will have the opportunity to progress.

  10. Hi Tom. Thanks for your comments. The term expert will always be a subjective one except where definitions exist such as in case-law etc. However, as in the update photograph above (17.4.17) and from other recruitment tweets/ LinkedIn adverts, many of Purplebricks people have little to no experience of estate agency yet are called experts from day one. I do not believe that the definition used by Purplebricks PLC is one that a reasonable person would take it to mean and would be very interested to see how such a claim would fare in court if brought under Consumer Protection Regulations. I believe such a case would be in the public interest.

  11. Hi Chris,

    >I believe such a case would be in the public interest.

    Perhaps Trading Standards can add it to their list?

    I was interested to see Mark Townend’s comment on your linkedin post where he says “I agree wholeheartedly that consumers need to be protected. However, I think there are bigger fish to fry at the moment; there are plenty of High Street agents actively over valuing to win instructions, duping clients into 5 month sole agency contracts. There are more who are clearly conditionally selling to purchasers who will agree to use their in house mortgage consultants. Others who will put their own avarice first by sidelining cash purchasers in favour of those who will be using in house services. Until this industry puts its own house in order bleating on about online / hybrid agents will simply fall on deaf ears with the general public. Quite simply the public wants choice, it is up to High Street agents to justify the genuine value of their charges”

    I was also interested to see that my own comment appears to have been removed.

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