Property Talk

The ever-changing real estate market

Purplebricks is a UK-based flat-fee real estate company and a leader of its type in the world. Its success in the UK and Canada inspired expansion to Australia and the US.

Its business model is based on charging a fixed fee to list a residential property on its platform and using technology to bring buyer and seller together and thereby facilitate a transaction.

Viewings and price negotiations between the contracting parties are left to the seller and buyer in these types of businesses. With the extraordinary successes of companies such as Uber disrupting the ride share or taxi market and AirBnB allowing owners of rental properties to engage directly with end-user tenants by leveraging technology and amazingly clever apps.

Purplebricks has been a long time leader in this field and its recent shuttering of its operations in Australia and the announcement that it is reviewing its US business is interesting and could provide some insight into the future of similar service providers in South Africa that have been working hard to make an impact on the local market.

Purplebricks only lasted two and half years in Australia before pulling the plug. The US expansion commenced towards the end of 2017 starting in Los Angeles and has since expanded to California, New York, Connecticut, Nevada, Arizona, Florida and New Jersey.

That's a lot of time, energy and money spent which may amount to nothing. The question remains then as to why Purplebricks would achieve success in the UK but fail in Australia and be close to failure in the US Are the real estate markets that different

The market has punished Purplebrick's share price, having plunged to its current value of around 108p from its peak of 498p in mid-2017 and just ahead of its Dec 2015 IPO price of 100p.

Purplebricks has a dominant market share in the UK amongst online estate agents. However this total industry currently only has 7,21% of the total UK residential property market and this is down marginally on the 7,28% total market share for 2018.

In South Africa there are several flat-fee brokerages that are leading the way and these also seem to be most effective at the lower price brackets but unable to gain traction at the mid or higher end property price segments.

This seems to be logical as the complexity of a property transaction increases as the price bracket increases. The enduring value add that an estate agent brings to the table is ensuring that within any given market, the agent helps the seller obtain the best possible price for their property.

They achieve this in part by providing astute advise on presentation and showcasing the property in the best possible way, but more importantly by acting as a negotiator and facilitator of a transaction between two parties that have diametrically opposed aims to an outcome - the one wanting to realize the highest possible price while the other aims to pay the lowest possible price for the same asset. I think estate agents are going to be around for a while yet.