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In the News

The Estate Agent market becomes more contestable despite recent criticism of Purple Bricks

Jonny Clark

2nd February 2018

If, like me, you have been enjoying the recent adverts by online estate agency Purplebricks (apologies to anyone who only streams content these days, TV advertising must seem very yesterday) you may have noted that the company has been hit by criticism recently from market watchdogs (see report here).

Analysts at Jefferies have provided some evidence that Purplebricks may be over-stating their success rate - counteracting the estate agents claims of an 88% sale-success rate with evidence that suggests that they only sold 51% of the homes on their list within 10 months during October 2017. This success rate is similar to the average for the industry and criticism comes from the fact that PB's use of a fixed fee (whether there is a sale or not) compared to the traditional method of charging a percent fee on sale may not be as good value as customers think.

Purplebricks refute Jefferies figures and say they are taken from just one month and do not include sales that have been completed and have yet to be uploaded to the Land Registry.

Either way, it reminded me of how the estate agent market is becoming more contestable. For many years, estate agency was very competitive but often benefited from requiring local market knowledge curbing the success of large national chains. There were little in the way of economies of scale and very little consumer loyalty.

The market has become more contestable as technology changes and has a larger impact on consumers, allowing potential buyers to have a wider access to information through internet advertisement and data sites such as Zoopla. Purplebricks has seen their model of internet-based information plus a fixed fee work in Australia and are now expanding their provision in the UK. They are not alone, with a crop of internet based agencies appearing such as TV personality Sarah Beany's 'tepilo' business.

The criticism has impacted on Purplebrick share prices and will, no doubt, impact on consumer confidence in the internet/fixed fee model at least in the short term.

But if you have missed the recent advert....

Jonny Clark

Jon Clark has been teaching economics and business studies for over 25 years primarily in the Further Education sector. Before joining tutor2u, he was a senior manager at South Cheshire College in Crewe.

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