Purplebricks quits Australia

Purplebricks quits Australia

10 May 2019

Online real estate agent Purplebricks is quitting Australia less than three years after it entered the market promising to “change the real estate landscape” with its fixed-fee model and online platform, the AFR reports.

More than 180 Australian jobs will be lost, a mix of both direct employees and contractors to the company.

The UK fixed-fee company also said founder Michael Bruce would step down as chief executive immediately, replaced by Vic Darvey, previously Purplebricks’ chief operating officer. The company added it would review its US business.

Pressure has been mounting on the British company to exit Australia after it reported an $18 million interim loss for the six months to October, amid growing concerns about the viability of its Australian business model.

The company also blamed “execution errors”.

The AFR reported last year that “broke” real estate agents were quitting the British disrupter in droves, saying they were unable to meet sales targets while earning only a meagre split of the low fixed-fee charged customers.

Allegations also emerged of a toxic culture within the company. Then a vendor discounting competition in NSW—as unsold stock mounted—shocked the local real estate industry.

Mr Darvey said the online agency, which has a fixed-fee online model, had not been able to make the progress it wanted in the Australian market, said The Australian.

“Our present intention is that, over the next few months, we manage the process of closing down the Australian business in an orderly way, attempting to minimise disruption for both our people and our customers,” Mr Darvey said.

“We will take no further listings in Australia, but intend to engage with our customers to finalise all existing agreements,” he added.

“This is not a decision we have taken lightly, but with market conditions becoming increasingly challenging, we do not believe that the prospective returns in Australia are enough to justify continued investment.”

Purplebricks chairman Paul Pinder said the group’s performance had been disappointing over the last year, apologising to shareholders for the results.

“With hindsight, our rate of geographic expansion was too rapid and as a result the quality of execution has suffered,” Mr Pinder said.

“We have also made sub-optimal decisions in allocating capital. We will learn from these errors and will not make them again.”

Investment bank UBS had downgraded the stock with a sell rating largely due to its poorly performing Australian operation.

Purplebricks launched in Australia in September 2016 with a $4,500 fixed-fee offering in Melbourne and Brisbane and soon expanded into the other states.

The initial response was favourable, with Purplebricks negotiating a number of high-profile sales and saving vendors tens of thousands of dollars.

However, the business began to run into trouble as the housing market started to slow and sales took longer to achieve. This left many of its agents – who only took home about $1,000 for every listing – struggling to make ends meet.

After increasing its fixed-fees a number of times, the company revamped its model entirely by introducing a split fee, where $4,400 was paid upfront and $4,400 on settlement, with agents able to earn double if they secured a sale.

Real Estate Institute of Australia president Adrian Kelly said the industry body was not surprised that Purplebricks was withdrawing from Australia.

“There has never been in Australia a low-cost model that has done well. Property sellers are well aware of what they are getting or not getting,” Mr Kelly said.

Sales people under the Purplebricks model would need to sell more homes to generate the same income as at an agency, he said.

Adam Rigby, CEO of real estate start-up Upside Realty, told The Australian, “Purplebricks naively brought in the same model that had proven successful in the UK.”

“Under their scheme vendors were liable to pay the full fee regardless of whether the property sold or no. This left no incentive for the business or the agents to actually sell properties. This may work in a booming market, but not in a declining one,” he said.

Purplebricks currently has about 1,400 homes listed for sale in NSW, Victoria, Western Australia, South Australia and Queensland.

“Purplebricks agents will continue to service customers. As agents will not be taking further appraisals, their sole focus will be on selling homes and generating a strong result for customers,” a company spokesperson said.

Alternative DIY selling platform, forsalebyowner.com.au, has offered to hire all 105 Purplebricks agents and migrate their 1,400 listings to its online platform for free, the AFR said.