Are residential brokerage models in England and Wales (Scotland has its own unique structures for buying and selling houses with major differences in method of sale, legal execution and role of intermediaries) finally being seriously disrupted by new entrants, commission structures and service offers? In contrast to the traditional model of a percentage fee (approx. 1.5% of the price) payable only upon an actual sale for marketing, pricing, viewings, negotiation, transaction advice etc., market entrants such as Purplebricks offer fixed cash fees (£750-£1000 depending on location) payable whether a sale occurs or not and discretionary add-on services. Countrywide (the biggest chain of estate agents) recently announced a number of responses to the perceived threat.
The first was to copy the model.
Countrywide’s online offering includes a valuation by an agent; thereafter customers manage viewings and receive and negotiate offers online…The fees begin at £795, considerably lower than the typical agency fee of about 1.5 per cent of the sale price, which amounts to £2,849 on the £189,900 average price for a home in England and Wales. VAT is added in both cases…As with start-ups such as Purplebricks, Countrywide’s fixed fee is payable whether or not a sale completes.
The second has been to close 59 out of 822 branches. According to Judith Evans in the FT
The branches that will close amount to about 7 per cent of the FTSE 250 group’s high street network, according to its latest figures, and analysts expect more to follow. The cuts come as online-focused rivals such as Purplebricks are building market share, while low levels of residential transactions are weighing on estate agencies’ margins
It’s also notable that Savills have taken a stake in one of the new market entrants. According to Rebecca Burn-Callander in the Daily Telegraph
The move will help Savills compete with other internet estate agents such as Purplebricks, which commands a 60pc share of the online market and is now the UK’s fourth largest estate agent.
It looks like the long expected impact of ICT advances are starting to force the traditional agents to change their business model. I suspect that there is a long way to go before we see any similar shift in the much more opaque world of brokering institutional-grade commercial properties.