You may have heard the news over the past two weeks that ‘Purple Bricks’ has made a decision to cease its’ Australian business and re-focus on its’ expansion into the United States and solidify its’ U.K business.

Surprisingly, I’ve received several e-mails from our subscribers asking for my thoughts on the demise of this company here in Australia.

When ‘Purple Bricks’ entered the Australian market less than 3 years ago, they boldly declared that they would “Change the face of real estate in Australia” and (in case you’ve been living under a rock and hadn’t noticed), they were spending in excess of $1.7 million per month on advertising.

In the six months leading up to October 2018, ‘Purple Bricks’ (Australia) reported a loss of $18 million.

Their flagship operation in the United Kingdom is also under extreme pressure with the share price crashing back towards its’ initial December 2015 listing price of 100 pence – in large part to its’ loss-making international businesses – having once been worth 500 pence.

The founder and CEO of the company has stood down and there’s certainly some choppy waters ahead for the organisation.

So, what went wrong for ‘Purple Bricks’?

There has been much written and plenty of theories presented as to why they struggled to take a stranglehold of the Australian market.

‘Purple Bricks’ themselves have blamed their failures on a combination of “increasingly challenging” market conditions and “execution errors” that combined to “not deliver the progress the board expected”.

“The board has therefore concluded that the prospective returns from Australia are not sufficient to justify continued investment,” the company said.

From my point of view, there were some serious flaws with the model from the outset.

Firstly, an upfront payment of $5500 to simply ‘list’ your property was not within the reach of many Australians and the agents had zero incentive to secure a sale when there was no financial incentive for them to do so.

If you imagine a scenario where the agent had a new listing to close or a buyer to run through a home, which would they have prioritised?

The remuneration for the agent was only $1000 for the listing and if you can imagine the costs an agent has (in relation to motor vehicle expenses, phone, insurances, subscriptions, licensing fees etc), it was apparent very quickly that an agent would struggle to make any money at all…and given the amount of business that they would be responsible for, many simply couldn’t afford to employ an assistant and were forced to handle more work than they could feasibly manage.

There was an increased speculation within the real estate industry that ‘Purple Bricks’ would not attract agents of a reasonable calibre given the very poor remuneration that they offered their agents and if you peruse the scope of their online reviews, it is evident that many sellers that used ‘Purple Bricks’ were disillusioned with their result (or lack thereof) and the calibre of agent must be questioned in a majority of cases.

Amid dwindling agent numbers within the company, ‘Purple Bricks’ announced in 2018 that they would change their model to a fee structure where $4400 was to be paid upfront with another $4400 to be paid upon settlement…thus offering agents a better remuneration and incentivising them with securing a sale.

The challenge I saw with this model that the fee structure was not too dissimilar to what a traditional real estate agent charges (if the property’s selling price was anything around $400,000 or under)…and many property sellers that own a high-end property would prefer an experienced agent to handle the selling price in order to ensure that they achieve the best possible outcome.

Another big mistake that ‘Purple Bricks’ made was to alienate the entire real estate industry by marketing agents as greedy “Commission Collectors” when the reality is that agents work damn hard for their money…with the majority of agents in Australia making less than $60,000 per year.

As a result, the industry turned on them and I’m sure you wouldn’t be surprised to know of the ‘good riddance’ style of banter that is going around the private real estate agent chat groups on Social Media.

What many people don’t understand is that agents are only paid upon settlement and many times, an agent may work for months and months on a property…only for the owner to decide to change agents or withdraw their property from the market altogether if they aren’t receiving the sort of offers that they would like.

It’s virtually the only profession where someone can work for hours (sometimes hundreds of hours) and put fuel in your car, spend your time and energy into selling a property only to be left empty-handed.

I can tell you that there is nothing more demoralising when this happens!

Most real estate businesses are reported to incur a profit margin of around 15% (and over the past 12 months, many are not making any profit at all).

It’s already been reported that almost 15% of real estate agents around the country have left the industry so if you reduce the fee by any amount, it’s obvious that it’s very hard to earn a living.

Many of the ‘Purple Bricks’ agents are seeking employment in traditional real estate agencies and to be honest, it’s these people that I feel for!

They have had their livelihoods turned upside down through no fault of their own and hopefully they can transform their careers by being successful at a traditional agency.

No doubt about it – there will be other discount agencies lining up to replace ‘Purple Bricks’ but you’d have to wonder what sort of impact they’ll have, given the huge marketing budget that PB spent.

Mark my words, there will be plenty who’ll try to position themselves as the best alternative given that Purple Bricks reportedly listed more than 7000 properties in the two-and-a-half years they were operating in Australia… a small but significant share of the market that many will want to take.

As always, time will tell.

Until next week…Happy Listing & Happy Selling!