Low commission model under scrutiny as Purplebricks defectors leak internal sales documents

Low commission model under scrutiny as Purplebricks defectors leak internal sales documents
Low commission model under scrutiny as Purplebricks defectors leak internal sales documents

The Purplebricks low commission model - where Australian agents are expected to list 10 properties a month by converting 40 per cent of appraisals - has faced yet another hostile expose in The Australian Financial Review.

It was the fourth article in the past week by the paper which once lauded the Purplebricks model, which has the slogan, Full service. No commission. One fair fee: The most convenient and transparent way to sell a house.

Purplebricks has certainly faced a exodus of its agents for various reasons.

Its most high profile agency listing came last December with the Vaucluse offering by socialite Lizzie Buttrose through estate agent Dean Emerson who also had the House Rules listing in Rosebery.

Emerson, now at Coastline Realty, was a Puplebricks territory owner between January 2017 and April this year. His new agency profile says his net turnover in the last 18 months saw over 40 properties sold for in excess of $60 million.

The newspaper concluded it was getting harder for most Purplebricks' suburban agents to convince vendors to sign up, despite the commission savings.

Internal sales documents obtained by The Australian Financial Review covering the first two weeks of June highlighted underperformance by its NSW agents.

The documents indicated that 27 NSW Purplebricks agents secured a combined 26 listings.

Their NSW agents were converting around 20 per cent of the 123 home appraisals they conducted over the fortnight.

The conversion rate was down from 28 per cent of appraisals converted during February, March and April.

Its top agent over the fortnight had converted four out 10 leads.

Among the 27 NSW agents, nine were struggling to secure a listing in early June.

Some six agents secured two or more listings.

Agents who earn $1000 per instruction – with the remaining near $5000 of the upfront fee going to Purplebricks – require a high volume of listings to make a living.

The paper reported the Purplebricks agents with a backlog of unsold listings were having their capacity to list more "turned off" by head office, preventing them from earning income.

The company provides some financial assistance in these instances, but at the discretion of Purplebricks.

Today Purplebricks defended the model and its culture amid claims of "toxic work environment" after current and former agents told the AFR they had been "bullied, threatened and undermined."

"Purplebricks rejects the serious allegation of a bullying culture," a Purplebricks spokesperson said after former Purplebricks Newcastle agent Steven Bashford claimed anyone who achieved success "gets chopped back".

"It's appalling how they treat agents. Their behaviour is bullying," he said.

Bashford claimed Purplebricks' head office would call his vendors to "draw out any complaints" against him. Purplebricks can claw back money from agents if a customer complained.

Former northern Sydney agent Richard Mirosevich, who sold 41 properties in seven months after a 100 per cent conversion rate of appraisals to listings, has claimed he was fired.

"I was getting great results then they sacked me without notice because I was getting too big.

"They took over my area and replaced me with three to four other people," he said.

Purplebricks' spokesman rejected these allegations.

"We work in partnership with our agents and are committed to investing resources to support them in changing market conditions."

Last week, the Financial Review revealed 27 agents had left the company since March with overall numbers falling to 88 from the 105 reported late last year.

Purplebricks Australia CEO Ryan Dinsdale sent an email to all staff last week telling them they should "not to be distracted by criticism from those that seek to undermine us".

"Instead, have courage and take pride in the fact that we are doing something special and building great businesses together," Mr Dinsdale said.
 
It has also faced a sustained critical campaign for real estate institute leaders who have claimed they didn't offer "proper estate agents" and didn't seek top price results.
 
PRDnationwide released research claiming customers got a better result when they pay the full real estate commission rates.
 
There was negative press when Purplebricks was fined $20,000 fine by the Queensland Office of Fair Trading over misleading customers about how it charges its fixed fees in agreements with clients.

The newspaper claimed "broke" real estate agents were quitting the British based disrupter "in droves" as the fixed-fee agency's low-margin, high-turnover business struggles to achieve enough sales amid a slowing Australian housing market.

The Purplebricks territory owners (franchisees) and agents said the envisaged $100,000 to $180,000-a-year salaries had failed to materialise.

Internal sales figures show that 15 agents undertook a combined 768 home appraisals between February and April, securing 189 listings between them

While two of these agents have 72 instructions between them, the remaining agents have won between zero and 18 new listings each over the three-month period.

"The concept is brilliant, but the business model is wrong for Australia," said former Purplebricks Newcastle agent Steve Bashford, who quit in May.

"There is a big difference between what they promised us and what we achieved."

Other current agents and franchisees, who asked not to be named, made similar observations.

"There's no money in it. The business model is flawed," said a current franchisee.

"I've sold 50 properties in 18 months and I'm broke," another nameless agent who recently quit told the AFR.

Apart from the $1000 instruction fee, agents can earn additional fees if a customer arranges a Purplebricks home viewing or signs up for a mortgage with one of its partners.
 
The Purplebricks are the only agents facing income challenges.
 
The REI says the bottom 50 percent of agents nationally sell less than two properties to earn less than $30,000 annually.
 
It is a far more competitive industry with NSW sales volume down 16 percent last year with agent numbers up by 20 percent.
 
Since launching in September 2016, Purplebricks has secured more than 5200 listings and sold more than 3600 homes. On selling 3,500 properties its suggested it had saved home sellers over $38 million in traditional commission.
 
It currently has 1500 properties for sale. Purplebricks recently raised its fees - raising the price in Victoria, for example, to $5999 from $4500. 

Its UK headquarters reported a £5.1 million loss from its heavily marketed Australian business for the six months to the end of October 2017. 

Purplebricks Australia CEO Ryan Dinsdale recently told the Financial Review more than 80 per cent of agents were earning a "good income".

"It's a new model in Australia with a new way of doing things so it won't suit everyone," Mr Dinsdale said.

"We are really pleased with how the business in Australia is going."

He confirmed franchisees and agents sometimes had to contribute to the cost of customer refunds because there was a "shared responsibility to provide exceptional service".

He also confirmed that Purplebricks had in "rare circumstances" stopped providing new appraisals to territory owners if they had a lot of unsold properties.

In an analyst piece in 2016 UBS's Mark Fielding and Heidi Richardson estimated that a UK Purplebricks agent needed to sell 12 times as many properties as a typical sales agent to achieve salary levels claimed by Purplebricks.

It has a $20 million Avoid Commissery marketing budget in Australia which has included a partnership with the renovation show House Rules on Channel Seven.  

Equities analysts at Jefferies, Anthony Codling and Sam Cullen raised concerns that the model rewards listings over sales.

Being listed in the UK, the AFR reports have generated huge interest from the UK property press with a Purplebricks spokesperson indicating the Australian agency had hired 18 agents in the last two months.

“The net number of agents in the field in Australia is unchanged from March, despite some churn.

“We are winning market share in a declining housing market.

“Our growth allows us to continue to recruit while many traditional operators are making substantial redundancies.”

The spokesperson also said that the Australian Purplebricks business was set to at least meet full-year expectations.

“Market expectations are for year-on-year revenue growth in Australia of 250 percent," the spokesperson advised.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Commissions Purplebricks

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