Countrywide is rolling out its Flexi-service but they really don’t want to sell it to you if they can avoid it. I’ve made the hybrid vs traditional and Countrywide vs Purplebricks arguments a lot lately but these are important trends so here are latest points.
Countrywide rolling out Flexi-service, rumoured to be closing 62 branches
Countrywide has given a few more details about how it will roll out its Flexi-service to c.260 branches (25% of the 1,052 branches reported at H1 2016) from the 54 pilot branches. It makes it clear it’s entirely defensive, not a business driver and that Countrywide is being dragged against its will into the age of hybrid estate agency and proptech. The roll out, according to CEO Alison Platt, will only be in geographical areas “where there are already established online or hybrid agencies operating”. Considering more than one hybrid is national, it can only mean when a brand has actually seen competition thereby giving away first mover advantage. Countrywide is actively avoiding driving hybrid where it doesn’t already exist. That’s in keeping with Flexi-service being designed to look like other hybrid agents – the flat fee is £795 vs Purplebricks £798 – but missing elements: no involvement of an agent, no price negotiation and no seeing it through to completion that Purplebricks/YOPA does. Happily, at any time, you can switch from Flexi-service to Countrywide’s full traditional service “without losing any money”. I’m not sure how that works if you’ve paid upfront and then the house doesn’t sell but the intention is clear. Countrywide’s CEO says the roll out is only happening as the pilot met all three of management’s tests: 1) Did it lead to more market appraisals? Yes (they’re free, can now be requested through the website and received publicity so not a massive surprise); 2) Did it produce a better rate of conversion [into instructions]? Yes (again how do you account for the additional marketing? but at least it wasn’t 100% cannibalisation which was Countrywide’s real fear with this test); and 3) Did it lead to additional income when the fixed price and full-service commission based fees were combined? Yes (good stuff but considering the Flexi-service is an upfront fee it’s an easy fudge). I note on the largest pilot brand (Austin & Wyatt) website, it’s the traditional service package that is labelled “Most Popular” and is plugged in the Flexi-service ‘about’ information. The comparison of Flexi and traditional service also lists steps that you don’t get with Flexi-service with Xs and crossed out explanations. Telling you what you don’t get is an interesting way to try to sell you something. They really don’t want to sell you the Flexi-service if they can avoid it. Press rumours suggest the group is closing 62 branches with redundancies in a programme of up to 200 branches as it looks to cut costs at its traditional agents.
LSL results: nice positive as it continues rush to lettings and FS
LSL results yesterday were more positive with sales up 8% and profit +10%. Within that sales revenues were up 1% on flat volumes while lettings were +11%, helped by the purchase of 3 lettings portfolios for £4m during the half. It’s the second largest UK estate agency group in terms of offices (after Countrywide) and isn’t a franchise. That’s a huge amount of invested capital in bricks and mortar at a time when hybrid/proptech is growing. It’s another name that profit warned on H2 due to Brexit uncertainty and transactions are being hit but the key point is are we seeing a shift from the traditionals to hybrids in sales? Current portal growth rates suggest we are. In lettings it’s still a traditional service.
Independent estate agent response to online: “be better – charge more”. Oh dear.
I read a lot of estate agent forums and this is the most liked comment I’ve seen recently: “The real threat to high street agency is the agents themselves… a lack of faith in what they charge, the worry of on-line translating into a fee war with only dire consequences… lower fees lower service offering – less respect from the public. Wake up High Street Agents – be better – charge more – stop worrying”. No mention of improving transparency or the opportunity to use tech to improve/smooth the process or reduce the cost base (which can be passed on maintaining profits if you like). Add getting the best selling price and that’s how you get respect, not maintaining an unnecessarily high cost base. The general lack of trust in agents and the power they wield in the process is clear. If that comment is a widespread view, those independents are opening the door to disruption and may find themselves as self-employed hybrid agents if their conceit will allow it.
More PropTech launched in the USA. Both backs up the hybrid model and could be used as a defence by traditionals
One of the design points of the Purplebricks platform is that it brings transparency. Michael Bruce once told me that he felt the point when trust in the estate agent is lowest is when an offer is received. That’s when the buyer believes the agent is selling below market value to a friend, and the seller thinks the agent is not passing on the offer or is inventing other bidders. That’s why UK regulators felt the need to make it law that an agent must pass on every offer received to a seller (although enforcement of that is questionable). Against that background it’s interesting that there’s a new tech start up in the US that only focusses on managing offer/negotiation process transparently. It has been backed by tech heavyweight Expa, founded by the co-founder of Uber (Garrett Camp). Called Haus, it makes all offers public and direct offers have equal weight to those posted by an agent. Yes, there are going to be other issues both legal (like how to handle best-and-final), and illegal (like spoofing and ghost bidding) but it’s clearly a step up over a single opaque point of control of an important financial transaction. Here’s another point, if Haus is confirmation of the need for transparency offered by hybrid platforms, then why just use it to manage that part of the process when you can have a hybrid platform do the same and everything else? So is that trying to say the USA needs Purplebricks? It’s a positive sign but it could also be a proptech tool that allows the incumbents to hold off the hybrids. If Haus goes big in the USA before Purplebricks/hybrids can get there and a few more tools are added, it could slow the growth of new hybrids looking to enter the market, especially if traditionals use it to push the cost base down. I’m still backing hybrids for now but they shouldn’t be complacent about incumbent responses, especially if proptech led.
New RICS advice on valuations but nobody likes the curmudgeons anyway.
RICS has issued advice to surveyors and valuers to add wording to cautioning that the probability of reaching the valuation has reduced due to Brexit. Fair enough as vague statements go. I’m sure memories are fresh criticism during the financial crisis, however, it seems that valuation levels are still coming in as near to asking prices as usual (according to the NAEA at least). With a choice of surveyors possible, market forces likely strengthen surveyors that support transactions – ie those that value near to asking prices – and that hasn’t changed.
Is the UK 3% second property charge a perverse incentive?
Search Acumen, a conveyancing software supplier issued a press release saying it thought the 3% additional SDLT charge for landlords meant they had moved down the price curve and therefore were more competition for 1st time buyers. It seemingly uses one data point to support the claim- a greater proportion of properties below the value of £250,000 were required to pay the charge than between £250,000-£500,000. But there’s no comparison to before the tax change came into effect in April. Industry is clearly hoping to get the 3% reversed and the perverse incentive argument is the sort of thing that might get PM “a government for everyone” May listening but it’s going to need better reasoning to get momentum.
Foxton’s clarification: Yes, they’re expanding rapidly in lettings. No, they’re not making any money out of it
A question from my last email on why, if Foxtons are growing so fast in lettings (a net 19 per day over the last month according to the portals about 5x faster than the nearest rival), why did H1 results report a drop in lettings income. It’s hinted at in the H1 statement: “competition has intensified” and “initiatives to enhance our lettings business including trialling a zero lettings campaign” ie not charging landlords for the first 12 months. Giving away your services has always been one way to grow volumes but not sales/profits. They seem to see the need for volume expansion as their core business slows, hoping to monetise later on. Lettings specialists currently seem like the best bet to monetise the strength of the lettings market.
Scotland ends right to buy for council tenants
From 1 August 2016, Scotland has ended the right to buy for council tenants. Introduced in 1980, the programme apparently saw nearly 500,000 council houses sold off and not replaced eg Scotland built 1,100 new council houses last year. While the move won’t support home ownership vs renting, in terms of housing the population in an environment of insufficient new build (household formation is running at c.20,000/yr and house building 17,000), the move makes sense only if you really can’t boost new build any further. There are still about 320,000 council houses in Scotland and another 275,000 with non-profits (registered social landlords). Since 2012, any letting fees other than rent and a refundable deposit has been outlawed in Scotland, a move that makes a lot more sense to me. Scotland is being quite nimble in its housing rules and serves as a good test but so far the other countries in the UK haven’t followed.
I’ll update latest developments on my Purplebricks lettings experience soon- it’s taken a darker turn but they might still pull it out of the hat. Have a great day.