A Which? Survey from earlier this month suggested that a significant number of home buyer – 36% – had used traditional methods to find their homes. That backs up my idea that there is room for good traditionals to compete effectively against hybrids but they’ll have to rein in their fees if they want to maximise their share and drop their costs if they want to maximise their profits.
Here’s the breakdown of how the 2,000 people surveyed by Which? found their homes (my classification of digital/neutral/traditional):
The Which? article was written as a traditional agent support piece, encouraging buyers to visit them, but looking at the details, it confirms digital as the main method for buyers to find homes. But that 36% is important – it leaves space for the good traditionals. I expect Purplebricks/hybrids to continue to take significant share but there is room for the traditional model, just more lean which will allow lower fees for the same profits ie using more tech for efficiency. That’s the future of the high street model in my view. The actual shop leases themselves are only 10%-13% of a traditional’s cost base. Add in a couple of % for fit out and wear and tear and the 15% extra cost isn’t insurmountable – and has a marketing payback – if the rest of the business is lean. But looking to management comments and the estate agent forums and it seems the industry judges an agents worth as their fee, not their profits. A wonderful survival of the labour theory of value that has killed so many service industries (and political systems). Until the traditionals get that message, it plays into the hands of the hybrids. I still like them.
So which of the traditionals do it well? If you’ve been reading these, you know the names I like: Belvoir is strong, LSL has been picking up listings and I think interesting things are going on with EweMove at Martin & Co. Zoopla could benefit from OTM’s court troubles set to be heard in February of next year and all of the smaller groups could be involved in industry consolidation. I like Savills operations but need to do more work valuing them to have a view. ULS looks like a great listed proptech play to me but I need to do more work.
Why do property transactions fail?
Buyers changing their minds (32%), mortgage problems (22%) and issues highlighted at survey (17%) are the main causes. Problems in the chain (25%) is another one but I would say that partly reflects other issues. Those stats are from the Nottingham Building Society. It’s not clear that a change in agent practices can easily solve any of those.
YOPA launches TV adverts
After raising £16m earlier this year, mainly through Savills, YOPA has launched a series of television adverts featuring the Village People. Yes, the Y-O-P-A link is clear and the feel good nature of the ads is in tune with PB’s “an agent you can love” campaign. The YOPA ads emphasise three things: the price, the local experts and the complete control. Fair enough USPs for the hybrid model vs traditional. Both YOPA and PB also have nationwide recruitment campaigns for local experts. Both are on my listing tracker radar so I’ll watch how successful the campaigns are and report back soon. You can see the ads on youtube if interested: YOPA here https://www.youtube.com/channel/UCELwaIQVE2GLdz7tUo3t1_g and Purplebricks here: https://www.youtube.com/channel/UCXD3FPBFjPuMA4pCs-_KBJA.
Some Proptech showing signs of ‘peak hype’
VR has met estate agency. Nottingham estate agent Walton & Allen now digitises most properties for sale and includes the surrounding area so you can take a virtual walk to see how busy roads are and what the nearby park is like. That sounds dangerously like the Peak of Inflated Expectations stage in the Hype Cycle for that particular tech to me. I don’t think trust in estate agents is high enough for buyers to allow them to control their entire reality. I’m sure the paint is always fresh and the sun shining in ‘agents world’. And I mean that – when an agent marketed my property recently the photographer told me not to worry about the grey weather as he would add blue skies later. In May, Rightmove tested VR viewing of high end properties at a London estate agent, Martyn Gerrard. The tech was based on Google cardboard and Littlstar and the fact little more has been heard of it is telling. NewtonMedia.TV produce it for Walton & Allen if you’re interested in trying to find a way to invest in it but I’m holding off for now.
A start up called Habito has launched an AI mortgage adviser. It seems simple enough – it asks how much cash you have and your wages then tells you that you can borrow about 4.5x your wages and divides the cash between deposit and SDLT. Interesting considering banks have basically systemised the mortgage application process. It could be the logical conclusion but it’s unclear on the IP or value add. I don’t think MAB should worry just yet. You can try it out here if interested. https://www.habito.com/.
ASA slaps on wrist for Purplebricks and eMoov over comparison calculators
The ASA has forced Purplebricks to change the ‘fee comparison’ on its website that reflects PB vs traditional fees. It’s mainly a calculation change so it cannot be not misleading and required links to further information if someone wanted to click through. It’s the second time PB has had a run in with the ASA. The ASA also informally resolved a complaint against eMoov’s comparison tool regarding VAT inclusion. In June, the ASA banned one eMoov ad as misleading on savings and coverage.
Consolidation in the smaller agents continues
As Countrywide has stopped and LSL slowed down on acquisitions, it has made things easier for other acquisitive groups. Belvoir is the obvious one that has completed 3 deals in 18 months doubling its size and was clear it’s looking for more. It’s likely seeing less competition. But also at the smaller end there have been some notable deals. Andrews Group has added four branches to its portfolio in London(2), Bristol and Bath. PSH (Property Services Holdings Group) acquired another one in Tonbridge and Linley & Simpson purchased another agent in York making clear it wanted to double in size in 3 years through M&A. With c.14,000 estate agents in the UK it needs to accelerate to be meaningful but shows acquisition is working in the industry.
House data: a little softness in prices but still up on last year; transactions look weak
Haart estate agent saw August transactions -16% yoy but that’s +5.6% compared to July. Price data also showed a 2% decline on July but +5% yoy in August, inline with the Nationwide data we saw last week. Home.co.uk’s asking price index to mid-September suggested asking prices had reduced by 0.2% and 0.6% in London vs August and the average property is now on the market for 89 days +3 days from a month ago. The industry is waking up from the summer lull with London and the SW seeing c.15% more properties for sale than a month ago. Charles Curran of Chelsea also suggested transactions would be down 9% in London this year. All of them blame SDLT more than Brexit for the changes.