How Purplebricks' ambition to rule the property market crumbled

Traditional estate agents were rubbing their hands with glee last month at the news that Michael Bruce, the founder of Britain’s largest online agent Purplebricks, had been pushed out following a bungled expansion overseas. Having seen their age-old business models written off by a new player who posed an existential threat to their livelihoods, some couldn’t resist the temptation to gloat.

“So long, farewell, auf Wiedersehen, goodbye, goodbye, goodbye, goodbye, goodbye!”, crowed a delighted poster on one industry online forum. 

The strong-headed Bruce is unlikely to lose much sleep, especially having cashed in his remaining 11pc stake in the Aim-listed business for about £30m earlier this month.

But with new management at the helm, losses mounting, its shares down 80pc on their peak and the housing market in the doldrums, Purplebricks’s future looks uncertain.

Bruce and his brother Kenny were not the first entrepreneurs to spot the potential to use the internet to radically shake up one of the world’s most traditional industries, but they have arguably been the most successful in doing it.

Rather than hitting home sellers with a fixed percentage commission charge, typically running into several thousands of pounds, online agents charge a fixed up-front fee – £899 or £1,399 in London, in Purplebricks’ case.

Costs are kept down by foregoing the need for expensive high street branches, with viewings and valuations being carried out by self-employed “local property experts”.

A former lawyer, Bruce got his first taste of estate agency at high street chain Burchell Edwards, which he and his brother bought out of administration in 2008. After selling up to giant rival Connells five years later, they began to work on a new project that would eventually become Purplebricks.

Launched in 2014 it grew rapidly with the financial backing of former Wonga boss Errol Damelin, one-time Capita chief Paul Pindar and Neil Woodford, the former star fund manager whose fortunes have unravelled in recent weeks.

Though it faced competition from the likes of Housesimple, Easyproperty, Emoov and Hatched, it was the first and remains the only one of its ilk to make it onto the stock market with a £240m IPO barely 18 months after opening its doors.

Four years on, the company is theoretically profitable in the UK and has vanquished many of its competitors, laying claim to a 75pc share of the online market. But the model continues to have it skeptics.

Anthony Codling, a former Jefferies analyst, has been one of Purplebricks’ most vocal bears. He produced a research note last year claiming that just half of homes listed on the site are sold within 10 months.

Purplebricks disputed the figures, and a recent report it commissioned by the property data company Twentyci claims more than three quarters of its homes are sold within a year, but doubts about its business model remain.

Codling, who has since left Jefferies to launch an online property portal, suggests traditional agents’ pay-on-completion model is likely to prove more attractive to sellers, especially as the UK market continues to go through a rough patch.

He says: “In a tough market, with the volume of transactions decreasing, are you going to take that risk? Are you going to test the water for £1,000 with Purplebricks or are you going to test it for free with Savills or Hamptons International?”

One former local property expert who worked for Purplebricks for two years said that because of the pay up-front model, there was more of an incentive to focus on signing up sellers than on actually selling their home.

“We all knew what the goal was – get the property on, get the property on... Purplebricks is a reactive agent, they’re not pro-active. It was all about quantity, quantity, quantity of instructions and Trustpilot reviews,” he recalls.

A spokesman for Purplebricks says: “We have a whole team of people in our head office dedicated to post-sales support and ensuring that sales go through as smoothly as possible. Our local experts also stay in contact throughout the process to ensure our post-sales support is seamless and thorough.”

While it has grown to dominate the UK online market, Purplebricks’s foray overseas have been less successful. It launched in its first international market, Australia, in 2016, promising to save the country home sellers from “poor value for money”. There were big challenges, however, from cultural differences – auction sales are much more common Down Under than in the UK – to a downturn in the country property market.

Last month Purplebricks announced it was closing the unit, citing “challenging” conditions and having failed to deliver “the progress the board expected”, leaving it nursing losses of £30m.

Its US business, which has faced competition from already-established, low-cost players such as Redfin, is also under review after splashing out millions on marketing.

Thanks to its overseas adventures, losses are expected to more than double in Purplebricks’ annual results next week to around £50m.

The announcements came alongside news of Bruce’s departure last month. His replacement, Vic Darvey, was formerly managing director of the successful comparison site Moneysupermarket, but has scant experience in the property world.

“We’ve seen estate agents in the past run by industry outsiders, such as Alison Platt at Countrywide, and that hasn’t gone that well,” says Codling. Platt resigned last year after Countrywide’s shares plunged to unseen lows following a string of profit warnings.

Purplebricks’s own shares are now hovering below their 100p IPO price, having gradually slumped from their peak of 499p two years ago. Bruce and his family aren’t the only investors that have been selling up.

Faced with a liquidity crisis at his investment fund, Woodford has been forced to slash his stake from about 24pc to 21.5pc.

Both have found willing buyers, however. Asset managers Merian and Toscafund took advantage of Woodford’s sell-off.

“We take the view that the business is successfully disrupting the traditional estate agency model in the UK,” says Merian’s Dan Nickols. “The share price has fallen to a level which overly discounts the value of the UK business.”

Meanwhile German publishing giant Axel Springer snapped up Bruce’s shares, catapulting itself into being Purplebricks’s largest shareholder with a 27pc stake, fuelling speculation it could be considering a takeover bid.

Axel Springer, whose titles include newspapers Bild and Die Welt as well as the Business Insider website, is itself currently being acquired by KKR. The private equity firm has offered to buy out all of Axel Springer’s minority shareholders, which would leave it in control of the company in partnership with its eponymous founder’s widow, Friede Springer.

KKR declined to comment on its intentions regarding Purplebricks. But The Sunday Telegraph understands its focus is on boosting the profitability of Axel Springer’s online classifieds business, of which Purplebricks is a part.

It might be tempting to see Purplebricks’s recent travails, and the collapse of rivals Emoov and Hatched, as evidence the online players have failed, but the state of the rest of the industry suggests otherwise.

Countrywide’s shares are still worth pennies following a massively discounted rights issue to keep the wolves from the door last year. LSL, another traditional rival, announced the closure of hundreds of branches to cut costs in February.

That’s partly because of the depressed state of the market. But pressure from cut-price competition from Purplebricks has not helped.