The Emperors New Clothes! – The ‘something for nothing’ culture is a dying philosophy


I have been operating in the Estate Agency sector since 1983, and for as long as I can remember there have been people / businesses that have had the bright idea of ‘doing’ Residential Estate Agency differently and usually via a cut price model, which as they say in modern parlance, is to ‘disrupt’ the industry.

Solicitors tried to emulate the Scotland model in the 1980’s, where they neatly became ‘one stop shop’ property marketeers and conveyancers. Insurance companies bought up estate agencies in the 1990’s believing naively that it was a ‘retail’ business. In the new millennium we started to see people believe that the then newly fledged internet was the panacea and so therefore there was no need for High Street offices, no need for talented expensive people with sales track records, no need for people who had honed their craft and possessed unrivalled local and industry knowledge. Without exception ALL of these new iterations of Residential Estate Agency ended in failure, and in the case of the insurance companies and financial services companies in particular, in huge financial losses for the share holders (usually therefore negatively affecting the pensions that you and I invest in).

Fast forward to more recent history and ‘Angel’ investors, Private Equity investors, Venture Capitalists all seem to have succumbed to collective amnesia and have decided to invest in ‘Online Estate Agency’, because being a hip ‘disruptor’ business and using the internet to de-stabilise analogue traditional business models, in this case, High street Residential Estate Agency, is rather strangely the  trendy, so say fast money thing to do. 

And rather reminiscent of the ‘dot-com’ bubble of the early 2000’s, the businesses created with this investment have been the subject of wild and fanciful stock market valuations, without a penny of profit ever being generated. So where is the ‘online estate  agency’ industry in 2019 and what is their future?

Oxfordshire as a county funnily enough, hasn’t really succumbed to the lure of online estate agencies and perhaps this is because people in the county realise that very very rarely do you get something for nothing, and more particularly, if you pay up front for a service it by and large is never actually delivered, given that there is zero incentive for the contracted business to deliver it because of they have already been paid!

So a number of years down the line, we have hit the interesting point in a challenging property market where the ‘online estate agency’ sector simply cannot compete with well run traditional High Street estate agency businesses populated with talented and informed people. 

The spectacular collapse of EMoov, along with a number of other high profile ‘online estate agency’ businesses in recent months, has now been followed by ominous signs for the biggest name in this experimental sector, Purple Bricks.

My personal view of Purple Bricks is that from the outset this was essentially a stock market scam, fuelled by substantial investor funds with equally substantial hyperbole being put out by the investors, their PR companies and of course Purple Bricks itself. This hype led to the savvy founders, the Bruce brothers, liquidating their first tranch of shares at the point that the company became a listed stock 3 years after its inception. Despite in my view the utter brilliance of the ‘Commisery’ national TV advertising campaigning, the woes for the company have racked up substantially and exponentially in 2019.

Failed ‘vanity projects’ in Australia and the US (Even the genius that is John Hunt, who founded the Foxtons Estate Agency business in London and sold out in 2007, never made his US venture work), sustained financial losses with residential property market trading volumes at their lowest in a generation, and the quickly in succession loss of CEO’s in various parts of their group, looks even to the untrained eye like an implosion that will reach an inevitable conclusion.

However, defying logic, is the German media giant Axel Springer, who have increased their shareholding in Purple Bricks to over 26%, recently, whilst on the other side of this, the sliding fortunes of former ‘super star’ fund manger Neil Woodford, has seen him reduce his shareholding in the failing Purple Bricks business model.

After the company’s flotation on the AIM index in 2016, the share price has been on a steep slippery slope, because a business model that is designed to ‘fleece’ the consumer in boom  market conditions, just isn’t suited to the opposing challenging conditions, as is evidenced by the business’s continued poor performance over the past year, with a turnover of £93.7 Million and a loss of £26.2 Million. This is a company that has been trading since 2012, so therefore 7 years without any discernible success or profitability. Big money is therefore suring up the business with investment and working capital, but it is as clear as day to most careful and right thinking people that this is a case of ‘The Emporer’s new clothes’.

People like James Caan of ‘Dragon’s Den’ fame, who thought that the internet had changed residential estate agency forever, because you no longer need estate agents to telephone buyers and sell to them (and provide a service to them), given that the internet ‘does it all’, could not have been more wrong and hence the catastrophic failure of his investment in the sector, EMoov. Is the Savills agency business investment in online agency Yopa destined for the same fate and do they not believe in their own traditional business model, or are they really playing games with a sector that for the moment at least is still attracting company valuations that bear not the slightest resemblance to reality.

It all seems to go back to the 1990’s and the banks and insurance companies investing in the sector, thinking completely wrongly that this is a ‘retail’ business model. The ‘online’ model is based on the very same principles and again Estate Agency has proven to be a ‘cottage’ industry (pardon the pun) and it is a business entirely dependent upon good quality people. Normally these people are very well known within their respective communities, because they are very good at what they do  and they have firmly established track records and a reputation that no faceless ‘online’ model will ever facilitate or emulate.

Whether it is well executed residential estate agency by genuine focussed professionals who care and are remunerated commensurately given the effort expended, or it is an artisan bakery that can achieve £5 for a beautifully crafted loaf of bread. The real revolution here is where ‘artisan’ providers of things and services get the financial recognition they deserve, because their business is offering authenticity and is increasingly appreciated by a buying public who see through the ‘something for nothing’ culture, that the negative side to the internet has over the years brought to the fore. The erosion of service for the sake of  cheapness is an unedifying race to the bottom for those businesses that choose this path.

Things I think are changing.

Author: Gavin West is the Managing Director of WEST-The Property Consultancy