Australian Real Estate Agencies About to Be Disrupted

Time to pay attention. The Australian Financial Review reported yesterday that UK company Purplebricks launched in Australia on Monday.

This company could possibly shake Australian real estate in a similar way that Uber has overturned the former cosy conditions of the taxi business.

Real estate agencies, especially listed company McGrath Real Estate [ASX:MEA], will be watching this development closely. That’s because the company provides a low cost model that threatens to undercut the traditional agency business model.

Purplebricks does not charge a commission based off the selling price of the property, as regular real estate agents do. It charges a fixed fee to sell the property. This price disregards the value of the property.

Nor does Purplebricks have any physical branches. It uses a hybrid model that combines an online service via its website, but also with (freelance) real estate agents providing offline customer services like property valuations.  Vendors stand to save significant money by not paying the commission.

That’s the pitch, anyway. Whether the company can make inroads into the Australian real estate market is now the big question. There’s no doubt the industry is ripe for the picking.

The Chanticleer column best summarised why that might be the case back in early July:

The decision to expand into Australia came after researching the local market, which found people were more vocal than those in Britain about the need for change and even more unhappy with the amount of money they pay in estate agent fees.

This is no surprise. The industry has long come under criticism over vague auction rules, unrealistic estimates of property values and the sense you are paying a lot of money to have someone show your home a couple of times a week.

Yep — there’s plenty of fat in those commissions to go after.

However, Purplebricks is still a small player in the UK market, and will certainly need time to build its brand here. At the very least, Purplebricks may force Australia’s existing agencies to build their own ‘hybrid’ platforms, or put pressure on their pricing if customers become aware of this option.

It’s certainly a development to watch closely with interest.

Regards,

Callum Newman,

Editor, Money Morning


Callum is a feature editor for Money Morning. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.

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