10 July 2016 - Analysis
London homeowners at risk of possible price cuts could look to save on transaction fees by turning to cheaper, online outlets to sell their upmarket properties. Although potentially good news for sellers, this trend could cause more pain for traditional agents already suffering from a dearth of activity and could permanently alter the house buying process.
Transaction savings stand to be significant. Upmarket home owners could save at least £17,000 for a £1 million home and potentially much more on a higher priced home. Yet, according to Propcision research, few upmarket home owners are using non-traditional estate agencies to market their home.
The Elusive Upmarket Clients
Data suggests that in the past year, only 4 percent of Purplebricks’ London property listings were above £1 million pounds, while the median asking price was a much lower £450,000. Purplebrick’s closest rivals for London homeowner clients using an alternative estate agent are Tepilo and Emoov. In the past year, Tepilo’s median asking price was shown to be around £525,000 with nearly 7.5 percent of listings over £1 million while Emoov’s was £480,000 with around 8 percent over £1 million.
Even though in the past year Purplebricks has achieved double the overall market share of London listings versus its online rivals, it could be said that Emoov and Tepilo have been more successful in reaching the £1 million plus market. But the battle is only in its early stages.
It’s important to remember the business models of alternative agencies may not be directed towards upmarket homeowners. If alternative agencies focus on volume (number of listings), then casting the widest possible net to attract the most sellers is a solid strategy. However, if an alternative estate agency model emerged to capture upmarket properties, this could certainly cause concern amongst traditional agencies most at risk of losing lucrative commissions.
Barriers to Using Non-Traditional Estate Agencies
The role of brand alignment in choosing an agent should not be understated. Homeowners with £1million plus properties may wish to align themselves with recognised and established agencies that have traditionally held market share in listing similarly priced properties. If a homeowner quickly recognises that very few in their price category are using alternative agents, they may conclude it’s not a suitable brand for their goals.
Confidence in an agent’s ability to secure the best possible terms for a vendor and then close the deal also matters greatly. After all, relinquishing 10 percent or more from an asking price of £1 million translates into a lot of money sacrificed. Any savings in commission fees will quickly evaporate if neither the seller nor the agent has the requisite negotiation skills or market knowledge. If an agent cannot accurately advise on market conditions in the local area, then the seller will not be adequately informed as to current market values and whether the offer on the table is appropriate.
Should High Street Estate Agents Be Concerned?
In London, Knight Frank and Savills hold commanding positions due to a concentration on upmarket Central London properties. Of Knight Frank’s listings in the past year, data suggests over 75 percent were over £1 million; Savills was not far behind with over 50 percent of listings over £1 million.
Compared with Tepilo’s 8 percent of listings over £1 million, online outlets may not yet be considered a threat to such heavy hitters. However, the figures do at least signal early traction.
Perhaps this is what prompted Savills to help fund a £16 million investment in a small alternative estate agency called YOPA. With only a few listings, YOPA has demonstrated an early appeal to upscale homeowners with 12 percent of properties listed at over £1million. Whilst vastly premature to draw any firm conclusions from such a small number of YOPA listings, the recent Savills’ equity injection may provide the necessary clout to break down barriers deterring upscale homeowners from using alternative models.
If homeowners feel they are getting Savills for the price of YOPA, barriers could come down. In any case, a YOPA stake may prove to be an effective hedge by Savills to pre-empt potential market share erosion caused by upmarket property owners moving online in an attempt to save on costs. Furthermore, from a strategy perspective, if Savills is one of the leaders in upmarket Central London listings and the housing market is set to weaken in this area, it seems sensible to pursue a plan aimed at gaining exposure to other price brackets.
