Purplebricks Group plc via the London Stock Exchange announced a launch of it’s hybrid agency business model in Los Angeles, USA last Friday.
In line with its planned region by region rollout which they say has been successfully adopted for entry in the UK and Australian markets, Los Angeles marks the entry point before extending across the state of California and other targeted key states thereafter.
Having eyed the California real estate market for some time now due to a large number of real estate transactions (442,320 in California according to the California Association of Realtors®) plus an estimated commission income of $12bn p.a, with double the level of commission income (5-6%) that is typically experienced in the UK the company is being quite bullish about its chances of success.
CEO Michael Bruce said, “Launching Purplebricks today in the US is the single biggest moment in the Company’s three-year history and a proud moment for me personally. It is testament to the quality and dedication of the team that we have achieved this ahead of schedule and expectations. We are excited about the opportunity, in this $70bn market, while mindful of the challenges. We have planned accordingly, adapting both our technology platform and customer proposition, while building out an infrastructure and local team, with decades of experience. As we rollout across California and beyond we will closely monitor progress and have the capability to further quickly and efficiently refine our model, if and where necessary.”
The challenges are likely to do with the current complexities surrounding commissions and multiple listing services (MLS).
In the US, the sale of residential property is usually conducted through a Listing Agent (sell side) and a Buying Agent (buy side). The Listing Agent will agree with the vendor a seller’s commission (typically between 5 and 6 per cent of the sale price) and list the property on a Multiple Listing Service (MLS). Once published on the MLS, this enables Buyers Agents to introduce their clients and earn a share of the seller’s commission (typically up to 50% of the total). Similar to Australia, the Listing agent may also act as the Buyer’s agent by introducing buyers their own listings and securing the full commission or by introducing a buyer to other agents’ listings and earning the buyer’s’ commission.
Purplebricks state they will charge sellers a flat fee of US$3,200 to list their property, and that sellers will also be responsible for paying a buyer fee on closing, and that a “key attraction of the US market for Purplebricks and a substantial opportunity is the potential to earn buyers commission immediately.” As of Friday, buyers will be able to go onto thepurplebricks.com website and view all of the properties for sale in the LA market with all agents on the MLS. Buyers will be able to access these properties through the Purplebricks app.
The release also mentions that similar to its Australian launch, the technology platform and customer offering “has undergone a transformation to meet the intricacies of the US market, while staying true to the core customer proposition of value for money and high quality customer service” which is to be delivered through a combination of Local Real Estate Experts (LREEs) and technology.
On the sell side, buyers will be able to tour properties from the comfort of their living room using 3D virtual reality via Matterport. Should this initiative prove successful, Purplebricks say they will look at extending this and other technological advances to the UK and Australia. As an additional benefit, buyers who select Purplebricks to act for them as their Buying Agent (resulting in Purplebricks earning the buy side commission of typically 3 per cent) will be eligible to receive a $1,000 cash payment on closing.
Mr Bruce continued, “Purplebricks is now in three continents in just over three years. We are confident that we are leading irreversible change in the industry and that we are best placed to realise the future global opportunity.”
The Company will be releasing a trading update ahead of its AGM on 29 September 2017.