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Online Estate Agents: The Jury is Still Out

Online Estate Agents: The Jury is Still Out

In recent years, local high street estate agents have faced increasingly stiff competition from online equivalents.

These websites draw customers in by offering cheap headline rates and a fast, easy service. Customers can go online, pay a fee and list their property.

However, several online agents have recently gone out of business or shown signs of financial stress. This has led to questions about the feasibility of the online estate agent business model and if consumers prefer the offline-only model.

In this article, we’re going to take a closer look at online estate agents to better understand the issues they face and how investors and creditors can assess their financial viability.

Online Estate Agents Are Struggling

Sales from online estate agents currently make up less than 10% of the market.

Last year, Connells wound-up its new online venture just two years after acquiring it. Three months later, online agent Emoov went into administration, closely followed by House Network.

So what are the reasons for this recent contraction in the sector? A challenging property market has been cited as one cause; another is that online services are perceived as being less effective due to their low cost.

However, it could be that the answer is in the business model itself.

Estate Agent Business Models: Online vs Traditional

The traditional estate agent model involves paying a local expert to manage the sale of your property on your behalf.

The cost is usually a commission of between 1% and 3% which is paid once the property is sold.

This may seem expensive; however, it covers a whole range of services. The estate agent will normally manage viewings, provide support with arranging surveys, provide critical intelligence on valuations, negotiate on your behalf and help liaise with solicitors.

Online estate agents, on the other hand, save money by having no local branches. Instead, they have a register of local agents which they use to value properties. This means that they have fewer overheads and so can provide a lower-cost service.

However, their fees usually only cover the website listing, and many of these online agents will charge extra for services like sales progressions, viewings, and photos.

But it’s not just these add-on services that add to cost which causes a problem – an increasing number of sellers are reporting dissatisfaction with their service due to a lack of communication leading to almost no viewings, usually over months.

Red Flag Alert Analysis

Red Flag Alert quickly provides a view on the financial health of a business or sector – within two minutes we were able to pick out three key players in the online estate agency market and get an accurate and easy-to-understand view of the financial health of each business.

Red Flag Alert ratings run from ‘Gold’ – companies that are considered very low risk – to three ‘Red Flags’ – companies that are considered very high risk. These ratings accurately predict the prospect of insolvency in the next 12 months and are based on an algorithm that has been constantly updated over the past 13 years.

The online estate agents below are all rated either silver or bronze. Silver-rated companies are those we consider low risk and recommend open credit with. Bronze-rated companies are considered a fair trade risk and open credit is still recommended.

Purplebricks 

Red Flag Alert Rating: Silver 

The juggernaut of the UK online property sector, Purplebricks has a 75% share of the country’s market. However, its international ventures have been less successful. The company recently announced it is pulling out of its international expansion into Australia and is placing its US business under review.

Yopa 

Red Flag Alert Rating: Bronze 

Yopa has several large investors; however, the company is experiencing difficulties. It has borrowed an additional £16 million, there has been a change of directors, its valuation has dropped, and the business is making a loss – all bad signs.

Emoov

Red Flag Alert Rating: Bronze

Emoov went into administration at the end of last year, but has now been bought out by the owners of letting platform Mashroom. The new owner is now attempting to rebuild the company with a more sustainable business model. The company has a bronze rating.

After completing this quick initial financial health check, Red Flag Alert users can gain further context by digging deeper into hundreds of data points on each business. Users can also set up monitoring alerts so they will know immediately if anything changes in these companies.

What Does the Future Hold?

The future of these companies is uncertain. In a recent Telegraph article, investment bank UBS was quoted as saying it expects Purplebricks to achieve an 8% share of the UK estate agent market, down from its original expectations of 10%.

Key to their future is how they can deal with the concerns of people selling homes.

According to Russel Quirk, the founder of Emoov, the low prices of online estate agents are actually holding them back. The founder thinks customers consider online services “too cheap to be good,” which means they worry about whether their house will sell.

If this is indeed the case, it could be a significant problem considering the main selling point of these companies is the low price.

Another problem mentioned in the Telegraph article is that homeowners claim they prefer the service of local estate agents. When selling an asset as valuable as a house, it makes sense that customers would prefer a more hands-on service, even if it comes at a much higher cost.

Does this mean the end for online estate estates? Probably not. However, these companies will either have to settle for a smaller share of the market made up of people who are comfortable with taking the initiative with the selling process or make changes to their business model to allay the fears of their customers.

Powerful Real-Time Data

Red Flag Alert gives 6.5 million companies, including the online estate agents listed above, a financial health rating that shows the level of risk associated with each business. The data is updated 100,000 times per day, meaning you can discover issues as soon as they occur.

For a free consultation about how Red Flag Alert’s data can help you stay on the pulse of UK markets, get in touch with Richard West on 0344 412 6699 or richard.west@redflagalert.com.

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