Traditional agents are the discounters, not PurpleBricks.

Many people make the mistake of thinking they’re negotiating on their fee/price when in fact they’re discounting. Here’s how you can tell the difference – when negotiating you trade, if you reduce your fee you get something back or you reduce your service levels. When discounting you’re still offering exactly the same service but for less.

And discounting often leads to a big mistake – that of believing you’ll increase your sales volumes as a consequence. And you might, but rarely by enough.

And I’m seeing more and more agents across the country discounting by 30% or even more, in part driven by the fees charged by the new model estate agents, in particular PurpleBricks. But, and you might not like this, they’re the clever ones when it comes to pricing – and you can learn from them. Here’s how…

PB charge a fixed fee of £849. In addition they charge £300 for viewings (not everyone takes this up but I’m including this in my calculations) so that’s £1,149 per listing. IF, that’s a big IF as the figures aren’t published, they sell half what they list then each completion on this basis earns them £2,298. The ones that do complete have to pay an additional administration charge of £360 if they don’t use PB’s conveyancing partners, (who pay PB a similar amount if they do use them), so that takes the total per completion to £2,658.

The traditional model is 1%+VAT on an average price of £226,071 which equals £2,712.85 so a difference of just £54.85 if the traditional estate agent isn’t getting any income from their solicitor partners. Less than £50 difference after VAT. Now just stop and think about that carefully. If you’re a traditional agent, who doesn’t believe in receiving commission from solicitors, you’re charging as near as damn it the same as PurpleBricks – and they get paid upfront too.

But hang on, it gets worse. My example is based on the average sales price and whilst PB like to highlight the savings on properties for sale at higher than average prices they don’t point out that at lower price levels their model actually generates more income than the traditional agent. And that’s before taking into account any office savings or allowing for the cashflow benefits of payment upfront. Take a property sold for £170,000. We’ve already established that PB receive £2,658 – the average traditional agent only gets £2,040 – that’s £618 less, almost 25%!

So what can you learn from PB and what should you consider changing?

  1. Charging a % fee is unlikely to benefit you unless you’re in a rising market, make that a significantly rising market. And that’s not going to happen any time soon. Look at charging a fixed fee, you’ll be better off if the sale price is less than the asking.
  2. As my good friend Peter Rollings, (ex Foxtons and Marsh & Parsons), taught me – it’s all about the “blended fee” or what I call the “income per transaction”. The so called “peripheral” incomes from conveyancing, FS, surveys, insurances, etc. are now really important (and btw, in an attempt to placate another good friend, Henry Pryor, these additional services must be delivered appropriately, i.e. to the highest standards and not forced on anyone).
  3. You should have a menu of services and charges rather than an all inclusive one charge fee. Think a la carte rather than “all you can eat buffet”.
  4. Don’t discount – stop it immediately. All our research and surveys confirm that people will pay more – but will try for less if you give them even half a chance.
  5. Introduce an incentive that truly aligns your interest with the seller or landlord. Agree a bonus of 10-25% for everything achieved over a certain price – that’s good for them as well as you.

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