Troubled online real estate company Purplebricks Group PLC has announced it will quit the Australian market after a “disappointing” six months and amid negative reports regarding its fee structure and business conditions.
The UK-based company, listed on the London Stock Exchange, said it would also scale back its US business and cut back on marketing spend after admitting a string of “execution errors” had seen it expand too quickly.
It remained optimistic about its UK operations and the performance of its Canadian business.
By the time Purplebricks released a statement confirming its Australian exit this week, founder and chief executive officer Michael Bruce had already left the building, replaced by long-time chief operating officer Vic Darvey.
Mr Darvey said the decision to close the Australian business had been difficult but inevitable given the drastic 64% slump in Purplebricks’ share price last year and the 9% drop so far in 2019.
The company recorded a loss of $21.2 million for its Australian operations for the year to April, which was $4 million more than forecast by analysts at JP Morgan.
“This is not a decision we have taken lightly, but with market conditions becoming increasingly challenging, we do not believe that the prospective returns in Australia are enough to justify continued investment,” Mr Darvey said.
Market shake up attempt
Purplebricks arrived in Australia 18 months ago determined to shake up the local real estate market by taking commission-based agents out of the sales equation.
The company promised vendors a $4,500 fixed-fee model for private treaty sales and $5,325 for auctions, together with an online platform to market their properties.
The fee would be charged even if the property failed to sell.
At the time of its Australian launch, Mr Bruce said the concept “takes great local property experts, licenced real estate agents, and gives them the tools in order to provide a first-class service for customers”.
The business model has been operating in the UK since Purplebricks launched there in 2012 but in Australia, it had been dogged from the word go by allegations of inferior operating tactics ranging from an unsustainable income model for agents to pressuring vendors to lower their asking prices.
Real Estate Institute of Australia deputy president Hayden Groves welcomed news of the exit, claiming Purplebricks had duped local property owners into believing they would receive the same quality of service for less.
“Purplebricks was a dressed-up private seller platform that was purporting to be something else,” he said.
“They claimed they would hold the hand of the customer during the entire selling process yet their agents were not incentivised to get an outcome – they were only incentivised to list a property, therefore consumers were left without any of the [qualified] support services they needed in order to get the job done.”
Mr Groves said WA’s consumer watchdog had been investigating Purplebricks for some time regarding its commission-free claims.
In March 2018, Queensland’s Office of Fair Trading slapped the company with a $20,000 fine for misleading customers about its fixed-fee model.
Despite the negative press, Mr Darvey said the future for Purplebricks’ growth was positive and the company retained a “very clear understanding” of how that would occur.
“We have two outstanding businesses in the UK and Canada, both of which enjoy market-leading positions,” he said.
“We have also made significant progress in the US building a disruptive brand in the real estate market, and our proposed strategic review will allow us to determine how we deliver the next phase of growth in a more effective and cost-efficient way.”