Purplebricks Group plc (LON: PURP), the hybrid estate agent, announced today that it is formally launching its business in the US later today. In line with the region by region rollout successfully adopted for entry in the UK and Australian markets, the US launch will commence in Los Angeles, before extending across the state of California and other targeted key states thereafter.
As the 6th largest economy in the world by GDP and the leading US state in terms of both number of annual real estate transactions (442,320, source: California Association of Realtors®) and an estimated commission income of $12bn p.a, California is the natural launching point for US expansion. Although California, at 12.6m households has less than half the UK equivalent, the level of commission income in California is more than double that of the UK. The diversity and density of the Los Angeles population and broad spread of low to high price properties, will enable us to demonstrate the high quality of service across all demographics and the potential savings that customers can achieve.
The Purplebricks 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. This is delivered through a combination of Local Real Estate Experts (LREEs) and technology. Purplebricks has successfully adapted its technology and customer offering previously with its launch into Australia in 2016.
US real estate market dynamics and Purplebricks’ pricing model
In the US, the sale of residential property is typically 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). The primary purpose of an MLS is to provide a facility for Listing Agents to publish all of their listings, enabling Buying Agents to introduce potential buyers, and therefore earning a share of the seller’s commission (typically 3 per cent). The Listing Agent may also act as the Buying Agent by introducing buyers to its own listings, thereby securing the full commission or by introducing a buyer to other agents’ listings and earning the buyers’ commission of typically 3 per cent.
Purplebricks will charge sellers a flat fee of US$3,200 to list their property. Sellers will also be responsible for paying a buyer fee on closing. By way of example, using the average LA house price of $560,000, Purplebricks could save sellers as much as $16,400, based on a seller’s commission of 6 per cent and assuming a Purplebricks’ buyers commission of 2.5 per cent. There will also be an option for sellers to defer payment of the listing fee.
A key attraction of the US market for Purplebricks and a substantial opportunity is the potential to earn buyers commission immediately. From today buyers will be able to go onto the www.purplebricks.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 our leading technology platform and best in class search functionality, which operates 24/7. Similar to the UK and Australia, buyers will be able to arrange showings, submit offers in real time and negotiate sales on our properties with the click of a button, communicate directly between buyers, Buyers Agents and sellers and, in essence, make deals happen faster.
For the first time with Purplebricks, buyers will be able to tour properties from the comfort of their living room using 3D virtual reality, through leading provider Matterport. Should this initiative prove successful, Purplebricks will look at extending this and other technology 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.
Highly effective marketing and LREE recruitment
Through our US research and customer insights it is clear that for many the high costs of moving are either not fully understood or are perceived as excessive, acting as a significant drag on transaction volumes. In addition to US consumers being unhappy with paying high fees, it is clear that they want the kind of convenient, instant and transparent 24/7 service offered by Purplebricks.
Marketing remains a key element of Purplebricks’ success, having built the UK’s most well-known national estate agency brand in just three years (source: The Nursery Research and Planning). The extent and nature of the Purplebricks TV adverts remains ground breaking. Plans for the US marketing are equally so, with the TV adverts launching across Los Angeles today. The focus for sellers will be on “Real misery” – “the misery you feel when you pay too much in commission” and for buyers – “Real misery – the misery you feel when you miss out on your dream home.”
Alongside technology and marketing, it is the talent, dedication and passion of our Local Real Estate Experts that is the key driver of Purplebricks’ success. The US will be no different. Recruitment of the most talented agents in California is ongoing and continues to make considerable progress. At launch today there are initially 30 LREEs who have completed the three stage recruitment process and undergone the ten day full time induction course.
Recruitment is continuing at pace, with the aim to have around 50 LREEs in the market within weeks. We have been impressed by the quality and extensive industry backgrounds of applicants, with many citing territorial exclusivity and the ability to focus on delivering for customers, rather than having to spend considerable time prospecting for the next opportunity, as the key attractions for joining the Company. Those that join the Purplebricks team will benefit from the extensive TV and radio led marketing that will secure leads and generate activity for all LREEs.
Driving the growth and supporting the LREEs is a highly experienced team, with decades of US real estate experience, led by Eric Eckardt, US CEO, Phil Felice, Head of Sales, and Jonathan Adler, Marketing Director and supported by the founders, Michael and Kenny Bruce. Purplebricks has an office in Irvine, California and in Manhattan, New York. US management continues to build out the local teams and infrastructure necessary to succeed, whilst tapping into the expertise and experience of the UK and Australian management.
Commenting on the announcement, Michael Bruce, Purplebricks Group plc CEO, 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.
For the LREEs we recruit, Purplebricks presents an exciting new platform to build scalable, profitable businesses in their own dedicated regions, supported by our strong technology infrastructure and the benefits of our extensive TV and radio led marketing. I am very excited about the quality of the applicants keen to be part of our ambitious US growth plans. For sellers, we offer a more efficient and effective 24/7 service and the ability to save thousands of dollars. Buyers will benefit from access to our leading technology, best in class search functionality and a faster, more efficient service.
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.”
Zeus Capital Comments:
What is new?
This morning Purplebricks has released details of its US product offering:
* Later today, Purplebricks will release TV adverts across Los Angeles:
Aimed at Sellers: “Real misery – the misery you feel when you pay too much in commission”
Aimed at Buyers: “Real misery – the misery you feel when you miss out on your dream home”
* Sellers listing their property with Purplebricks will pay flat fee of $3,200 and 3% buyers commission (assuming Purplebricks sells the property) saving thousands of dollars compared to market commissions of over 5%;
* Buyers can use www.purplebricks.com to view all properties for sale in the Los Angeles market (on the MLS), make offers in real time, negotiate and communicate directly with sellers;
* Buyers will be able to tour Purplebricks’ properties using 3D virtual reality and buyers who select Purplebricks as a buying agent (paying a c.3% commission) will receive a $ 1,000 rebate on closing;
* Purplebricks has recruited 30 Local Real Estate Experts (LREEs) and plans are in place to have “around 50 LREEs in the market within weeks”.
A trading update will be released ahead of its AGM on 29th September.
Zeus’ view
This announcement provides a clear view of Purplebricks’ US product offering. We expect the adverts will be available on YouTube in due course.
We make no changes to our forecasts for Purplebricks which expect 150 LREEs by March 2018. The trading update or the interim results are more suitable opportunities for analysts to adjust forecasts.
Valuation
In the UK new Purplebricks listings on portals appear to be consistent with our forecasts and our expectation of continued growth in 2H. In Australia, Purplebricks appears on track to breakeven in FY(Apr)19e. This announcement provides evidence that Purplebricks’ plans for the USA are also on track.
