Real estate collapse: Purplebricks' road to ruin

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Purplebricks did not last long in Australia's real estate market (image via Twitter).

Purplebricks' short stay in the Australian market didn't go well, reports Tarric Brooker.

IN MAY, British based real estate startup Purplebricks began winding down its Australian operations for an exit from the Australian market after two and a half years, amidst a storm of negative reviews and a history of complaints to state Fair Trading organisations. While Purplebricks leadership claims that its failure to succeed in the competitive Australian real estate market was due to its overly rapid global expansion, some former agents tell quite a different story of the company’s ultimate fall.

When Purplebricks entered the market in 2016, it promised a seismic shift in the way Australian’s sell real estate, by ending the relative monopoly of traditional commissioned based agents and shifting towards a cost upfront model that was intended to reduce costs for home vendors.

In reality, deteriorating property market conditions combined with an “unsustainable” business model, creating an allegedly deeply “toxic” internal culture that increasingly forced agents to “work people to the bone” according to former agent Geoffrey Duncan.

Some former agents have criticised the lack of support from Purplebricks licensees and management, leading one former agent to claim the company ran a 'churn and burn' business model that treated people like a commodity and acted simply as a 'commission collector'.

This lack of support for agents in the field has led to allegations of compliance breaches by Purplebricks licensees, who are compelled by real estate industry regulations to adequately supervise and assist all agents who operate under their license.

The business model of a centralised administration, with territory holders managing their individual areas, allegedly led to a great deal confusion and frustration within the company over which arm of the business was ultimately responsible for key worker entitlements such as Work Cover and superannuation.

This issue of responsibility for superannuation and other entitlements is still yet to be resolved and is currently the subject of pending litigation by a number of former Purplebricks agents.

Agents were initially sold on the dream that Purplebricks was the future of Australian real estate, but some claim it was far more like a nightmare. By employing a revenue model that some industry experts have claimed was doomed to fail, some agents quite literally went hungry as they attempted to make the Purplebricks business model work for them.

In order to better understand the hardships the former agents had to endure, IA recently spoke with property consultant Edwin Almeida who has been assisting them.

Almeida said that agents put their blood, sweat and tears into trying to make the apparently proven Purplebricks business model work for them. And despite their hard work and certain agents achieving sales figures several times industry averages, some agents ended up over $70,000 dollars in debt and others lost homes and livelihoods.

The stress of running a failing business based on an apparently unworkable business model ended with some agents with severe depression and other mental health issues as a result, Almeida said.

Yet despite the alleged compliance issues, the poor reviews and the trail of angry former agents, the Purplebricks style model of cost upfront real estate transactions is making a comeback only a few short months after its original incarnation’s demise.

Betterway Real Estate will be launching early next month, with former Purplebricks licensee and national sales director Luke Pervan heading up the company as CEO. Given the similarities between the Purplebricks and Betterway business models Almeida jokingly refers to Betterway as “Purplebricks 2.0”.

According to Almeida’s sources within the industry, Betterway will require its agents to sell or list an average of roughly four properties per month in order to continue their employment. Almeida shook his head and explained:

In the current market something like 60 per cent or more agents in Sydney are struggling to sell one property per month, let alone be able to somehow sell four. I just don’t see how their business model can work with such targets.

Given the likely unrealistic targets and property market sales currently at 20-year lows, Almeida fears that the same problems and internal cultural issues that plagued Purplebricks may crop up at Betterway unless major changes are made to the business model.

How exactly things will play out for Betterway Real Estate remains to be seen. Nevertheless, there are serious concerns from within the real estate industry that the same upfront revenue model that led to Purplebricks demise may also bring its spiritual successor undone.

Tarric Brooker is a freelance journalist and political commentator. You can follow him on Twitter @AvidCommentator.

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