Given how obsessed Australia is with its residential property markets the arrival of tech startup Purplebricks on its shores promises to have potential consequences for share and property market investors alike.
The UK-based startup could start eating into the fees and market share of Sydney's real estate agents that have been enjoying the rich pickings of Sydney's booming property market after it launched in New South Wales markets today, with it already operating in Victoria and Queensland.
Traditional Sydney-focused agents like Mcgrath Ltd (ASX: MEA), Ray White or LJ Hooker will usually sell a residential property for a fixed commission between 1.5% – 2% of the sale value, with potential for further fixed commissions if the property sells above a certain value.
Someone selling a typical $1 million Sydney property therefore would end up paying around $17,000 in commissions just to the agent alone, whereas startup Purplebricks reckons it can provide just as good a service and only charge a fixed commission around $4,500 for a private treaty sale or $5,500 for a sale at auction.
Evidently substantial savings could be made on the sale of your average Sydney property, but only if you assume the Purplebricks agent can achieve the best possible price for the sale of your property. Otherwise, using Purplebricks over a well connected and experienced local real estate agent could prove an expensive mistake.
The other key to selling your residential property for the best price is having it advertised on REA Group Limited's (ASX: REA) realestate.com.au website, and the Fairfax Media Limited (ASX: FXJ) operated domain.com in order to attract the most possible buyers.
Purplebricks claims it will photograph and advertise your property on both these sites as part of its service, although currently it has just 100 properties for sale on realestate.com.au across the whole of Victoria. While in Queensland it currently has 203 properties for sale across the same site.
The startup has enjoyed a lot of success in the UK's property market, although I think it would be a mistake to assume that success will translate to Australia's fiercely competitive property market where the margin-eating potential is actually lower as estate agent commissions in Australia are already markedly lower than in the UK generally.
Still shares in Sydney-focused agent McGrath are once again nearing record lows today as investors worry about the low level of listings and rising competitive threat from startups like Purplebricks.
in fact the ASX already has a micro-cap attempting to emulate Purplebricks' success named Buymyplace.com.au Ltd (ASX: BMP). It will reportedly sell properties for as little as $695 (including advertising costs) in another sign that real estate agents may find their commissions coming under pressure in the years ahead.
