How flaws in the capped commission model are taking investors for a ride

How flaws in the capped commission model are taking investors for a ride

Savills recently bought an undisclosed stake in YOPA, lending credence to the shift towards an online estate agency model.  The property giant acknowledged what we’ve known for some time – buyers and sellers explore their options after hours and on weekends, and are keen to use self-service features if it will save them money.
The real estate industry is watching with baited breath as millions are pumped into hybrid estate agencies such as Purple Bricks and YOPA. Touted as revolutionary disruptions to the industry, they offer vendors the opportunity to self-manage their listing in exchange for a capped commission from £780 and upwards. Obviously, this is fantastic news for sellers who save thousands, but the maths simply don’t add up.
There are two reasons for this:

• Estate agencies operate on the 80/20 principle. 80% of their profits come from 20% of their property sales. The smaller commission fees pay their overheads but it’s the big fees that make the profits. However in an on-line agency there is never that opportunity to earn a big fee. All their fees are small and yet they have the same or in fact bigger overheads than high street agencies. The more properties an on-line agency lists the more salespeople they have to employ and the bigger their overheads. Their costs and their revenue lines never decouple.

• On-line agencies cannot achieve economies of scale because customers expect the same service as is offered by high street agencies even though they are paying a fraction of the fees. In fact because they’re paying an upfront fee they expect a higher level of service from an on-line agency than a high street agency such as night-time and week-end email and telephone answering, which increases the overhead costs further.

How a free online estate agency is different
Ownersellers examined the existing agency model and rejected it. Rather than trying to run an agency with high overheads, a large employed salesforce and a low, flat revenue stream, Ownersellers minimises its overheads while still having one salesperson per property dedicated to selling that property. That salesperson is the property owner, who is motivated and committed to achieving the best sale price.
By creating the world’s first service enabling people to sell homes online for free, we’ve broken free of the scalability problem that will soon see the other on-line agencies dropping out. Operating completely online and with growth based on providing exceptional value, we believe that Ownersellers will be around long after the capped commission ride is over.

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