Purplebricks Stock takes Nosedive, CEOs Depart: Trouble in Disruptor Land?

Credit: London Stock Exchange

There could be rough waters ahead for the flat-fee, UK-based brokerage disruptor Purplebricks, which is now in four U.S. states: California, Arizona, Florida, and New York.

I had heard they were planning to come to Dallas and Texas also — maybe not so after this news.

Purplebricks is NOT an iBuyer. It is more akin to our Door, to Trelora, and other flat fee brokers that are also taking traditional real estate by storm nip, nip, nipping at the traditional 6 percent (3 percent +3 percent) agent commision, among other things.

Purplebricks has been charging a flat fee of $3,600, up from $3,200, to sell a house. The company claims it is a full-service real estate experience for thousands less. Dallas-based Door, in contrast, charges $5,000.

But just a month ago, Inman reported that Purplebricks was shifting it’s US model towards a more traditional real estate model:

Flat-fee brokerage Purplebricks is changing its business model significantly in the United States to offer varying listing fees to home sellers by region, which it will now only charge if and when a home is successfully sold, the company confirmed Monday.

The change, which launches Tuesday, brings Purplebricks U.S. closer in line with more traditional models of the industry — its agents will only get paid when a deal closes, as opposed to the previous model when sellers paid the brokerage an upfront fee regardless of the outcome of their listing — and further away from the disruptive model it uses in the U.K., its home country.

Purplebricks came into the US market in 2017, which is the year they presented to NAREE. I have a photo somewhere of me interviewing Eckardt. First stop was California:

Purplebricks is targeting California for its US launch due to the state’s strong housing and economic fundamentals. According to data compiled by the California Association of REALTORS® and other publicly available information pertaining to US homes sales, California ranks #1 in transactions nationally with total sales commissions exceeding $11.5 billion. As it builds a strong brand presence in California, Purplebricks intends to expand into other key US states via a controlled roll-out strategy with a plan to accelerate coverage, as required. Purplebricks has recruited Eric Eckardt, a real estate technology veteran, to serve as its US CEO and position the Company for long-term success in the market.

Purplebricks most recent earnings report boasted of 140 sales consultants and real estate experts across seven states in the US, said it was on track to meet revenue goals, but declined to actually reveal how much revenue it earned in the third quarter of 2018.

Eric Eckardt, Purplebricks U.S. CEO, said even though they have shifted the flat fees upwards, the company was still offering U.S. consumers the chance to pay well below the national average commission of 5 to 6 percent, while their agents “benefit from more flexibility to build their businesses.” Giving the company’s zip-code finder a spin, flat-fees varied radically, from $3,600 in New York City to $5,950 in Los Angeles.

Perhaps those upward fee shifts did not come fast enough: Inman reports that Purplebrick shares saw record losses last week, the company trimmed its revenue expectations, and shed two top executives.

The U.K.-based company is publicly traded on the London Stock Exchange. PB shares plummeted from 164 pounds (about $214) on Wednesday to a low point of just 125 pounds (about $163) on Thursday last week, according to Inman: “The drop erased a quarter of Purplebricks’ market value and was the largest single-day hit the company has taken since its shares began trading publicly in late 2015.”

Then two CEO executive departures were announced: U.K. CEO Lee Wainwright and Eric Eckardt. While “personal reasons” were given for Wainwright’s departure, none was given for Eckardt’s.

So who is minding the store? Vic Darvey, Purplebricks COO, will take over for Wainwright on an interim basis. Michael Bruce, the company’s global CEO, will take on day-to-day management in the U.S. The company has not said anything about the two newly vacated positions.

The company now also expects lower earnings: a maximum of 140 million pounds (about $183 million) during the current fiscal year, down from last year.

Inman says the company’s statement “painted an overall picture of a market filled with obstacles.”

In the U.K., the statement explained, the “housing market has continued to be challenging for the estate agency industry.” The company also described “headwinds” in the Australian market, where the “anticipated amount of [recognizable] revenue will not be sufficient to meet expectations for this financial year.”

And in the U.S., there has been a “slower than expected response” to the company’s marketing, according to the statement. 

“As a result of this, the Board does not expect the amount of U.S. revenue to be sufficient to meet its expectations in this financial year,” the statement added.

Purplebricks, says industry observers, has spent a considerable amount of money to break into new U.S. markets, at a time when the market was stronger but heading to its last rhumba. The advertising was aimed at trying to force a significant change in the way consumers transact real estate.

All of us industry observers are waiting to see how the tweaked Purplebricks’ business model is going to fare in a fluctuating or weakening U.S. housing market. Which is kind of what veteran observers have said about ALL the flat fee brokers: they do just fine when homes are selling like hotcakes, not so fine in a slower, increasing days on market environment.