Residential brokerage Purplebricks disappointed investors with sluggish earnings. Although the online agency doubled its revenue, the startup quadrupled its operating losses.
How it works: When listing a home with Purplebricks, the seller pays a flat fee of $3,200. If the property sells, he is responsible to pay a commission to the buyer’s agent. Even though the “discount brokerage” does not charge the seller a traditional fee, he is ultimately responsible for paying the buyer’s agent.
The Assumption: If the house fails to sell, the initial listing fee of $3,200 is not refunded. This is a great way to weed out fake sellers.
The Flaw: One of the flaws with this model is the assumption that saving a small amount of money is a determining factor when a homeowner selects an agent. In reality, when a traditional agent does a good job, the fee becomes negligible.
Heard on the Street: Jefferies Group: “Purplebricks continues to tell us it sells lots of houses, without backing up that rhetoric with actual figures.” Ouch!