Purplebricks has recently disclosed its intention to exit the US market, following its announcement of leaving Australia last month. The hybrid real estate agency shared with the London Stock Exchange its plan for an “orderly rundown pending closure,” concluding its two-and-a-half-year run in Australia due to challenging market conditions and execution errors.
As Purplebricks prepares to depart from the US, the company’s priority will shift towards its UK and Canadian markets, with a promise to provide ongoing service to all current customers.
According to Purplebricks Group CEO Vic Darvey, the decision to pull out of the Australian market was a challenging one. Despite the hard work put in by the company’s employees over the past two and a half years, they were unable to achieve the desired level of success.
Darvey explained that the decision was not taken lightly, but rather was made due to the increasingly difficult market conditions. In light of these challenges, the company does not believe that the potential returns in Australia are sufficient to justify further investment.
The hybrid model adopted by Purplebricks was controversial from the beginning, with critics highlighting the issue of agents making multiple listings without being invested in the outcome. Hayden Groves, the Deputy President of the Real Estate Institute of Australia, pointed out that Purplebricks agents were incentivized to make listings without much concern for their clients’ interests. He believed that this business model was unsustainable because Purplebricks claimed to be a “proper agent,” yet their agents needed to list numerous properties each year to make a living.
According to Groves, Purplebricks was essentially a private seller platform masquerading as real estate agents, and he criticized the company’s requirement that sellers pay an $8,800AUD fee upfront. He argued that if an agent failed to successfully negotiate the sale of the vendor’s property, they shouldn’t be paid, which was a fundamental principle of an agent’s fiduciary responsibility at common law and by statute. Groves expressed these views to The Real Estate Conversation in June 2018.
The collapse of Purplebricks in the US was attributed to nepotism and parochialism by former CEO Eric Eckardt, as stated in an interview with the Inman website. According to Eckardt, several executives from the UK operation who were transplanted to the US seemed unwilling to adapt to the differences between the US and UK markets, particularly in terms of marketing strategies.
Eckardt explained that the downfall of Purplebricks in the US was due to certain “dynamics” and inefficient unit economics resulting from a marketing spend that used a UK playbook to drive brand awareness and consideration. Despite the US operation being the best-performing country in terms of performance based on key performance indicators, customer acquisition costs were not efficient.
Nonetheless, Eckardt expressed pride in the accomplishments of the US team, stating that they had successfully launched and scaled operations to build a national platform that provided access to over 25 percent of the addressable market while performing at a high level.
