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Why Purplebricks Left the United States—and Current State of U.S. Flat-Fee Realty Market

Why Purplebricks Left the United States—and Current State of U.S. Flat-Fee Realty Market

Purplebricks launched in New York, 2018. This was after German media giant Axel Springer made a $177 equity investment in the firm. The firm charges homeowners a fixed fee no matter if a property is sold or not. Purplebricks announced its withdrawal from the United States after two months of shattering its operations in Australia.

Coming to the United States took back the firm to status quo, different from the UK where their business has been built from the ground up. Purplebricks entrance into the USA market was expensive. The expenses for the first 8 months in the USA were double that in Australia. When Purplebricks entered the US it charged a flat-rate listing of $3200 and later went increase the price to $3600. From the time it got in the USA, Purplebricks recorded a 75% drop in valuation. The firm also faced a massive operating loss of $42.9 million in just a matter of 12 months. That was double the year before.

Purplebricks operations in the USA were turbulent, it had quick expansion plans yet little returns. The stock market price of the firm plunged 65%. The situation went from bad to worse when the chief executives of the firm in the U.S. and U.K. left the company in February 2019. It did not stop there, the global CEO and founder Michael Bruce also stepped down. The former COO Vic Darvey assumed the role as Chief Executive. The company blames the miserable performance to rapid expansions and investments. The company faced many challenges from investing in expensive markets, such as New York and Los Angeles.

Purplebricks took a much more traditional approach. It offered sellers varying fees that were charged only when a house is sold. This is a modified approach to the current flat fee market in the U.S. The firm claimed the approach was driven by customer and agent feedback. Purplebricks claimed customers would pay 5%-6% below the national average commission and agents would enjoy more flexibility to help build the business. Purplebricks said their footprint represented more than 20% of the existing addressable residential resale market.

 

Rachel Richardson

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