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News.com.au published an article on a new Real Estate Agency, Purplebricks. It also made mention of another agency platform, ‘Hello’.

Both systems have emerged from the UK and have a similar model. Consumers will be charged a flat fee and will be invited to do their own open houses. Amongst the indications of Purplebricks’ road, the article mentions that Purblebricks will charge a flat fee of $4,500.

The question will be: is this new platform a new market disruptor? Apart from the technology, we would suggest that it’s not all that new.

Stephen Koukoulas of Market Economics was widely quoted in the article linked here. His economic theory may be correct, but he may not have considered historical events in Australia.

The platform works on purchasing in a post-code area. Home Serve and Real Direct developed such models within the last decade or so. Both organsiations sought to be a market disruptor by charging 1% commission. Each started well, but both unfortunately, did not succeed in their ambitions.

A franchise group which emerged from the ACT was Go Gecko. They charged a flat fee of $5,999, which is more than the amount charged by Purplebricks. The lack of cash flow caused each of the franchises a problem with running and conducting a sustainable business.

There have also been DIY real estate platforms: FSBO; Sell My Home; and ANRAPS. You bought a kit for a few hundred dollars and sold your own home. Although the entry costs were extraordinarily low, the corporations did not succeed on a long-term basis.

Whilst consumers getting a better deal is always good, it is not good for the marketplace when services are not profitable. These corporations who failed did not take into account the costs of regulations within the Australian marketplace and the transactional time to settle properties. For example, an agent may wait anything between 9 and 16 weeks for payment on a sale of a property. The problem is compounded when you consider the costs of employing staff, the overheads of business and the heavy cost of compliance in Australia. The government has not made it easy to conduct property businesses in Australia, and it has been at the expense of consumers.

This is recently been demonstrated when the ACCC, referred to as the industry watchdog, failed to protect small business and consumers against the oligarchy marketing in the property industry. Realestate.com and domain.com dominate the digital marketplace for property. Realestate.com is owned by News Ltd and Domain.com is owned by Fairfax, the two major newsprint proprietors in Australia. This oligarchy controls the prices associated with marketing property and places huge burdens on Real Estate small business. Obviously, these costs must then be passed on to consumers.

Market disruption is always beneficial for consumers, provided that government protects small business and the costs are manageable at the price of the disruption.