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* Online estate agents capture 5 pct of market
* Hybrid online models led by PurpleBricks could capture25-50 pct of market - industry executives and analysts
* Traditional agents respond with lower fees, cost cutting
* High street agencies also look for acquisition targets
* UK property market expected to slow next year
By Peter Hobson and Esha Vaish
LONDON, Oct 20 (Reuters) - Ash, in his 30s, is about to sellhis flat. His neighbour in the apartment upstairs sold easilywith an online agent. In London, says Ash, a house "sellsitself". "What does a (traditional) estate agent contribute?"
A growing number of people are being attracted by thecut-price fees of online estate agents in Britain. The sectorhas caught the eye of big-name investors like fund manager NeilWoodford and traditional branch-based agencies which oncedismissed online rivals are having to react.
Mindful of the impact web-based start-ups have had onindustries like gambling, taxi services and banking, traditionalhigh-street agents are beefing up their own digital businesses,cutting fees and costs and cherry-picking the competition.
"You're (either) watching and wondering what's going tohappen or you're going to step in and take action," says IanWilson, chief executive of estate agents Martin & Co, which hasover 300 offices and in September said it would buy online rivalEweMove.
Fees from residential home sales in the UK are worth about 4billion pounds a year, according to government data. Onlineagents' fees of between 500-1,000 pounds have pushed traditionalestate agent commissions down to around 1.3 percent of the valueof a sale from about 1.8 percent five years ago, according toanalysts at UBS. They see fees falling further, to 1 percent.
The industry is highly fragmented with the UK market leaderCountrywide, which has 822 branches, having only a 5percent market share. Rightmove, the country's topproperty portal reckons the many web-based agencies now accountfor 5 percent of its listings having doubled their share in twoyears. This may herald a wave of dealmaking.
High street chain Connells, one of the UK's biggest players,bought online agency Hatched a year ago while Savills bought a minority stake in Yopa in June. Second placed agencyLSL Property Services owns the Your Move chain ofbranches.
"I can only see M&A in the sector increasing exponentially,"said Rachael Elliott at consultancy BCMS. "We're at thebeginning of seeing quite a boom."
Some online agencies underestimated the value customersplace on local knowledge. A growing number like EweMove use ahybrid model with local property agents to provide valuationsand advice but no costly branch network.
As the pressure ratchets up Countrywide has responded withits own online business. It has also said it will close about 7percent of its high street network as it looks to cut costs.
Countrywide and another traditional bricks-and-mortar estateagent Foxtons, have reported declines in first-half profits andwarned of tough times to come. Foxtons said its first-halfprofits had dropped 42 per cent from a year earlier, while LSLhas also warned on full-year profits.
Shares in Foxtons and Countrywide have lost two-thirds oftheir value since early 2014, while LSL's have halved.
BIG NAME BACKERS
The estate agent industry employs around 250,000 people. RobEllice, chief executive of easyProperty, backed by easyjetfounder Stelios Haji-Ioannou, says it operates on about 20percent of the staff of a traditional real estate agent.
Purplebricks which launched in 2014, is the biggestonline agency and was the first to list on the stockmarket just19 months later. It is a hybrid operator backed by highlyregarded Neil Woodford and says it is now the third biggest inthe industry overall having overtaken Connells. UBS reckons itcommands a 2 percent market share. Its value has risen from 240million pounds to 321 million pounds.
Industry leaders and analysts forecast online operatorscould capture 25-50 percent of the market by 2025.
Just three or four players are likely to dominate the onlinesegment, according to Patrick Brophy, who manages global realestate investments for Janus Capital and has invested in UK realestate agents.
Other leading online agents include emoov, HouseSimple whichis backed by Charles Dunstone, the founder of mobile phoneretailer Carphone Warehouse and Tepilo which was launched bytelevision personality Sarah Beeny.
Many other online estate agents like Houses.co.uk have triedtheir luck over the last decade and failed in the cut-throatmarket.
Purplebricks has had to work hard for its success. It spends1 million pounds a month on advertising and is currentlylossmaking. It expects to become profitable this financial year.
Unlike traditional players who only collect their fee whenthey sell a property, hybrid agents charge for listing a homewhether or not it is sold, helping them to charge less.
While that can work in a booming market, it could prove abarrier when markets struggle. Traditional agencies say theystill contribute valuable personal service and negotiationskills which will ultimately safeguard their business as theyalso invest in their technology.
Britain's housing market weathered the initial shock of thevote to leave the European Union but confidence is forecast todip. Investment bank Liberum expects transactions to fall 5-10percent next year.
Ed Jones, Finance Director of Hunters, a traditional estateagent, said if it becomes harder to sell houses "That'll makelife very difficult for online agents." "If you've just listedyour house (and not sold) you've wasted your money." (Editing by Elaine Hardcastle)