Online agents that charge customers hundreds of pounds upfront but do not sell their homes are operating a scam – says a pioneer of the online industry.

Adam Day also said that online agents are “faceless” and failing both their customers with their lack of hand-holding, and themselves, because they are making no money.

In an outspoken interview, Day even queried whether online firms should be called estate agents, and described the business model as “crazy”.

Day, who founded Hatched, said: “I fundamentally disagree with charging the amounts upfront that online agents are now charging, regardless of sale.

“Most of the online agents offer a no sale, no fee option.

“But they don’t actually want anyone to take it up.”

Online agents have become less transparent than high street

Day, who recently quit Emoov where he was head of estate agency after only three months, says that online agents stop promoting no sale, no fee once they have hooked the seller.

The seller is then persuaded to go with the upfront payment option.

Day is even more scathing about deferred payments, saying that customers are not given enough information about it.

“The customer doesn’t understand they are entering into credit agreements and then will be forced to use the online agent’s conveyancers.

“How can that be transparent?”

Day said that right from the start, back in 2006, Hatched did offer no sale, no fee, but only 40% of properties listed on this basis actually went through to completed sales.

In comparison, the preferred option of split fees – the seller paid £300 upfront and £300 on completion – was far more successful.

“We agreed sales on around 80% of those instructions, and 65%-70% went through to completion, so we had an extremely low fall-through rate.

“Vendors who had paid a more nominal fee of £300 upfront were far more motivated, but not only that, because we still had a completion fee to earn, the customer knew we still had to deliver the buyer and we were motivated to both sell it and get the sale through as well.

“What I started back in 2006 hasn’t evolved into what I thought it would – it was about transparency for me back then and online agents have now become less transparent than, dare I say it, traditional estate agents!

“Because of the pay everything upfront model, these online agents now simply don’t care about selling houses – I’m not sure they should even be called estate agents,” Day said.

“Until Purplebricks came along, most online agents offered split fees. It served the public well, and there was skin in the game for both parties. Sellers knew that we had to deliver the full service to earn a full fee.

When Purplebricks launched, their model was to charge upfront only.

“And because Purplebricks made such a lot of noise and had so much publicity, the other online agents thought they must have got the model right, and started copying it, when in actual fact, it was just down to the fact they had a big pot of cash.

“My biggest mistake and my only regret at Hatched, was following the crowd and changing the fees to all up front.

“Looking back, I went against my core beliefs of what my version of online estate agency was.”

Hatched closed and Emoov in crisis

Hatched, which he sold to Connells, is now closed, and Emoov is said to be up for sale and in desperate need of funding.

easyProperty, which Day also worked for, does not– yet, anyway – appear to be a success story.

Day believes that no one has yet got the online model right.

When Connells closed Hatched, estate agency chief executive David Plumtree said the online model was fundamentally flawed.

Day said: “I agree with David. The online model is fundamentally flawed from a commercial point of view.”

Online agency a ‘crazy model’

However, neither does Day believe that the high street model has reacted sensibly to the perceived online threat.

“Where I do think the online agency model is right is in the technical capabilities of their platforms, as this is what the consumer wants.

Traditional agents in my view have misunderstood this and many have reacted by just dropping their fees, rather than to harness online capabilities – for example, allowing buyers and sellers to log into the platform and give them much more control.

“Traditional agents need to adopt this sort of thing in their own systems as the consumer wants visibility of information, control of their advert and automated communications.

“I’ve always stopped short of allowing vendors and buyers to negotiate offers on a platform, though – it doesn’t work and the consumer doesn’t want it. Negotiating the offer is the point at which, as agents, we can add value.

“I recently made an offer on a property for sale through a well known online agent, which went direct to the seller. I heard nothing for six weeks, and then had a message from the seller to say that the property was going to auction.

“Had an agent called me to try and negotiate in that six-week period, I would have increased my offer, and who knows, I might have paid more for it than what it got at auction.

“What online estate agency has evolved into now, doesn’t work for the customer and it doesn’t work for the agents either because they’re not making any money.

“It’s a crazy model.”

Estate agents should stay on high street

Day is currently setting up his own consultancy, DaytoDayConsulting.co.uk, which will help high street agents digitise their operations.

He does not, however, rule out setting up on his own again – “It’s very tempting and I’ve had approaches.

“At the moment, though, I feel I can add value to many businesses out there with the unique experiences that I’ve had over the last 15 years, which can create efficiencies and reduce costs, rather than just dropping fees – in fact, I think I can help businesses not only reduce their costs, but increase their fees.”

He has not burnt his bridges with Connells or easyProperty – as testimonials for his new consultancy show.

He does believe that estate agency is ready for its next incarnation – he calls it version 4 (version 1 was Countrywide; version 2 was the dawn of online estate agency; and version 3 was Purplebricks).

Of the various version 4 possibilities – including moving off the high street into serviced offices, the use of hubs, and affiliate-type models – Day said: “I’m not sure about any of these.

“I actually believe that agents should stay on the high street, where they can be seen. But they need to be a lot more digitally focused, as this is what the consumer wants.”