The huge rise in the number of estate agencies now operating in the UK, at a time of great uncertainty in the housing market, is simply unsustainable – so job losses, branch closures and company amalgamations are on the cards for many.
According to the Office for National Statistics, the number of estate agency ‘shops’ has risen to 25,485, up 15.7% since 2010.
At the same time, there was a 29.25% reduction year on year in transactions (to June) in the UK and a 32.2% reduction in England alone.
Meanwhile, new-build starts have plummeted, builders are facing uncertainty, there’s not enough stock in the housing market, the population is growing: the demand is there but there’s insufficient supply – though let’s hope the Government’s recent announcements over this will give the construction sector a welcome boost sooner rather than later, with further good news in the Chancellor’s Autumn Statement.
With so many more agents chasing far fewer sales, prospects for the industry are looking bleak.
Just look what’s happening to the share prices of the large corporates. Since the beginning of the year, Foxtons has dropped 48.4% and its market cap is down 49.61% in the same period (to October 19). LSL shares are down 27.97%, while the market cap has dropped 34.54%.
If you want to boost profits, opening new offices is not the answer: market share dominance is. Since 2013, Foxtons has opened 28 branches – yet sales turnover per office dropped by 18.73% by the end of 2015 and 2016 looks even gloomier.
Countrywide has already announced around 60 branch closures in order to cut costs and its shares have lost two-thirds of their value since 2014. There are rumours there could be 60 more.
They are already amalgamating branches (merging Faron Sutaria into John D Wood and there are rumours that some branches of Gascoigne-Pees will become part of Hamptons) and their recent ‘expansion’ of Greene and Co turned out to be a rebranding of two former Bairstow Eves branches. As for their dive into the hybrid online model, I know only too well from my own bitter experience that it’s unsustainable.
Look at the year-on-year losses at Purplebricks, which is continuing to blow all its cash on advertising. Which internet agent is going to crack first and open an office when they realise their model isn’t working?
LSL, which has various ownership models, including franchise, partial ownership, full ownership and stakes in others, has sold off a huge chunk of its shareholding in Zoopla in order to reduce its indebtedness.
Where will we see consolidation in the market? Will we see Connells, owned by Skipton Building Society, taken over by the likes of Countrywide or LSL? Is the Connells/Sequence model of opening more cold-start branches a prudent one or will they pour investment into Hatched?
The reduction in sale volumes, with agents chasing market share, is going to squeeze the middle and “Mr 1% won’t survive”; that means independent agents will be selling up or closing as times get tight.
Those companies which are combining their estate agency and lettings branches under one management team are creating a recipe for disaster, in my opinion.
Overall, I predict we will lose as many as one in five estate agencies once the dust has settled and we are finally out of the EU.
For the first time ever, London is shaping up to be a graveyard for estate agents, though the weak pound could save the capital.
The industry will also lose good commission-based estate agents, who will be unable to support themselves financially and will move away from the industry, which is likely to affect service levels and lead to reputational damage for some agents who can’t find people with the relevant experience.
We have already seen consolidation from the biggest, and the falling volume of sales will mean only one thing – the market, saturated with agents, will become more of an open playing field.
As in any sector, only the strongest will survive.
Tighten your belts too
Just when we are dealing with all the uncertainties from the housing market, we are being clobbered in all directions by rising prices.
Portals, petrol, internet advertising – you name it, virtually everything is going up in price (all except newspapers, which are desperately trying to hold on to our business).
Now we need to contend with a new bit of legislation, the Apprenticeship Levy – which all estate agencies with a pay bill of more than £3m a year will have to pay.
I’m all for apprenticeship schemes in any industry, giving young people a helping hand to get a foot on the career ladder.
But for companies like mine, which already invest heavily in recruitment and training, it is yet another financial burden on our business.
The levy, which is being introduced in April 2017, will be charged at a rate of 0.5% of an employer’s pay bill. Each employer will receive an allowance of £15,000 to offset against their levy payment.
Inevitably, for some estate agents, it will be the final nail in the coffin.
Shame our local haart branch are starting at 1.3% and reducing to 1% instead of proving their worth, devaluing our service to everybody!
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We have Countrywide starting their pitches at 1%!
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How long before Countrywide is broken up by a shareholder revolt and the CEO will be gone… very soon….. IMHO
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Its time to get of this ghost industry.
What was once a job for social people who actually cared about service, has turned into a media consented blood bath….its a shame i quite enjoyed it,,lost 20 years doing it as well.. only people left will be letting agents which is quite possible the worst job ever invented and idiots sat in their lounges trying to make a salary off £500 a sale….
I actually realised i hate 52% of the population back in july as well….
nope that’s me,,2 years left on my lease and iam off. now,,,,what can i retrain in.??
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Without doubt it is the most ‘adaptable’ agents that will survive. That’s where an independent has a great advantage…..being able to make decisions quickly and decisively on the ground…. without boardroom approval.
New tools to help drive efficiency and win more market share will also help enormously. There is every chance that this next period of a few years is where the true winning estate agency model will emerge.
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I strangely find myself agreeing with some of what Paul Smith says. Although, if Estate Agents are feeling the squeeze with rising prices, then so are the public right? And when the public start watching the pennies, they’re not going to choose an Estate Agent that charges 1.5% + vat, they will look at alternatives. i think with an interest rate rise, people will be forced to sell and hopefully stock levels will increase right? We really are in a world of uncertainty.
Not a bad article, even for you Paul Smith.
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I agree with this article where the companies in question only rely on sales, Agents who have a decent Letting and management business behind them will ride out any storm. Countrywide have in the last few years purchased at least two large management agencies that I am aware of as an example.
I do not see the likes of Purplebricks developing a management business anytime soon and so their business model will suffer more than most financially.
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Agency is changing. Paul is right as to the mass legislation being increased on agents, yet too few agents give input to sculpt how legislation concludes and evolves, as with many techs and VCs being oblivious to legislation and lawful restraints.
But with change comes opportunities.
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These articles by Paul Smith do make me chuckle.
In my area Haart have become an irrelevance…an anachronism. And with it their presence and market share has been reduced to near invisibility.
So yes, Spicerhaart certainly should brace themselves for a bumpy ride…aside from that please excuse me if I don’t place too much significance on the advice of a man who backed the losing horse.
Reading this back it sounds harsh, but the hypocrisy that AndrewOverman alludes to sometimes smarts a bit.
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Online/Hybrid will pick up but PB will never be a household name. They’ll be one amongst many and I doubt they’ll ever be able to justify their incredible investments into advertising. The world is too uncertain to welcome in a new player in a game we don’t really know the rules of yet – and certainly for the new player to topple the traditional champions. Online agency is pretty new and we don’t really know if there’s organic demand for a low-end service with no local branding.
Estate agency isn’t a special industry – everyone is struggling besides those dealing with big, big money. 1/5 estate agents dying by the end of Brexit could well be accurate, but let’s face it, it could also be a wholly inaccurate figure too. Speculation is dangerous at the moment, and will become self-fulfilling if given too much attention.
Lettings is the way to go. Sales agents definitely will struggle. No doubt about it. Guaranteed rental income is the only way forward given lack of sales supply and a huge increase in people living in the private rented sector. Independents with managed portfolios will be in huge demand from the big boys, while independent sales agents are more likely to fold. So if we’re going to speculate, let’s at least speculate on specifics (sales agents’ demise and lettings agents being fought for).
I’m interested to see how the industry adapts in the next two to three years – it is going to be a massive transition for the UK as a whole but we’re going to have to be vigilant about housing supply – if it doesn’t increase, we could really struggle as a country. Big time.
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Estate agency is definitely going to change over the next three years. I believe tools will be developed to help high street agents innovate and become more efficient, helping them to survive.
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Is Paul Smith for real. Firstly he tells everyone that leaving the EU will be the best thing since sliced bread and now he’s telling us that Brexit will inevitably result in fewer transactions, less income, redundancies and branch closures. Funny how he, and the rest of the Brexit Brigade, conveniently forgot to mention this when campaigning to leave.
It’s also laughable to read his comments in relation to “Mr 1%” and how “only the strongest will survive”. Ask anybody in the industry about Haart and they will confirm that they firmly occupy the bottom rung of the ladder when it comes to both service and fees. Our local office has had around 10 “Managers” (one of which had only been in the industry for 8 months before being promoted from negotiator to manager) within the last 2 years and the few paltry instructions they get are always horrifically overpriced and at 1% on a good day.
Unbelievable…
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I’m glad I’m not alone in finding his comments on fees hugely comical. They have the highest % of stock reduced here for the same reasons as you’ve mentioned I suspect. Their experienced “Senior Manager” here is so experienced and can see the tough times, therefore is quoting fees between 1% and 1.3%…laughable!
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Interesting read. I am 3 months away from opening a brand new agency in my local area, mainly based on the fact that our model will be 100% built around quality and an improved customer (vendor) experience for sales and letting. Our competition is the normal selection of average independents all chasing market share and less than average corporate offices (one of which just closed).
So, for those who can provide an honest opinion, is this a good time to open and “challenge the norm” ? our intentions are different to our competitors, we do not want or will not drive to be the biggest, strive for market share etc etc. We are about quality, not quantity.
25 people have been interviewed on our proposition. 24 quoted it was what the area needed. 1 quoted they wanted to buy the idea.!!
NB – We are not Hybrid, Not Online, Not 1%
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What area of the country approximately will it be in? Without trying to sound arrogant, I have a few suggestions that might help.
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Do a secret shopping exercise of the competitors and see whether you really are proposing a true 100% quality and ‘customer’ (agghh) service model. It is what everyone says but few deliver. You need deep pockets to fund the setup costs and assuming you have premises in a worthwhile location,do you have to pay for a refurb as you are not going to be online only…it never ceases to amaze me how no matter where you are in the country, it always costs £250k to run an office including PI etc. They never work when it is 1 man and a dog set up. Savings can be made on cars etc and not having local newspaper presence, so that headline figure could be reduced, but estate agents are people businesses, how are you really going to change the world?! There will always be clients who will give the new boys a chance, but normally only when the have exhausted everyone else and its the agents fault they haven’t sold ….not their price! Is it the right time to open; only if your competitors are all going to fail and your timing immediately gives you a chance of instant market share. Be honest with yourself, how are you really going to differentiate yourself, how big and successful have you been so far, although if you are planning this from your yacht in the Caribbean you probably have got what it takes. Do you have a real entrepreneurial machine to lead the biz for you who can bring instructions immediately, otherwise bide your time and chose your time when everyone is at their weakest. The most successful agents thrive when the market is at its toughest, as you will reap the rewards when the good times return, but cash flow is king. How long can you fund it in a climate of sales taking longer to exchange, as this is a big a killer of businesses no matter how clever they are.
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Paul,
I answered down the thread.
I would advise you against opening an office. everything you think you will know will not matter.
You probably are a good manager, probably a good estate agent.
The issue you will have is getting called out to valuations, you can have the best offering, the best service in town but why are they going to call the guy with no stock, no reputation, no clients.
Especially in this market i think you would be making a mistake.
What is you budget? Whatever it is you probably need to double or triple it. You are probably looking to break even in 6 months, it will probably be more like 18 – 24 months. Can you pay your mortgage / rent without your current income for the next 2 years?
Do you have an incredibly supportive partner that will see their standard of living drop.
I am doing my best to put you off but for the right reasons, its advice i wish i had when i started up (and that was in a much easier market)
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Cambridgeshire. Happy to make contact offline if possible.
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https://twitter.com/AgentV_co_uk
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paulnewboy26
Or how can I contact you?
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I think I have sent you a private message on twitter, but new to all that twitt stuff.
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No nothing I am afraid….try email hiphip@agentV.co.uk
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Go back 15 years in time; replace “Estate Agent” with bookshop, replace PB with Amazon and the same article could have been in a trade publication for bookshops. We don’t know if history will repeat its self, but it may…..
(There was no 2nd price for on-line book sellers….. Hence PB spending whatever it takes to be number 1 may be a good option for them.)
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Said it before and will say it again.
Brexit itself is not the issue, but uncertainty is, just like fluctuating interest rates, or bad economic news or an election.
What is true (in my view) is that we have committed significant volumes of property into the rental market and they wont be part of the 7 year cycle of moving anytime soon.
We advertise on Rightmove which takes the marketing away from the agent into a one style Rightmove look so we all look the same until you go into the agents own site.
We have taken the legal update aspect away from the local agent by putting it into the hands of IT via an update on Move with us or similar.
What will make you different is meet and greet face to face however more and more is online inquiries so even the grip and Grin has gone.
Hopefully you will have a decent mortgage broker who has a fixed rate contact programmer who will keep in touch with your client.
In the next few years as higher rate tax earners place the portfolios into an SPV then management fees will dissapear as that will be claimed back by inclusion into accounts.
So with fewer properties and less taken in management fees then agents will dissapear.
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Just a further note.
I do recall getting it right in 2008 when a certain MD was being bullish about his new promotion and his Larky lacky wanted a 10% uplift when we were arranging mortgages at 5 times income over 35 year terms to keep pace with property prices.
It was obvious then that something had to give, the only question was timing…..I was 6 months out, cant win them all I guess.
Next year will be a bumpy ride and Smudge is right on that….we are back at income caps again and new stress testing will mean newer landlords wont be able to remortgage as quickly or at all and either sell or not make any profit then sell.
They will come to market and it will be the 1% agent s who will sell them.
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The best agent is the local independent not the big boys. This has been proven time after time, decades in fact. The bigger you are the bigger the expense and liability, the bigger you fall. Many have tried to be big and failed, some were very big financial institutions with big backing … all gone now. Paul is only cycling what has happen from when his company grew from 4 branches with buying up the the big boys going bust, cheaply…… now he faces the same challenge!
There is some truth in his article, the bigger you are, the more you have to sell to just tread water. Pensions is going to hit Harrt hard at a time when they have massive overheads already and …. less stock to sell. The only ones that can weather the storm, which I warned on EYE a couple of years ago, is the small independent with a singe or 3 to 4 offices and that they have a fiscal plan and stick to it. Those with no target to aim for, fire fight till the next pay cheque and if it doesn’t ……….! The only way big can save is redundancies … that’s been happening for over a year. If you don’t need it, get rid of it. As for lettings being the saviour …. Lol. That cost is going up big time, more regulation, labour threatening to stop you covering overheads and as any decent letting agent will tell you …. expensive man hours and gets worse the bigger the portfolio. Income can only be generated from tenants and they are close to bust!
The agent that will survive and many have, as it was worse in 2008 to 2010, are those that know what to do and stick at it and not sit on their backsides complaining of doom and gloom. Those that squander their money need to take a hard look in the mirror when times get hard. Why on earth would anyone with no experience open an office at a time of a recession and expect to survive is beyond me … that 15.7% increase of agencies was bound to collapse?
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I wouldn’t entertain opening another office before 2020. Said it in 2009 and still today.
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Economies of scale, cost of branding, fitting and running an office are actually pretty small when you are adding to the network.
Biggest expense is staff.
My advice for anyone looking to open another branch is,
1. Are you sure your current office is at maximum capacity for business? – Are all your desk full and are you getting everything you can out the staff you have?
2. Do you have a current member of staff you can trust implicitly to open a branch and run it the way you would expect? a mirror of your current branch/es
3. is there enough stock in the new area or are you substantially better than the current agents?
If and when you can answer yes to all 3 there is no bad time to open an office.
Too many agents open more offices for vanity and the hope to increase market share (seldom works)
If you are looking at starting up an office now though (new brand) i would not do it – Instead i would look to buy out an existing agent or partner with them maybe open a sales side in a lettings only office. Already a far too crowded market in pretty much the whole of the UK
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The foundation for any business is supply and demand. You might have the best product but if no one wants it, well! Once you have worked out the demand it is all down to income v loss. Do you need another office? I’ve seen so many companies grow and then fail, while they were doing very well smaller. You are right employees are the main capital draw down, that sinks so many.You need to know what you are doing and review, review, review.
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For far too long, especially in the last decade, agents with deep pockets have rolled out press release after press release about booming growth, new branches, extra staff, new appointments, acquisitions and so much more- with so little placed on the real strength of a business- profitability. Our industry average is just 12% which is staggeringly low. Service industries should be aiming to acheive 25-30% profit and believe me when I say that this can be considerably exceeded.
These glamorous press releases have gone unchecked with little or no journalistic investigation or insight. How often have I seen media channels laud the arrival and (apparent) success of PB with so little focus on the millions they have lost the last 2 years and will continue to do so until their model and strategy changes dramatically. How often do we see the self-proclemined emperor of EasyProperty make outlandish PRs and claims when the performance of a company with that brand recognition/loyalty should have dominated the online market almost overnight- yet checking yesterday their site showed a whopping 44 sales listings in the whole of London. At their middle service of £825 (inc) this represents just £30k in revenue across the whole of London- the revenue a small agency easily generates in London on a monthly basis. However this represents several months of generated ‘revenue’ and I would love to know what it cost them to generate that…..£300,000….£3m?
Our industry is, most certainly changing. If you are still moaning about online agents- get over it. They are here to stay and, in their current model of operation, should not be any sort of competition for a full servoce agency. Personality, professionalism and service win almost every time over the cheapest solution. If you are losing business to online agents, you need to understand why that is and what sets you apart.
When asked the other day why a client shuld choose our let and manage service for their 5 London properties over a larger agent offering to do it for less I highighted 2 key points to them- our recent UK win at the ESTAS (focusing on the fact was awarded due to voting Landlords- NOT on the award itself) AND that by engaging my company engaged our expertise which, in two examples this year, saved one client over £500k in overseas tax liability and another client in which our advoce saw them add £500k to their net worth in 3 years for no cost- and both of these elements of advice came for free. Show me an online agent that can do that!?
Loads of offices in close proximity never, ever, ever made sense. Do B&Q or Ikea open branches in every district or do they have ‘hibs’ servicing large catchment areas? Massive marketing budgets on printed media (or any advertising for that fact) that is not tracked, assessed, evaluated and constatntly reviewed is simply momey flushed down the tilet- yet so many agents I talk to spend thousands a month yet have no idea what each advertising source generates for them in revenue. Thye hav no idea what their ROI is.
Tough markets are, in my mind, the most exciting time for quality agents. Weak sales teams fall apart in a buyers/tenant market- unable to actually negotiate. As teams fail, and companies do too, this representsw opportunities for quality agents to increase market share either through targetted marketting or acquiring the failed company or their client base.
The sensible adoption of key elements of tech (and the full integration of those platforms) can deliver enhanced comsumer experience/service AND massive improvements to both profitability AND staff engagement as you lose the menial, tedious tsks that serve no one.
Times are changing, but for those of you that are good at what you do- take faith, stick to your principles but keep an eye out for thos exciting opportunities as they arise in the coming weeks, months……years?
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Well if life wasn’t hard enough!!!!!
Thanks for the optimism – makes one feel much better about the future – let’s line up like lemmings and all jump together…………
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You get what you deserve. Very few agents out there now FIGHT for their fee. They fight for their instruction then drop their pants to win the instruction at a fee that does not make commercial sense.
My branch has sold 13 homes in 2 weeks. We have secured 10 new listings. Our average fee is 1.72%.
My person 2 listings yesterday were a listing at £795K for a fee at 1.25% so £9735 plus VAT when I sell at a minimum of £750k. The other was a listing at £200k and my fee is a minimum of £3705 plus VAT.
Too many, including Haart, Your Move, Countrywide are scrambling around at 1% because they do not have a proposition, or believe they have a proposition, worth more.
Stop blaming anyone apart from yourselves and grow a pair!
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Have you finally left the sinking Countrywide Jam01?
You would defend it to the maximum and conveyed it was a veritable utopia to work at, forward thinking and exciting.
Now you say they are scrambling around for 1% fees?
Interesting …..
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The staff at Haart have no shared vision, so the business is struggling. Paul needs to re-engage with his business and bring them together so they know what they stand for. Is it value? Is it service? Is it market presence? Is it innovation? If he doesn’t, he will have more and more empty offices.
He has some great staff despite the lack of shared vision, the poor training and the poor support they get.
I wish him well for it is sure to be a bumpy ride for him and many others over the next year or two.
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“Those companies which are combining their estate agency and lettings branches under one management team are creating a recipe for disaster, in my opinion.”
Smoke and mirrors Mr Smith
The fact that many successful agencies operate this very business model and have been doing this for 100’s of years. That’s right folks. 100’s of years tells Mr Smith is throwing us a curve ball.
Nice try Mr Smith !!
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This is a terrible doom and gloom scaremongering article. Haart should focus on trying to be innovative instead of following in the steps of Arun Estates.
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