Countrywide, LSL and Foxtons facing £26m annual profit cut from lettings fee ban

The UK’s three biggest listed estate agencies could have their profits hit by a combined £26m once the lettings fee ban is introduced.

A report by analysts Peel Hunt, looking at the prospects of listed agencies Countrywide, LSL and Foxtons, paints a bleak picture for them and the wider market.

Analyst Gavin Jago predicts the ban, expected in 2018, would hit Countrywide’s profits by £18m, offsetting any ongoing cost-cutting measures.

He said: “A cost-cutting/branch closure exercise is well underway, but the full effect on profits of a reduced presence on the high street is yet to be seen.

“A full ban on letting fees could materially impact profits from 2018. This will not help the leveraged balance sheet or the scope for dividends. We cut our dividend forecasts and target price, and retain our negative stance.”

Interestingly, the report was written when Countrywide’s share price closed at 123p on September 21 and showed a target price – the point at which a trader may sell – of 115p from 145p previously. But the share price has now hit a low of 113p.

Jago holds a similar stance with LSL, recommending investors reduce their holding. He predicts the agent will see its profits reduce by £8m from the fee ban.

He said: “To date, LSL’s branch closures have been small in number as management believes traditional agents will continue to represent the vast majority of the sales market until 2025.

“This remains to be seen, but what is more certain is the lettings fee ban that is now widely expected to come into force in 2018. Management has not provided a figure for the group’s exposure to lettings fees. However, we estimate that it could amount to around £8m per annum.”

Jago maintains a sell recommendation for Foxtons, predicting a £3m hit on lettings per year. He also warns its high commission fees are impacting the firm’s activity and may need to be reduced.

He said: “Trading remains challenging for Foxtons due to the low levels of housing activity in the capital.

“In our view, this is being exacerbated by the group’s relatively high commission fees, which are increasingly detached from average rates charged by its competitors.

“Self help could come in the form of a reduction in fees but, as yet, management seems reluctant to take such action. The lettings fee ban looks set to come into force in 2018, which will create a further drag on profitability.”

The report is kinder to Savills – and glowing about Purplebricks.

Jago recommends Savills stock as a hold, backing the diversity in the business, and backs Purplebricks as a buy. He claims profits from its US operations could eclipse the UK and Australia by 2022.

Jago said: “Against a backdrop of a slower UK housing market, Purplebricks’ growth has been very strong. Its market share of total transactions has doubled in the last year and it remains the dominant player amongst the online/hybrid peer group.

“The Australian business has been operational for a year and is trading ahead of the UK at the equivalent point of evolution. If Purplebricks captures only a small fraction of the US market, we estimate that US profits could be bigger than the UK and Australia combined by 2022.”

Looking at the wider agency market, the report says fees have fallen to 1% and are at 0.5% to 0.75% in some areas.

It claims the number of consumers using physical branches is diminishing due to the rise of hybrid and online agents, with Purplebricks the “clear winner”.

The report claims this is putting traditional agents under pressure and will mean more branch closures and less activity.

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13 Comments

  1. cyberduck46

    Pretty grim reading for traditional Estate Agents.

     

    Without the profit from charging these extortionate letting fees as well as pressures from having to reduce sales commissions as the trend to online marketing continues we should see more and more branches closing.

     

    Only the fittest, the ones who can demonstrate (as opposed to just claiming) that they will get you a better price than an online agent, will survive.

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    1. AgencyInsider

      Ah Ducky. Sorry, wrong again.

      You think that the survival of trad v online is just about getting a better price?

      There is SO much more to it than that, as you may one day learn.

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    2. smile please

      At least these companies are making multi million pound profits not loosing money like 100% of online only agents – hardly fit!

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    3. Thomas Flowers

      Cyberduck mentions getting a better price.

      What about up to 50% of those on-line only users who get no price at all for their fee payment and have to shell out two agency fees?

      Also, could any continued investment propping up these companies, for so long, be regarded as anti-competitive?

      See this CMA link below:

      https://www.youtube.com/watch?v=cemTusT9ufs

       

       

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      1. cyberduck46

        >Also, could any continued investment propping up these companies, for so long, be regarded as anti-competitive?

         

        Not really, no. You’re grasping at straws.

         

        What you are talking about is actually competitive, not anti-competitive. You just don’t like having to compete. This has been demonstrated by an industry that has price fixing cartels and will not for the life of them publish their charging criteria.

         

        >There is SO much more to it than that, as you may one day learn.

         

        Then you will be able to demonstrate that won’t you. As I said in my original post. Those able to demonstrate that they are worth their fees, rather than talking hypothetically, will continue to do well.

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        1. Thomas Flowers

          Cyberduck

          I can demonstrate that I only charge my customers a fair and transparent fee upon completion of the deal.

          I can demonstrate that my fees are not subsidised by outside investment and therefore a fair reflection of cost.

          As a ‘northern agent’ where property prices are on average around £175,000 (this aggregate covers around half of England and the whole of Wales and Scotland) I can also demonstrate that my fee is around £100 more than a PB customer who pays on top of the advertised rate for a viewing service and conveyancing referral fee for a full, branch based service from a very experienced local property expert on a no sale, no charge model.

          If I can demonstrate that I can offer a no sale, no charge model why can’t PB?

          I can also demonstrate that my Google reviews posted on completion of the deal are better than a certain on-line agent based on a pro rata basis.

          Can PB demonstrate that a trustpilot page in the United States stating ‘We have become the No1 real estate agent in the UK in only three years’ ?

          What can you personally demonstrate?

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    4. Estate_Agent_Memes

      CyberSchmuck – The non-estate agent, with no hidden agenda, who loves to lurk around on these pages constantly knocking proper estate agents. #getalife

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    5. fluter

      Cyberduck46, I have read your anti-real agent posts for longer than I care to remember without commenting until now. You are clearly ill-informed as to what real agents ACTUALLY charge both for sales and lettings and no doubt you grasp at every attention-seeking negative headline that justifies your prejudiced views. This does not make you the voice of authority, quite the opposite in fact. Please prove me wrong by stating what agents charge for both sales and lettings and in what area of the country you are basing your information on.

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      1. cyberduck46

        fluter,

         

        If it’s prejudiced and ill-informed views that concern you then why do you not comment on other posts and just pick out mine?

         

        My view of most of what is discussed on these pages by traditional agents is that it is ill-informed and prejudicial.

         

        What I do know is that OpenRent charge nothing to the tenant apart from £20 for a credit check if one is required by the landlord. Seems like the way forward. The fee to the landlord should cover any other costs.

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        1. fluter

          I see you don’t like to answer a direct question. Also, my concerns are with your specific comments. So please provide the answers to the question I asked rather than ones that haven’t.

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    6. Bless You

      Just had our best month ever i think chap,,,so while online agents use ‘%’ to make their businesses look good ive just sold the equvalnt of 25 purplebricks instructions this month and they have listed 4…   yeah times 4 by 700 cities and it looks good but onliners are a joke on a real scale of each town..

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  2. Votta583

    What about the good agents that charge a fee that is fair for the work they do then cyberduckyboos?

    The fees we charge just about pay to keep the lights on and the computer is running. The extorniate ones you mention are the minority.

    It’s not about Greed it’s about providing a service.

    When the tenant fees ban comes in should I automatically stop caring for tenants? visiting them when they need advice?, talking them through how to look after the property in accordance with tenant like manner.?  Setting up payment plans to help them out for their rent when they fall on hard times? Allow them to view 10 to 20 properties for free? Progress their applications  so they can move into the next home?  Or not bother even calling tenants whatsoever to update them on whether they’ve been accepted for property?

    Shall we all just let the Internet doing the work for us because every phone call costs us  I need as much as I can  in order to put food on the table for our families?

    I think the government need to focus their attention on living conditions in care homes and why care home managers drive around in Bentleys. The old and vulnerable have to pay around £4000 a month to live in those conditions

    Now that is an issue or am I just generalising???

     

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    1. Beano

      I will continue to be polite and where possible as helpful as I can with tenants post fee ban. What they will see though are changes that they probably won’t like.

      They will be required to make an appointment if they need to see me or my staff in my office.

      They will not be issued any additional paperwork on request, nor will they be able to spend 20 minutes on the phone for advice on any issue; They will be directed to our website or sent a link to a relevant website for answers.

      THEY will have to provide ALL the information required for a reference, which will include 3 months bank statements, I.D., 3 months wage slips and a verifiable reference letter from their current landlord. I will swallow the cost of the credit check, but other than verifying that information provided that is all the work I will do.

      They will attend viewings on days designated by me, where there will be 3 or 4 viewers given an appropriate time slot by me.

      They will have to accept that the landlord wants the rent to increase by a nominal sum to cover the additional costs I am now charging him for the work in placing them in his property.

      Put simply the time I spend dealing with/assisting tenants will have to decrease by 80-90%, as when I lay off a member of staff there will not be the cover to help them.

       

       

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