Estate agency group warns investors that fees ban will cost it hundreds of thousands

The Property Franchise Group has warned the City that the tenant fee ban will lose its franchisees 17% of their income, and will hit group revenue and profits.

Announcing its results for the first half of this year, the group said the hit to its bottom line would be £0.75m, or £0.5m if there is careful mitigation.

CEO Ian Wilson also said that while smaller independent competitors would become unprofitable, its own smaller franchised businesses will also be at risk.

He told EYE that out of 377 outlets in the group currently, 263 are high street brands (the rest are EweMove outlets).

He said he is expecting the number of high street outlets to fall. “I would not be unhappy if the number fell to 250,” he said.

“While there may be fewer offices, I envisage that the average number of properties under management per branch grows.”

He said that active rent management is just one strategy being employed across the group: “We are urging our agents to get tenancies on to fixed terms, not periodic, so that we can ensure that rents are regularly reviewed.”

Wilson envisages rents rising next year, with landlords being charged more. The business’s assisted acquisition programme, whereby franchisees are helped to buy local competitors, will be ramped up.

Yesterday’s results also focused on the turnaround of hybrid brand EweMove.

Wilson said that last year, The Property Franchise Group had had to issue a profits warning because of EweMove’s under-performance. He also said that there had been high churn of franchisees.

He told EYE: “It is now the fifth biggest online agent, and our total investment in it has been £9m. When you consider that some online firms are burning through £1m each month, I think we have done well.

“We are now recruiting more estate agents as franchisees: a quarter of EweMove franchisees are now experienced agents, and we aim to raise this to 50%.”

He said estate agents were generally very interested in the EweMove proposition: “They know it’s not a listing model but a genuine estate agency – and they can make a lot of money because they don’t have the usual overheads.

“They pay us a licence fee of £1,000 per month, and then give us £250 every time a property is sold. The rest goes straight in their pockets. We have franchisees earning plenty of money – and driving very smart cars.”

The Property Franchise Group said that as at the end of June, it had 53,000 managed properties, up from the 50,000 at the same time last year.

Head office income, through Management Service Fees, rose by 15% to £4.4m. Overall revenue was up 17% to £5.5m.

Pre-tax profits were up 32% to £1.9m.

Yesterday, shares in the business rose 8.5% to 147.5p.

Shares in competitor Belvoir, which also reported robust half-year results this week, stayed flat at 107.5p.

Shares in Winkworth – see next story – rocketed almost 15% to 125p.

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12 Comments

  1. DarrelKwong43

    you can review rents when they are running periodic, no need to create more work and compliance by agreeing a new fixed term

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    1. Peter

      “We are urging our agents to get tenancies on to fixed terms, not periodic, so that we can ensure that rents are regularly reviewed.”

      As you say, rents can be reviewed within a periodic, so “urging” fixed term on this basis is really to earn extra money, ergo for the benefit of the company and not the client. Potential miss selling unless the reason is to provide security by not including a break clause.

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      1. DarrelKwong43

        totally agree Peter, creating a fixed term and charging both parties for the privilege

        also creating a new term, may mean seeking re permissions, re issuing deposit compliance, being under the new regime for section 21 service etc etc…

         

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  2. PeeBee

    “…out of 377 outlets in the group currently, 263 are high street brands (the rest are EweMove outlets).”

    When I went to school, 377 – 263 = 114.

    114 EweMove “outlets” (bedrooms…potting sheds – sorry, of course I mean “live/work spaces…”, back seats of Ford Fiestas or whatever currently counts as an “outlet” these days in “disruptor-speak”, unless anyone else gets a different total to the Group CEO.

    These bu99ers can’t count to save their lives! 114 today… 126 on Tuesday… 105 on Zoopla – sorry – that was yesterday’s branch count – just checked and today it’s 103!! You couldn’t make the feckin’ thing up!

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    1. smile please

      Just goes to show the high turnover of franchisees they have.

      Also looking at the listing stats for last 12 months on average each “Sheep” takes on circa 3 properties a month.

      Add in the £1000 per month license, £250 per completion ….. Not much of a living …..

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      1. Beano200062

        Bargain with no RM etc to pay.

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      2. Gloslet

        ‘driving very smart cars’ is not the same as ‘owning’ a very smart car.

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  3. TAB

    “He said he is expecting the number of high street outlets to fall”.

    53,000 managed properties across 263 offices.   Are people seriously running high street offices on 200 properties?

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    1. smile please

      Got to be at least 120k per office per annum in managed fees before any sales of fees to landlords / tenants.
      Some of the letting agents i know do it on half of that.
       
       

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    2. DarrelKwong43

      Leaders Romans have 48000 odd managed by 125 offices

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  4. JamesS123

    Seems very odd that these stories are happening now, surely this is the type of thing that all large and small agents would have dealt with a long time ago when the tenant fee ban was announced.

    If it is only now being considered and highlighted it is too late to deal with?
    Any good agent will have a plan which they are already doing…

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  5. Beano200062

    Just goes to show at 17% how much these firms have milked the cash cow to the point of ……..well government intervention.  Our lettings side will miss the much lower % figure we fairly charged, but will find it a lot easier to recover from the landlord through rent rises and small service charge increases.

    Unlike, it seems, the bigger firms we haven’t been ‘double charging’, we have always shared the costs between both parties.

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