Yesterday’s results from Foxtons, Countrywide’s ongoing struggles, and the news last week that Howard Cundey is quitting the high street to become a hybrid bring into stark focus the rapidly changing industry landscape.
Caught in an unremitting squeeze between the emerging online competitors and a market that is depressed across much of the country, they must change fast or wither on the vine.
Simply cutting costs will not save them. Perhaps many high street estate agents, with their bloated costs bases, tied up in premises and an under-utilized work force, will not be given enough time to change before the inevitable market forces wreak havoc.
Most – 80% – of the traditional high street estate agents remain small local businesses focused on servicing their local markets.
Their business model has always been built upon high charges reflecting the unique local service that they provide.
Apart from right at the top end they all carry unsustainable fixed costs in terms of offices and staff and charge an increasingly uncompetitive fee structure.
The likes of Rightmove, Zoopla and OnTheMarket all offer an online shop window and widened access to properties.
In the process they have also demonstrated how increasingly the “service” that estate agents provide is often not required by the buyers, at least not until the latter stages of a transaction, and in the process have stolen the estate agents’ lunch from under their noses.
]In an increasingly price conscious market a typical seller of a property in Pimlico,for instance, is on average paying an estate agent £15,000 commission when they are given the impression that they can do it with an online operator such as Purplebricks, Hatched, Emoov etc for a tenth of that sum.
The difference has always been local knowledge and service but this justification often doesn’t seem to register with sellers.
Purplebricks is now arguably the largest estate agent in the UK and unless traditional agents wake up and smell the coffee life for them is only going to get more difficult.
Local knowledge and better service is now readily available from outsourced providers who have a greater incentive than many poorly paid, qualified and motivated local agents.
For instance it is unsustainable to continue to employ large numbers of staff sitting waiting to show properties during the day when few buyers are available and unavailable during the evenings or weekends when buyers want to view properties.
The online model however, despite being successful at taking market share, is not yet proven.
It has yet to be shown that it can make an adequate return for its investors and provide the basic levels of service demanded by sellers.
Capital funding for the online providers seems to be drying up and once the flow of money begins to slow then the operators must focus on reaching critical mass very quickly. The recent £100m merger of Emoov, Tepilo and Urban is simply a sign of things to come in the sector.
However the challenge for an online disruptor, a disaggregater, is that the cycles get shorter and shorter.
More and more sellers come to the conclusion that there isn’t sufficient justification in paying a traditional estate agent a fee ten times that of an online agent.
Already we are seeing sellers come to the conclusion that there isn’t any justification in paying for a middleman at all and we even see the online players disrupted by peer to peer platforms, allowing sellers to simply pay the transaction charges and avoid commission all together.
As Countrywide’s share price sits at an all-time low and sales volumes remain in the doldrums they have no choice but to aggressively cut their fixed costs.
If it is done unimaginatively then there must be considerable risk that such a business slides remorselessly into a spiral of decline squeezed between debt, competition and market forces.
However traditional estate agents can free themselves from their fixed costs by embracing new technologies and services provided by outsourced prop-tech suppliers.
Intriguingly this is what is already happening at a local level where employees are leaving their estate agent employers to set up as local estate agents but without any of the traditional costs having to be carried.
They simply outsource services whilst providing local value-added support when required.
Local estate agents will rise from the ashes but only where they embrace new technologies and services to build lean businesses with flexible costs bases.
This will enable them to ride the cycles whilst providing local knowledge some buyers want and are willing to pay for.
In the meantime the online players have to establish commercially viable businesses providing the right mix of low cost and at least a minimum level of service and must embrace the same innovative outsourced services which will enable them to do so.
Those players who embrace the new technologies and services available have every chance of coming out of the largest shake up that the property industry has experienced stronger and in some cases dominant, those that don’t will over the coming decade inevitably struggle.
The danger is perhaps that they won’t be given a decade in which to adapt.
* Richard Cunningham wrote this pice as an industry outsider. He is chairman of outsourced viewings service Viewber