What is happening to Estate Agency?
14th October 2009
I have been asked on a number of occasions recently how I see the Estate Agency industry changing and it is indeed a good question.
I had a rare lunch last week with a key figure in the Estate Agency world for whom I have huge respect and was refreshingly surprised that his views of the way the industry is going mirrored mine to a significant degree. We didn't agree on everything, but he can't always be right!
We agreed that the recession had not been all bad. It had taught us that first and foremost, we run a business which happens to be an estate agents, not the other way round. Recession has taught us financial discipline and focus on what it is that makes us successful. This benefits our clients as we have focused on cost effectiveness and ensuring only the most effective means of marketing and communication are utilized. Most important, perhaps, is that we have realised the importance of quality staff.
It also seems that the industry is undergoing a process of consolidation. There are a number of agents who are trading on the edge of financial collapse. One agent called to me to see if we would be interesting in taking them over as they were struggling. A good outfit, but their expectations of value were not realistic. The value was based upon the number of properties under management together with the number of 'let only' instructions. In reality the value of the latter is based upon possible renewal fees, yet the agents terms of business were such that there was no contractual obligation upon the landlord to pay them. Their problems were based upon lack of cash flow and an inability to invest in marketing. The only way they could get new business was to reduce fees which compounded the problem as they had to sell and rent twice as much for the same income.
Another agent in West London who is heavily in debt and whose client account is decimated approached us for a discussion. They had found difficulty in obtaining any funding and it is only a matter of time before they will have to declare themselves insolvent as it appears impossible for them to trade their way out of trouble. The company has no value whatsoever. Sooner or a later, the administrators will be called in and an agent appointed to take over the management of the rental properties and sales pipeline.
The reality is that as the agents who have struggled most start the annual process of filing company accounts, the more successful agents will start to target opportunities for expansion.
It is clear to those in the business which agents are suffering most. They are often the ones who don't advertise using the excuse that paper based advertising doesn't work - its all about the internet. Frankly, that is a lot of old nonsense. As I flick through the pages of Archant's SW Magazine, I see Knight Frank, Bushells, Douglas & Gordon, John D Wood, Hamptons, Winkworth, Savills, Marsh & Parsons, and others all spending a huge amount of revenue on advertisements. Collectively, they know a thing or two about the industry and wouldn't waste their money if it didn't work. In fact, many have increased their profile as have we, taking advantage of more competitive rates.
Simply having a website isn't much use if it cant be found. Search Engine Optimization, sponsored links, internet marketing all cost money. There are millions of websites worldwide. Bushells is now ranked in the top 1.5% of these yet there are a number of similar sized competitors who are ranked millions of places lower.
Good agents who maintain fee levels do so because they know that they provide value for money. We could all do cheaper fees if we didn't advertise, but then we would struggle to get the best possible sales price and employ the best staff available. Remember, cheap fees result in staff getting low pay and this in turn means that the negotiators are far less motivated to go the extra mile to tie up a deal for the best price. They have to work on numbers to earn a living which often detracts from service.
Being members of ARLA, the Property Ombudsman, NALS, NAEA, or RICS isn't cheap, but its essential for customer confidence and security. If an agent is not a member of at least two of these bodies, ask them why.
The agents who will prevail are those who are currently investing in their business having learned the lessons of the credit crunch. Bushells, for example, has introduced state of the art software and phone systems which link with company Blackberries ensuring swift and efficient communication. We are about to roll out a new 'client log in' service which will allow customers to check on marketing and progress at any time. It wont replace our usual updates, but it will allow us to be monitored by those who ultimately pay our salaries - the clients.
I sincerely believe that the dark times will have a profound effect on professionalism within the industry. Prominent agents will continue to invest in their business and it is they who will attract the most capable and talented staff. This will only serve to hasten the demise of those who do not meet the standards increasingly required and it will make those agents who are not members of professional bodies less able to justify their exclusion.
One way or another, the industry is improving for the better.