The writing is on the wall for at least three big estate agencies that I’m aware of, all of whom are struggling for survival as a result of the current challenging climate in the housing sector.
But how many others are likely to go under this year?
According to a recent report by insolvency specialists Begbies Traynor, a quarter of estate agents in the UK are in financial distress – that means around 5,000 agencies – of which a third are unlikely to be trading in three years’ time.
We’ve already seen profit warnings from the likes of Countrywide and Foxtons, whose share prices have slumped. At one point, Foxtons was down to 87p – compared to a high in 2014 when it reached 373p. That’s quite a hit if you’re an investor.
We should all heed Foxtons chief executive Nic Budden when he says he expects trading conditions in 2017 to remain challenging – with volumes of sales possibly even lower than 2016.
At times like this, you rely on your lettings divisions to pull you through – yet their lettings business remained static, albeit overtaking its sales income, which suggests their model is failing.
Its expansion plans also appear to have been more or less put on hold, with only two more branches set to open in the near future instead of the additional 35 it had previously announced.
The biggest danger zone is clearly London which has become a blood bath, with the decline in foreign buyers, Stamp Duty changes and Brexit. But will there be a ripple effect across the country?
Certainly, we’re seeing agencies in the Home Counties struggling because of the oversupply of agents and the reduction in fees.
So what does this mean for the industry as a whole? I predict a year of change and consolidation with a raft of mergers and acquisitions on the horizon.
However, estate agents hoping to attract a premium price for their businesses have missed the boat, with fewer buyers with deep pockets willing to take the risk, at a time of uncertainty as to which business model works.
Industry needs to act over delays
Why is there such an unwillingness among our industry bodies to combine their creative might and invest in the kind of technology that will prevent delays in property sales, thereby reducing the number of failed transactions?
In every other walk of life, giant strides are taking place in new technology, yet it feels we are stuck in the dark ages when it comes to speeding up our conveyancing, surveying and mortgage processes.
Whatever Rightmove or anyone else says about the transaction process speeding up, that’s simply not our own experience. It’s taking longer and longer to get transactions through – around 17 weeks on average – because of the delays we’re experiencing at the hands of third parties.
What reaction do you get when you explain to buyers and sellers that we’re not joined up as an industry, or that many councils still have an antiquated system of providing search results or there aren’t enough conveyancers to speed things? I bet people in this day and age can’t believe their ears!
What is stopping the Law Society, the RICS, the Society of Licensed Conveyers and mortgage providers from getting together and creating a common trading platform that will benefit everybody in the long term? We can put a man on the moon but we can’t speed up the sales process – how ludicrous is that?
Of course, it boils down to money. But if the income derived from these processes are transaction driven, surely this investment will pay for itself in the long term with fewer transactions being pulled at the last minute due to delays and third parties dragging their heels.
Or should we be going back to having an industry-wide pre-sale pack, like a Home Information Pack, to deliver a speedy sale?
The public wants transactions to go through more quickly, within around six weeks, and a log book with pre-contract enquiries, legal information, a statement of condition from a surveyor, EPCs and a mortgage offer – backed by the right technology – is exactly what we need if we want to benefit not only our customers, but the industry too. It’s time for a rethink.
Why consult on a foregone conclusion?
Why is the government even bothering to consult in March/April on the proposed lettings fee ban when all we have to do is look at what happened to rents in Scotland after fees were banned there in 2012?
Annual rents there are now among the highest in the UK and many prospective landlords have been put off buy-to-let by the increased fees they are now expected to pay.
When the new ban is introduced, agents will either increase the rent to tenants in the first month to take the fee out and send the landlord the remainder, or they will add it to the rent in 12 equal instalments and spread it out across the year? How are you intending to pass on the costs?
Government officials have apparently been to Scotland recently to study the consequences of the ban. You don’t need to be a rocket scientist to understand the impact. As everyone has been saying all along, it’s the tenants who end up suffering the consequences.
Surely they can see that it’s a big mistake with implications not just for tenants, but for landlords and agents – and it could leave many out of business in the long run.
Paul Smith is CEO of Spicerhaart
It’s funny when you drive pass any Foxtons office in London, they only have 4 people working in them. They used to have 20 to 30 negs in each. Their eye popping fees are just eye popping. You drive pass, Haarts or Felicity J Lord (part of Spicerhaart) and they are as thin on the ground as any small agent they are completing against, with 1 at best 2 sitting their with their thumbs playing on their phones. Their fees are also eye popping. Best not to blame others for charging extortionate fees. In a market of choice and low transaction levels, your (lack lustre) service and disproportionate fee levels will destroy you.
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Never known a Foxton branch to have 20 – 30 staff.
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Enjoying liking your own comments 123430?
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What a childish comment.
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What did I say….
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I don’t know, but you probably misspelled it.
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Several sizeable letting agents I have spoken to have confirmed their intention to follow this charging model – simply taking what they did charge to the tenant and transferring it to the landlord as a “tenant origination fee” or something similar and then giving the landlord the option to add it to the first months rent as a rent premium. Irony assuming most landlords will opt for the latter is that the tenant still ends up paying in the end and the agent will get their managed % of it as well 🙂
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Surely that only really works if others follow suit and there is pent up demand in the rental supply?
I am sure plenty of independents will see this as an opportunity rather than a threat (on the tenant fees ban that is)
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Absolutely but why wouldn’t they unless they are already making more profit than they want to – I agree that this will only work whilst the balance of demand v supply is in the landlords favour but then there cant be many areas in the country where this doesn’t apply and I cant see that changing anytime soon either.
Is this an opportunity – absolutely – reminds me of the introduction of bonding requirements – initially agents saw it as another cost to bare – now most have turned it into a handy revenue stream
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There are so many issues it’s difficult to know where to begin. Lots of negotiators in too many offices is a thing of the past and I’m surprised this was not recognised sooner. Lots of branches of the same brand in close proximity to each other was something that is unsustainable as time progresses. Since the mid noughties it’s been apparent that the Internet would create significant changes to the infrastructure agents need to be be successful and the general public, specifically those that have come of age in the Internet era, are the most likely to try diy and potentially save themselves substantial sums. I’m sure like myself there must be agents that have found that in many instances the general public are convinced they know better than we do. They, after all, have Google! Evolution is long overdue so; we all have to ‘get with the program’. Don’t count on any help from the government as I really don’t think they care about our industry. Property will be let or sold with or without agents is what I believe they think.
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I think the internet has done its bit with estate agency and rightmove, zoopla are the winners.
If it took 4 months and several visits to a property, Amazon would have died years ago. Purplebricks aren’t using technology, they are conning people that they need it.
The fact they had to have ‘local’ reps within about 3 weeks of opening says the public understand when service is actually required.
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Do you mind if I disagree with Rightmove and Zoopla have won? they are are phase in the industry that is now beginning to move on.
Both are now legacy systems both have challenges ahead of them. Internet listing is a passing phase too. The industry is about to contract as it has done in the past and there will be casualties in all types of agency.
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ok, they won the the last 15 years. cant see the future but it doesn’t include onthemarket while they support Russia…i mean rightmove
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The article mentions HIPS and this was well intentioned but ill thought through all those years ago and then in typical Government fashion suddenly stopped without warning! The availability of a legal pack was the jam buster part which is the key.
If vendors had to commit to paying for a legal pack before putting their property on the maket that would delete from the market place a large number of ‘would be’ ‘let’s try’ seller/buyers who clog up the system and cost agents a substantial amount of money in unchargeable lost time.
While some of these ‘would be’ and ‘let’s try’ purchasers do eventaully go onto to buy many I am sure do not so get rid of them all unless they pay for a legal pack. Clear the books of the time wasters and concentrate on the genuine seller/purchaser.
This would speed up the buying process and also cut agents wasted time.
The danger of course is that some agents and in particular the larger groups would immediately start offering ‘free’ legal packs thus shooting themselves and the industry in the foot
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Personally I think Rightmove have shot themselves in the foot by supporting online estate agents and putting very little in the way of allowing them to advertise on their site – with speculations of this many agents shutting shop it will most likely be Rightmove & Zoopla issueing profit warnings.
What is more interesting is I recently was chatting to a friend of mine who develops houses in London who mentioned in conversation that he was recently approached by Rightmove to advertise directly through them for a lot less than what an agent pays to Rightmove..
It wouldn’t surprise me if Rightmove rolled this system out with the wider public given that their income stream from agents is about to decline.
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So more dark matter is afoot? RM already have the house numbers and full property addresses of all our vendors…from their real time data feed. Is this the early stages of a path they intend to move along?
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“Why is there such an unwillingness among our industry bodies to combine their creative might and invest in the kind of technology that will prevent delays in property sales, thereby reducing the number of failed transactions?”
Online fast conveyancer deals with slow archaic high street conveyancer is the reason not to mention a quicker service equals lower fees.
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I agree with Robert . Portals haven’t won
… they have allowed good independents to prosper . Corporates will struggle , their usp of multiple offices gone . Service from online is struggling to compete .. the smart money from the ex-countrywide chaps is going into a quality model, proper service and all important local knowledge. Heavy fees from mega branded London agencies has had its day – fair fee ,quality Marketting and a local office easily accessible looks like the next phase that’s coming – after all how much is a market leading agent saving not to be on the high street – less than 1 sale a month for a confvient location – which is why so many businesses want to be there ..
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All the portals do is to take our/your data and display it. There is nothing unusual or any alchemy involved. It’s just like the newspapers of the 80’s and 90’s did until there was another medium or avenue of promotion. I think we all know if Virgin, Google, Microsoft wanted to destroy RM they could do easily and in short order. It is therefore these organisations that should be encouraged into competition. It is kind of perverse that the agent who has to work hard to persuade a vendor to allow him a chance at selling his house (on a no sale no fee basis), pays a high price to to RM primarily and Z irrespective of if the house sells and the agent makes anything at all out of the deal. This is where PB do ok as they get paid no matter what. The challenge is to promote your stock without filling the pockets of RM who routinely come up with another ‘add on’ to enable them to charge you more. Whilst agents are divisive, a solution is unlikely. This is where the NAEA/NFOPP should help. Why should an independent pay more for his office than one of the corporates? It’s favouritism pure and simple and RM/Z are allowed to get away with it. I wonder what would happen with the RM share value if enough agents boycotted them?
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Did anyone notice the correlation of how many agents are in financial distress vs how many agents are signed up to OTM? Smirk.
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