The number of estate agents going out of business jumped by 16% last year.
It went from 160 in 2014 to 185, bucking the overall downward trend in the number of company insolvencies over the same period, says accountancy firm Moore Stephens, which took Insolvency Service figures.
It says that local agents were last year squeezed out by larger brands and what it calls ‘no frills’ rivals – online agents.
The firm says that online firms are not a flash in the pan.
Moore Stephens says that estate agents’ failures bucked the general trend, where the national rate of business insolvencies across all sectors declined by 9%, from 16,558 to 15,027.
Moore Stephens says that many local agencies are being squeezed out by bigger brands that are out-spending them on marketing, and new online, low-cost agencies such as Housesimple and Purplebricks.
Moore Stephens claims that the fixed-fee business model of online agencies is putting increased pressure on margins for high street agencies.
At the same time, Moore Stephens says that local firms are losing business to larger chains such as Foxtons, which can afford a bigger sales and marketing budget or that can break into a new local market by offering a zero-commission deal.
Mike Finch, restructuring and insolvency partner at Moore Stephens, said: “The rising number of ‘no frills’ estate agents at one end of the market and modern, highly branded estate agents is posing a threat to smaller traditional firms in a crowded field.
“Small high street agencies, with their expensive shop space and cost of employees cannot match the ultra-low fees of online estate agents.
“Those smaller firms do not have the budgets needed to compete with the big chains on marketing spend, investments in database technology, mailshots and newspaper advertising that larger estate agents can afford.
“If a small high street agent cuts costs in order to match the commissions of online agencies, they then put themselves at risk of losing businesses to those big agencies that can out-spend with more expensively fitted out offices and customer care.
“High street estate agents had hoped that the fixed-fee business model of online estate agents would be a ‘flash-in-the-pan’ but it does seem to be taking hold.
“Although the property market is buoyant at the moment, competition between estate agencies is as fierce as ever and many areas are saturated.”
Separately, the number of buying agents has dropped, according to The Property Ombudsman figures, from 547 at the start of last year, to 497.
Comments (8)
Well Said Chri Wood,
When I started in North London I knew nearly all the agents within 10 miles of my offices back in the early 80’s then new agents opened at a rate that saturated the market even by the late 80’s. As house prices rose more and more agents came in to existence.
I guess what was originally 2 or 3% fees against £40,000 sale prices to 1.5% against £250,000 is the same (adjusted to income inflation) is equal to 1% for £500,000
So 5 estate agents is now 15 in the same area. Where I work now there are 7 estate agents chasing 2500 roof tops with an average sale price of £275,000. All the agents run a lettings business too. We get the occasional on line agent taking one or two instructions every now and then the last two got ditched and came to me to sell.
The future?
Well lets just say I will have to retire in the next 10 years (I want to at any rate) and I am telling my son to avoid this business unless he likes long hours with an uncertain future.
We know excellent customer service and face to face selling is imperative for a successful business but the clients are looking to keep their moving costs down and faced with an exceptional choice, plenty of online house price statistics to compare house values. How long will it be when the likes of PB actually take centre stage. Personally I think the present online offering isn’t strong enough to take any more of the market than it has already. They really do need (and I expect in due course it will arrive) some disruptive technology to achieve this.
Ironically if it’s what I think it’s going to be, app based for our ever more powerful phones and tablets, not only will it disrupt our business but like Uber did to taxis but it will dismantle the big concerns like RM & PB too.
p.s. I’ve already worked out how this App would work so if you could just pass over a few million ?
The comparison with the arrival of Uber is an interesting and good analogy. black taxis in London have their fare tariff set by TFL. With some rare exceptions they are knowledgeable, provide an good level of service, are properly insured in checked and safe vehicles and CRB checked. But they are relatively expensive. Uber drivers are rarely any of these. Black cabs are losing a lot of business to Uber purely on price.
I read that it is estimated that there are nearly 3000 estate and letting agencies in London, with a new one opening every 1.6 days. Many don’t comply with even being a member of a redress scheme. The vast majority are not members of any professional body. It is inevitable that in time the “on-line” model of agency will make increasing inroads into this unregulated market. I know that I have been called out to give appraisals to vendors, given them a full report with supporting information and competitive fee quote only for the vendor to use the info and give the instruction to an on-line agent. Now our new instructions come through recommendation, often through clients who are solicitors, accountants in insurance etc. they understand that professional service costs money. Unfortunately, many of the general public do not and just want cheap.
Agencies like any other business fail when they run out of cash
Cutting your fees at a time when instructions are hard to come by is suicide
Put your fees up if you want to survive this next 18 months – the economy might not provide a falling market but other factors are limiting the supply of new instructions which is just as bad as a lack of sales
Correlation is not causation – The problem lies not with call-centre agents low fees and misleading claims but with high street agents who lack the skills and training to market the service they could and should be offering to their clients at a suitable, profitable price.
Too many self-proclaimed ‘experts’ and journalists are conflating the arrival of a new business model and the dropping of the average fee. In fact, since the mid eighties when the ‘pay-as-you-go model was phased out by the arrival of the no-sale-no-fee corporates, fee levels have always risen and fallen in line with market factors. Many of us have seen it all before. It goes like this
1. Headlines make it appear that estate agency is ‘easy-money’
2. New estate agency businesses are set-up by untrained half-wits hoping to make a fast buck by offering a low fee/ high turnover model.
3. A fee war breaks out between the new firms and the agents who have become complacent and forgotten how to sell.
4. A number of firms go bust.
5. The market has, usually by this point, turned again and, no longer viewed as ‘easy-money’.
6. More firms go under.
7. The remaining firms that are not already operating at sustainable fee levels put their average fees up.
8. The remaining firms become more profitable and compete effectively on service within a profitable pricing bracket.
9. The property market starts to rise again.
10. The cycle begins again.
With traditional agents accounting for around 94% of the sales market, it would be foolish to suggest that a new sector that has a statistically insignificant share of the market* is dictating prices. No. What is happening is the agents in ‘2’ above, saw a perceived threat to their model and livelihood and used the only tool they had in their marketing book to deal with that perceived (but insignificant) threat; they reduced their charges.
*which is currently static if not shrinking according to current figures. PurpleBricks, Tepilo, EasyProperty and eMoov listings numbers are all significantly down on last months numbers.
Well said Chris.
In the last few weeks I have shown a few agents how to get their fees up at valuations by going out with them and doing the pitch (typically by 0.5% based on average local sole fees).
It’s not hard to gain higher fees when listening to the sellers needs and wants and bespoking a solution to get them a best price.
Needless to say Im pitching main agency which in turn will also place the listings with other local (sub) agents.
if a sub agent finds the buyer, we give away the extra fee. If sold direct the main agent is 0.5% better off than their sole fee.
I really don’t understand why agents struggle to get better fees and can’t secure listings.
It’s not harder to gain higher fees period – you certainly don’t need to tell the vendor you need help from your competitors to get them the best price.
Maybe more are retiring and closing?
I can’t speak for the rest of the UK but we have had an explosion of new agents last couple of years and established ones opening further branches.
Where were the figures taken from though? If it’s just the reduction in members of TPOS, then you’d most likely find they’ve joined another, much less expensive, redress scheme.
Quite a few have been bought out too, so how accurate these Figures are isn’t clear.