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
Comments (13)
Another advert from a supplier !! obvious. And as someone who has a relative working as a VIEWBER I can with total honesty say that
“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.”
is not our experience of Viewber. When you have the privilege of being instructed on someones home, the amount of trust placed upon you is significant. The family you are acting for is totally reliant on the agent and their services to deliver the promises made. I have always held the accompanied viewing in very high regard, it is one of the ‘Moments that Matter’ and is also a key stage of the negotiation process. How does an ‘outsourced’ service that is emailed a set of details and picks up the keys 10 minutes before a viewing “a better service”? How is this classed as a better service when the ‘Viewber’ has not seen the house before, never met the buyer before, has little if no knowledge of the vendors situation AND paid £20 for 15-20 min viewing. What incentive is provided to the Viewber for staying longer in the property than their payment dictates should the buyer be interested?
I agree that the high street needs to WAKE UP quickly and remember the level of TRUST that has been placed upon it.
Industry outsider? It’s an advert for his property related business!!!???
Indeed it is but he talks a lot of sense. We ignore his messages at our peril going forward.
Typhoon
This “lot of sense” you say he talks…
…might be there somewhere – but it’s buried under six spade-depths of agenda-rich billshut.
In my opinion, that is…
“Local estate agents will rise from the ashes but only where they embrace new technologies and services” – Never a truer word spoken. Ever since 2006 we have been working alongside frustrated estate agents who have not adapted to external online trends. We provide them with new technologies from lead generating websites to bespoke digital marketing. All are now seeing success. Technology online is only going to become more and more advanced and the sooner these agents embrace it the quicker they will see results… It’s not too late!
Are agencies incapable of proving their self-worth, or has that already gone? Eroded by the opportunist PurpleBricks.
It’s not about the fixed costs. It’s about the underlying fear of not being good enough. And in many cases not being able to enunciate how and why your agency is preferable.
If agents don’t appreciate that they’re not competing with each other, but with themselves (on how to create loyalty), then the fee level will get lower still.
Vendors don’t mind paying more for something of pereceived value.
Are you looking for the cheapest or most expensive of anything?
The industry problem is that most agencies now are looking for quick wins rather than long-term relationships within a local community.
Technology has a place but it’s not a panacea for the inability of agents to better persuade.
There will be a fallout but behind it all is the inescapable fact that vendors just didn’t like you enough.
“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.”
Who, what, where? This really should have had advertorial marked somewhere.
At the end of the day service will always win above cheap cost…..but in many parts of the country fees are little more than 50% above that of the Call Centre Listers, and on a no fee, no sale basis.
“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.”
The current predicament of CWD has occurred because the BODS made some very bad business decisions incurring a debt of £200m overpaying for goodwill.Not because of any failure by the individual brands coping with changing market conditions and embracing new technology .
“The difference has always been local knowledge and service but this justification often doesn’t seem to register with sellers”
If not now it soon will in a difficult market .It’s impossible to have an adeqaute local knowledge of the various idiosyncracies peculiar to a local market by introducing “experts “covering wide geographical areas where they have never worked .
For example the new LPE appointed by Emoov last week to take the place of the vacating Adnan Pasha!!!David Masters not only pops up on their website as the LPE covering Solihull but Leek in Staffs too 74 miles away with a massive population in between.
http://www.theaa.com/route-planner/index.jsp#fromNode=0%7CDorridge,%20Solihull,%20UK%7C%7C-1.761667%7C52.370734%7CtoNode=0%7CLeek%20ST13,%20UK%7C%7C-2.023
This article stands as testament to the fact that circumstances are never allowed to get in the way of an agenda, Hillofwad71.
Howard cundy did not chose to leave the high street. They went bust and forced to work from bedrooms.
Really you shouldn’t make stupid comments when you clearly don’t know the facts.
Quite a pertinent article, despite the possible self interest of the writer. What about this massive difference between Purple Bricks fees and Real Estate Agents? On an average priced house in this area the difference is about £2,900 before all the extras they press Vendors to pay and that can easily be covered in negotiated sale prices and remember the PB fee is paid up front, whether you sell or not. Then you move onto the important second stage of sales progressions, virtually non-existent with PB.(why should they bother) but vital if you want to get the sale through. The big problem is the slow and archaic conveyancing system and until that improves, many wont be moving, even though they thought they had a buyer. Why not set up a competition to sell between PB and a Real Agent, the result would be interesting, if not predictable and worth publicising.