| This will be another challenging year for the residential property industry as changes in legislation, taxation and the political landscape will all continue to impact with associated knock-on effects in the economy and market confidence.
The pace of change in new technologies and business models will also continue apace and grow in influence with both consumers and those who serve them.
I believe we will see much more “blood on the carpet” where agents have been too slow or unable to change, in a market where transactional volumes are unlikely to be significantly different to 2016.
The growing impact of the portals and online agents hurting margins will have the most effect on “traditional” agents who fail to differentiate and justify their higher fees.
The growth of the internet and the portals has seen the number of people contacting agents diminish and the stage at which they contact agents become delayed, and yet agents still, in the main, do little to capture the customer earlier and staff are often “order takers” rather than proactive business generators.
Selling and buying, letting and renting, is still a people business, and yet I feel that the quality of communication offered by many agents is well below what it could be and, if faced with an online execution-only service at a fraction of the fee, agents should ask themselves whether they are really doing enough to justify to their clients a significant fee differential if the client cannot differentiate between the services being offered.
The introduction of the 4th Money Laundering Directive in June will also impact the market by imposing greater responsibilities on agents in terms of vigilance and the need to ascertain the identities of all parties and the source of funding.
The directive will almost certainly bring lettings officially under the umbrella of Money Laundering Regulations which it is currently not. This will come into line with Consumer Protection Regulations which cover both sales and lettings and will pave the way for revisions to the Estate Agent Act 1979 which currently only covers sales and buying agents.
Ultimately this will remove the current ludicrous position of a sales agent committing a heinous crime in the morning, being banned for life from acting as an estate agent at lunchtime under the Estate Agents Act, and then opening as a lettings agent in the afternoon. This has always been a nonsense, and the sooner this anomaly is removed the better.
The Government is currently reviewing the housing market and it is only to be hoped that the professional bodies, who were caught completely flat-footed by the Chancellor’s recent announcement on tenant fees, do a better job of representing both consumers and the industry through the course of consultations.
The lettings market will be interesting with tax changes, etc, likely to see some highly geared individual landlords starting to bale out – the Government will be pleased to see more owner-occupation and has a clear political agenda to bring this about. We have already seen a significant reduction in new buy-to-let purchases since the additional 3% Stamp Duty was imposed last April.
Whilst there may be an increase in Limited Company purchases and Build to Rent, I can see overall growth in the private rental sector slowing or even going into reverse.
Letting agents were dismayed (or worse) at the Chancellor’s announcement in the autumn statement that tenant fees were to be abolished.
Despite the Government announcing the outcome first, this should soon go out for consultation and may see some watering down of the blanket ban suggested. We are probably some 18 months away from any change but one thing is for certain: it will either be a ban or a significant reduction in this source of income which I currently estimate to be around 15% of new fees in most letting agencies.
Many letting agents have, in recent years, been growing their businesses, often by “buying in” landlords with cheap fee propositions whilst topping up their coffers with fees from tenants and ancillaries. Agents are going to have to better justify higher fees to landlords and also look at new income streams such as deposit replacement insurance, rent guarantee insurance, telecom and utility switching etc if they want to maintain margins.
I expect a number of letting agents to take “first mover” advantage over their competitors in the coming months by creating “tenant fee free” propositions ahead of any changes imposed with a view to capturing a greater slice of the market.
I expect the auction market to grow slightly and also greater numbers of sales to take place through online “auctions” that combine the best competitive and certainty aspects of an auction with the flexibility of private treaty sales. These arrangements are a great example of how an agent can differentiate themselves in their local market.
To conclude, I believe the market will certainly be challenging, particularly if uncertainty grows as Brexit plans develop. Inflation is likely to increase which may impact on interest rates, but these are at such a low base that change is likely to be minimal.
There will, of course, still be a market for those who have a clear business plan that looks to embrace change and differentiate, and where the consumer is at the very heart of everything they do. Staff development will also be key, both to ensure delivery of quality service and performance but also to help retain good people.
* Michael Day is managing director of Integra Property Services, a consultancy for the property industry. He is also a director of traceWise who provide property owner data for agents and online ID checks for money laundering compliance.
www.integra-ps.com |
If everyone started to differentiate themsevles, agents might as well start selling cars on their forecourt or double up as a book shop to be different. If the industry can clean itself up, I am sure like in any industry, the good and successful will thrive.
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Differentiation or diverse? Differentiation is absolutely essential, otherwise you are a commodity with all that implies. Differentiation through an additional service doesn’t do it. Differentiate through niche marketing, affinity with community, personality or beliefs, but not through something that can be easily duplicated.
Diversity, on the other hand, is something desirable but not essential. The property sector is cyclical and if you build a house at the foot of a volcano, don’t be surprised when every few years, it gets destroyed. Not suggesting bookshops or car sales, but how about creating your own media company?
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I think your reply is spot on. Although diversity may be a requirement now, being a sales, lettings or propman company may not be enough now. (Eggs in one basket and all that.)
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‘The growing impact of the portals and online agents hurting margins will have the most effect on “traditional” agents who fail to differentiate and justify their higher fees.’
I am sure the representative bodies of ‘traditional agents’ are working as hard as can be on a campaign to help show the public the advantage and value of using us ‘TA’s’ to sell their property.
Does anyone else think the same…or does everyone believe it’s down to us in our own individual areas to work, without any back up, to get the message across?
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Precisely which representative bodies of ‘traditional agents’ are you referring to, AgentV?
(genuine question)
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I appear to have dropped booboo here!! I was thinking of bodies like the NAEA, but of course they also have online agents as members. I did also think of Agents Mutual, perhaps through OTM, in my defence…..but they seem unwilling or unable to support members in this way. Don’t know if anyone knows of another body?
Heck we need to create a new one….to represent the independent traditional agent. I know I have been banging on about this for most of last year, but I don’t think I ever fully appreciated that this would be totally unique in the industry!!
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Great article Michael. Glad to see I am not alone with my thoughts.
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Jack of all ….. master of none ….
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I would disagree. Does this mean all the big global agencies are masters of none? If you have several staff there should be no reason why you cannot diversify, even if you are a one man band having one stream of income can be risky. it may mean leaving a comfort zone and extra work.
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Big global companies such as Countrywide maybe? – think you have just proved my point.
In a market we are heading into you need to concentrate on listing houses, selling them and offering a top notch service and building referrals.
The industry is changing and 2017 is most definitely going to be a challenge.
Good agents will prosper, poor agents will fold.
A few will possibly diversify but that will take focus away from the very thing you should be concentrating on right now.
Its locking the gate after the horse has bolted. If you diversify the time to do it is before a slump not during it, and we are in a slump.
Imagine a 3 or four person office. You are saying that the owner who has the most invested into the business to make it succeed should take a step back and develop another form of income? – madness.
There is a poster on here (will not embarrass them with who) but they have spent a fortune on some new tech. It is very good tech but can be found for a fraction of the price elsewhere that does a similar job. The reason they have spent almost 10 times more money on their system is because they want to diversify into other arenas. It sounds a good idea! – BUT factor in the time away from their business, start up costs with setting up and advertising, time spent doing it (its a niche product) they will not see a return. its their choice good luck to them hope it works (it probably will not sadly).
Agents need to adapt to the market place but wholesale change is not what is needed. Continue to charge fees (make hay while the sun shines) hike up management fees even if by 1% on renewal.
Heck i am close to putting an admin charge in for buyers if they are using an online agent to sell as my staffs workload doubles!
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I never said take a step back. I said ‘it may mean leaving a comfort zone and extra work.’ …Extra work. If your only income stream has even a small possibility of being disrupted, I would strongly advise looking at alternative income.
You can make hay whilst the sun shines, but gathering wood to sell in the winter is not a bad thing either.
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Extra work implies they are not working hard enough on their core area.
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Thanks for the article Michael and wishing you a Happy New Year.
I have been at industry type meetings where other MD’s of well established multi-chain agencies have strongly refused to accept online agencies will have an effect on their business. I was seemingly debating alone against a tide of traditional views, which was very frustrating. From experiencing this, I believe most of our industry is still sleep walking. This year will see the biggest shift towards the digital age that we have witnessed yet, so ignore changes in the demands of a market at your peril. The market wants cheaper fees, undoubtedly, but the market also wants services, some of which can be managed online so it does create an opportunity for us to differentiate and improve. We are investing a huge amount of money in altering our business model, but people to people is still important and must be delivered appropriate in an industry undergoing massive change. Years of arrogance and being stubborn are about to come back and bite those who refuse or do not want to change. There will be blood on our streets over the next year or two and it will be those that have buried their heads in the hope that our dated tradition survives.
Good luck people.
Sam
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Sam, you are not alone. The agencies that embrace the online efficiency, personal service with low operating costs are the once that will prosper.
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Absolutely and those one’s know who they are!
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Debates and criticism about online only agents like PB etc., distract attention away from the real change in our industry.
What can’t be denied is the huge shift in property search behaviour in favour of the internet and away from the high street and traditional local advertising.
That shift has accelerated dramatically in recent years as the ‘internet generation’ matures into home buyers and sellers and as the ‘mature generation’ has increasingly become more confident and embraced everything online.
When I started my agency six years ago I constantly got the objection ‘but you haven’t got an office in my town’ even though that town might be only 4/5 miles away from my office. Now, that objection is almost non existent and I sell property within a 30/40 radius of my one office.
That shift in internet understanding has provided the opportunity for the likes of PB to advertise to an increasingly receptive market. The fact is most consumers want the same service (in whatever industry) for a more competitive price.
We can argue all day about how poor the online only service is but when I see two PB signs in a small Scottish Highlands village when visiting relatives over Xmas I know that they are a threat. Their brand awareness is increasing rapidly and we all know that for sale boards (especially SOLD’s) are a huge valuation motivator. I don’t see PB going away, and I certainly won’t hold back adapting my business model in the hope that they will.
Traditional agents need to fight the likes of PB on the main battleground where our potential clients are looking to buy or sell property, and that is the internet. For definite, THAT search behaviour will NOT change.
Internet marketing skills are increasingly becoming a vital part of all successful and growing businesses.
Estate agency are no different in that respect.
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You should have ended that with ‘BOOM, drop the mic.’
Well put.
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Ditto
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True. The days of uploading a bunch of snaps and a pile of ill written twaddle to a template and charging it out as ‘top notch marketing’ are ending soon. So too is sitting back and waiting for a buyer to stumble across your vendor’s property then patting yourself on the back that you’ sold’ it.
I don’t believe that many vendors set out to find a cheap estate agent, every survey I have ever seen confirms that the No 1 priority is ‘who will get me the most for my home’. Yet few agents market themselves as such (or have mastered the tools to do so). So, vendors see them as all the same which fuels the scrabble for cheap. It is not vendors being tight, or onlines creating new battle lines based solely on fees, it is agents’ failure over time to prove value.
Stock for agents is finite, there are only so many properties on your patch at any given time that are for sale. You can’t create more. The hardest part of any agents business is winning instructions particularly when it is out of a finite pot. Business sense tells me that I should be striving to find ways of getting more out of each job. Getting less is a mugs game.
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For the new independent estate agent network I think we need five main aims;
1). To show that we are the local knowledgeable experts that can give the vendors property the best representation, the vendors themselves the best advice and have also the experience and contacts to make it all count the most.
2). To prove that the fees we charge are ‘value for money’ as we achieve a higher walk away result for the consumer.
3). To design and develop the tools for the modern age high-tech independent agent to help efficiency, service and local marketing.
4). To generate more business via ‘collective prospective marketing’.
5). To build a collective brand presence and develop a reputation for the excellence, service and customer care provided by the ‘independent no sale no fee agent.’
From what I know and see, we have more than enough knowledge, experience and dedication amongst us all to achieve all this. We just need for some of us to come together to make it all happen.
Any other suggestions?
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Well put AgentV
I have been looking for factual data on point 2 for a few months now. The problem is unless it is a joint instruction how can you know who would have got more? If anyone wants to help out with this I’m happy to be involved.
I also think that some input from the software providers and road maps on how they are going to help on the tech side is important.
Thanks
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As a small independent working 7 days a week to keep my staff in their jobs and my modest business afloat this is what I do to keep the call centre agents at bay in my area.
If us small independents all adopt these ‘disrupter’ strategies we can stop the call centres getting market share, or ever being profitable. That way we can keep our businesses and our staff in their jobs.
When a call centre lists in my area I immediately write to the vendor and offer a High Street presence, local knowledge and personal service for the same fee. I remind them that they have 14 days to come out of their contract with the call centre. Whilst this might not make you any money its about keeping your market share. I have taken instructions from the call centres using this strategy.
If strategy one doesn’t work I have set up accounts with the main call centre agents and I book viewings at their listed property. I ask friends and family to do the same. These bookings are of course ‘no shows’. I sometimes book second viewings as well. After 3 of 4 ‘no show’ viewings I write to the vendor again to offer my reliable services, where all viewers are contacted and screened.
In parallel with action one and two I use my dummy email accounts to book Valuations with the call centre agents at random addresses to waste the ‘local’ account managers time and make them unavailable for anything else.
Another strategy is to contact the vendor when you see the call centre reduce the sale price. I highlight the loss of value and the fact that a local agent knows the real value of their property and what people will pay for it.
Whilst these actions do take up time these companies are trying to destroy our businesses and our livelihoods – ‘disrupting’ them from getting market share is worth it in the long term. The more of us that implement these strategies the better. Protect your business – Act today.
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