It’s a challenging time for the traditional high-street estate agency, and we are unfortunately seeing more calls for help from agencies facing financial distress as they try to keep up with a volatile property market and changes in legislation, plus the threat of online-only property sale sites such as Purple Bricks.
The latest statistics from Property Industry Eye gathered from Companies House state that 153 estate agents went through insolvency measures in the last year. The article also suggests that around 7000 agencies are further struggling to keep the doors open.
Recently, Countrywide issued a further warning, its 4th this year, and is now seeking to raise £125m to keep the business afloat.
High fixed costs can cause business distress
Many estate agents occupy prime retail space in a busy town centre, and this, of course, attracts a high rent. In addition, an estate agency is very dependent on having staff in branch full-time, often 6 days a week, and to be an attractive employer, needs to provide commission on top of basic salaries. There are also vehicle running costs, insurances and membership to the many different professional bodies that the industry accommodates.
Revenue can be unpredictable in a very competitive market and some agencies will be struggling to predict their turnover accurately, meaning that they could barely break even or perhaps make a loss from month to month without being prepared for it and can very quickly become insolvent.
Government legislation can cause business interruption
The property sales and lettings industry is heavily regulated and lettings particularly is becoming more biased towards the tenant. The latest change on the horizon is the complete ban of letting fees charged to prospective tenants. This will present a real challenge to agencies to remain profitable from their staff resources. It’s common for letting agents to use a third-party referencing agency, to whom they will need to pay a fee per reference produced. There is also the time involved for the letting agency staff to administrate the referencing process. If agencies have to absorb this cost entirely, they will be making a loss on their tenancy move-ins. There may be some opportunity to pass these costs to the landlords, but agencies will have to be creative and flexible about how they do this to remain competitive and transparent. Being prepared for sudden industry changes will help agents to stay buoyant.
Suggestions for overcoming the threat of insolvency during changing times
As Business Turnaround specialists, we have worked with a number of estate agents over the last few years and the advice is to start planning ahead to keep up with industry changes.
- Invest in your website and online marketing – to stay in the running against online agents, you must have an online presence too. Think of your website as a shop front and invest in some expert advice on user experience. This may allow you to take instructions online or even offer a more competitive stripped down online service in addition to your traditional offering to landlords and vendors.
- Consider add-on services – what other revenue streams could you open up in your business to increase your income from fees? Think about services that you could contract out to other companies working under your name. Could you offer video brochures? Cleaning services? Maintenance Services? Investment advice?
- Find ways to reduce fixed costs – think long and hard about whether moving your office could be the answer to reducing fixed costs. Downsizing, or moving to a less premium area would mean customers can still visit you but you’re not paying a premium for a high-street position. After all, footfall on the high-street is falling, so is paying hundreds of pounds more per month really worth the passing trade? Review all of your supplier agreements, from stationery to waste removal and software – can you negotiate fees or are you spending on unnecessary contracts?
- Enlist support from a Business Advisor – bringing in a third-party consultant to support you with restructuring the business can help with all of the above suggestions but also reveal areas of the business that may be vulnerable so that you can strategise and plan for all eventualities and improve the overall outlook for your business.
- Networking – always look for ways to improve your engagement with the community and the business community. By becoming a trusted member of the high street it is amazing how much additional business can be generated.
- Don’t get stuck in a rut – we often hear business owners say ‘we’ve always done it that way’ by networking and talking with business advisors you may get some fresh ideas to re-invigorate the business but don’t ignore the basics of good service and value.
One thing is for sure the outlook for the High Street Estate Agent is clearly very challenging at present and until confidence in the market and the ramifications of Brexit is understood it will continue to be so. If you would like to know more about our Business Turnaround support and how we may be able to assist you, then give us a call.