Estate agents struggle as markets change and technology advances

A combination of lower transaction levels and the rise of online agencies is at risk of putting thousands of estate agents out of action. Is it time to change the business model?

One of London’s biggest estate agents Foxtons announced a 65% drop in profits earlier this year, and it turns out the agency is just one of many who are struggling to keep up in today’s housing market, with a further 7,000 agents showing “signs of financial distress”.

This accounts for more than a quarter (27%) of estate agents across the country, according to research by accountants Moore Stephens, which also found that 153 agencies have become insolvent over the past year up to May. A further 148 companies folded during the previous 12-month period.

London has been one of the worst hit areas as transaction levels have dipped recently, due to a number of factors including Brexit and political uncertainty, as well as house price contractions in the capital.

Online agents take over

Shares in Countrywide, which is the UK’s largest estate agent running Bairstow Eves, Hamptons and Taylors, have dropped by 25% as it fell further into debt with four profit warnings in eight months, having been particularly badly hit by London’s downturn.

Online agents such as Purplebricks, meanwhile, are going from strength to strength as more buyers and sellers turn to them as opposed to the traditional, high street estate agents due to their cheaper, digital business models. While Countrywide’s share prices fell by more than 60%, Purplebricks shares have shrunk by 8.2%, as it has been less affected by the decline in house sales.

Chris Marsden, restructuring partner at Moore Stephens, said: “Insolvencies of high street estate agents are increasing as online competitors continue to chip away at their sales and undermine commission rates.

“Some areas in the UK appear to have an excess capacity of estate agents, which could mean there is not enough business to spread around as property transactions stagnate.”

High street agents must be competitive

With letting agent fees set to be banned by the government’s Tenant Fees Bill, which is expected to come into law next year, estate agents could soon struggle even more to cover their costs. Landlords are likely to bear the brunt of this change as many predict agents will pass on the costs to them, with more landlords than ever now looking at cutting out the middle man and letting directly to tenants to avoid losing a percentage of their profits.

Estate agents who can remain competitive without passing on these extra costs could fare better than those who don’t, and it seems that the industry as a whole must adapt to the expanding proptech culture in order to survive.

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