Profitability in Estate Agency

Profitability in estate agency is becoming a strange old thing. Typical High Street Estate Agencies across the land are struggling more than ever. They have faced lowering fees due to competitive pressures, slowdown in property prices, drop in transactions, high rental costs and an inefficient, bloated model of multiple branches with fixed costs being unnecessarily replicated over and over again.

It is imperative to have a strong sales and lettings business, as sales markets will always ebb and flow and so the support from rental and property management fees are key to supporting a business through difficult times and provide another channel into different clients and multiple revenue streams.

I’ve never understood businesses that separate these business channels, unnecessarily doubling overheads. Sales and Lettings, in my opinion, should always be intertwined. They are not complicated businesses and it’s key to have a good understanding of both so that you can deliver an end to end customer experience, rather than a fragmented one that we see so often now.

Online Agencies are a different beast; few are still yet to turn a profit, and I don’t think they really care. The focus for online agencies is simply to get to the next level, i.e. they focus purely on building market share and revenue (growth), knowing how rare fast growth is. This growth and market share spins off an audacious business value, even though the business hasn’t turned a profit, because growth is so scarce. As soon as this business value is achieved, seemingly regardless of what it’s based on, then the owners / early investors are able to carve out shares and sell on to further investors or even go public. And this is that “next “level”. The initial investors get investment repaid, plus huge returns and still have stake in a company, that hasn’t yet turned a profit. it seems a crazy old system.

And when you look at some of the fees per deal being received, the calculation of no. of deals x £ per deal just doesn’t add up when trying to forecast future viability, let alone profits.

Surely these companies need to turn a profit at some point, don’t they?