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Written by rosalind renshaw

Most estate agency firms will survive for just one generation.

The warning has come from Adam Walker, a broker who specialises in the sale of estate agency and lettings businesses.

He said: “The reason has nothing to do with the recession in the housing market. It is because of changes in the structure of business partnerships.
 
“Under a traditional partnership agreement, an incoming partner would invest a fixed sum of money, say £100,000. 

“In return, he or she would gain the right to receive a share of the profits. When they wished to leave the partnership they would receive their original £100,000 stake back again, usually from a new incoming partner.
 
“This partnership model has fallen out of fashion in recent years and most modern partnerships require new partners to buy in at the full market value. 

“The value of estate agency businesses and most particularly lettings businesses has increased dramatically over the last 20-30 years so that many partnerships now find that people they would want to take over a partnership simply cannot raise enough money to buy in.”
 
Walker added: “The single most common reason for businesses being sold is that a senior partner wants to retire and no one can afford to buy them out. 

“The best way to avoid this is to ensure that plans for a smooth succession are made at least five years before a partner’s retirement, so that the payments can be structured over a period of time. The only alternative is to incorporate the business and raise money from outside investors.”
 
He said: “It would be a great shame if the estate agency industry were to go the way of the British motor industry, where hundreds of individual companies were reduced to a handful of major international brands, but there is a real risk that this could happen unless business owners start thinking about their succession plans now.”

Comments

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    That story was repeated from 1949.

    • 19 February 2013 12:42 PM
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    That story was repeated from 1949.

    • 19 February 2013 12:42 PM
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    That is about it Ray, but the British version will naturally be a hybrid of the two systems, UK vendors won't start shelling out 5% for a service that they know can be profitably done for 1.5%

    The world is a global place and if one thinks this is all doom and gloom for UK Agents think about those Realtors who now have a new kid on the block charging 3%

    • 16 February 2013 10:26 AM
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    Some people who post here are consumers others are suppliers,some people know what is going on some don't.

    When you read the stories posted on here do you ever sit down and wonder what is behind some of them?

    When a recruitment company, a well respected Industry Trainer, a details production firm and the countriy's largest property portal put together a talent spotting camp and set about training the best raw talent then something is going on.
    Benchmarking how sports teams develop the best teams at their particular game is an obvious way to produce a team capable of whooping the competition.

    Rightmove are a service supplier at the moment but that is going to change. If I am wrong then all this posting on a forum is of little consequence, If I am right and as someone who has been at this for a fair while now might be considered an insider, the time for the industry to start protecting its future is now. As far as I see it, smart business people have missed out on two chances to change their destiny and every month that goes buy are continuing to fund their own downfall.

    • 16 February 2013 10:20 AM
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    America.

    Qualified and licensed Realtors have a central office and employ sales people (boots on the ground in their defined area). They are given very limited 'desk time' in their realtors office. Multi-listing is the norm with shared commission between lister and seller.
    For 5-6% commission the realtor does much, much, much more than our estate agents.

    Please say if this is not broadly correct?

    • 16 February 2013 10:00 AM
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    This is old news and takes only one funding model of a partnership in to account - ie immediate cash payment.

    In a successful partnership, new partners come in by mortgaging their partnership to the business.

    So, let's say I want to buy in and the cost is £250,000.

    Tax rules etcetera favour that I take a loan from the business to the value of £250,000 and then pay that loan off over several years (10 years is normal) out of my bonuses.

    That becomes a monthly payment of £2,000.

    But here's the thing, money never changes hands.

    I am still on the same basic as before I bought in, my commission is still exactly the same, but my share of profits is paying for my partnership.

    A friend of mine is buying into his accountancy firm this way. This is also done at market value.

    It just requires that the partnership has enough money in the bank to pay off the partner who is leaving.

    • 16 February 2013 09:20 AM
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    @Hawkeye - What makes you think rightmove would open their doors to private sellers. Right now they have 1000's of estate agents paying £100's a month on a recurring basis. Why would they ever switch up such a perfect business model.

    By going FSBO, the site will look sh*t, and they will lose a lot of guaranteed, recurring income (imo)

    If you have insider knowledge and actual facts, please share, otherwise your assumptions are just as useless as everyone elses.

    • 16 February 2013 09:07 AM
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    @rich Quite agree with your sentiments

    • 16 February 2013 07:31 AM
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    The trick is to just retire and take any profits. Let the staff who have milked you for years take the stress until it goes bust. 1 officeOwners work far to hard in this industry.

    • 15 February 2013 23:49 PM
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    I doubt the fees will be 5 or 6% that only works in America beacuse that is what they are used to.
    Over here the RM system with the specially selected trainees still only need be 0.5% to keep traditional Agency unprofitable yet still making a far ol whack themselves

    • 15 February 2013 19:06 PM
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    @Jonnie - love the idea of doing as they do in the US with fees as 5 and 6% I'm up for that.

    I have the brainless muppets here with 60% less deals than we had in the good times and they are doing fees at 50% of what we used to get and they are cutting fees to gain business. They are kidding themselves and the sooner we get our fees up and our backsides off the chair and finger off the keyboard the better off we will all be.

    maybe I should look to selling now when nobody wants to buy an EA business so maybe I'll get 50% of 40% as well.

    • 15 February 2013 18:52 PM
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    When one ends up with Julian O'Dell training negs to do the job properly (as he does very very well) for Rightmove what do you think is going to happen next?
    There are simply too many Agents, the cash available to Rightmove along with the commercial savvy of its Corporate shareholders means that Traditional Agency is under threat not only from an extended sales recession but FSBO, online Agents with low staff levels /overheads, Passive intermediaries, traditional competitors and an obvious next move from Rightmove.

    Estate Agency is too conservative to change quickly, many Agents are comfortable with the status quo and are simply not responding quickly enough to a threat that has been apparent to me since 2009.

    Do you really think Google are done with their foray into property sales? I don't.

    Agency currently controls the data and is still the place that the majority of vendors turn to first when considering moving. Once the major players decide to switch the property selling model in the UK they can, they have banked enough profit to see every one of you out of business with an extended period of reduced commission instructions. Consequently the time to act is before they change us over to a US style system where a vastly reduced number of Agents are doing the donkey work for essentially the instructing Agent. How long thereafter before the reverse bidding begins to compete for writing up instructions?

    All the conditions exist for a perfect storm and it is the smart folk who are hopefully listening to the weather forecast.

    • 15 February 2013 17:49 PM
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    @anon (below Fraser)

    Painted Bints! – genius.

    Right, I get your point with the poor service, no salesmanship bit, I work on a high street packed with EAs running this way, Neg drags his arse in at 09.05 clicks on his inbox and wallop! – leads, and if you can be arsed to ring them and actually work them like the old appo boxes then you will get the most out of them, if you mass email details to them, and do sod all else (which is the more common way) they are more like your ‘painted bints’

    So, we are together on this it’s been going on for years but so has the internet. Why is it taking so long for the internet to play the role in property you predict? – we’ve had it since about 1998 yet FSBO and all that still hasn’t exploited it in any meaningful way in the thick end of 15 years, why? And if it hasn’t happened in the last 15 years what’s going to change to make it happen now?

    Jonnie

    • 15 February 2013 15:15 PM
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    Doooomed I tell yea! Doooomed!

    • 15 February 2013 14:14 PM
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    "can you assume it the one where everyone sells their house online?" No but digital has a lot to do with the future, As for portal puppets those are Agents who are blindly following a path of feeding the portals without any intelligent assessment of where sales or instructions are coming from.

    With only a few exceptions the process of Agency has been relegated to the level of the old Fox & co self service system where painted bints in corporate uniforms arranged viewings and very little else. The internet has replaced the racks of property details but essentially the level of service is the same. Negs are happy with internet leads delivered to their desktops but in the same ways as the plump instructions remained with independent agents way back then the portal puppet agents will look like and smell like traditional agents but will be competing with the pure online agents and FSBO websites for non profit titbit instructions. Business principals need to wake up to what is happening to their and many other long established businesses
    I don’t expect you to agree or like my posts but if you folk want to stick your heads in the sand it is up to you but please don’t complain when people like Adam try to alert you to your vulnerabilities.

    • 15 February 2013 13:29 PM
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    So hes had it as well then!

    Not sure many agents start their business with a view to selling it.

    Fair play their PR company gopt them a free adevrt.

    • 15 February 2013 13:21 PM
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    @whatareyouon

    C’mon then, tell us what the business model will be in 5 years, can we assume it’s the one where everyone sells heir own house online? Anyway, tell us how it will be as you say ‘IMO’ and can you put a bit of definition around ‘Portal Puppets scrapping around for titbit instructions’

    Jonnie

    • 15 February 2013 12:43 PM
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    Jeez Jonnie what prompted all that?

    IMO Agents have far more to fear than worrying about succession, in far less than a generation (within 5 years) most will have become Portal Puppets scrapping around for titbit instructions.

    Adam has made a valuable point about the perceived worth of an Agency and perhaps rather than berate his attempts to help it might be worth a bit of self reflection how a conservative grasp for the status quo will see a good majority of principals seeing a very significant change in their fortunes.

    • 15 February 2013 11:29 AM
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    Here’s an idea that will solve it………………all the well off EA owners out there, DO NOT give your kids the education you never had, cancel the private schools right now! chuck them through the state system like your parents did with you and then they wont grow up as teachers, doctors and other well educated types and they will have to work for you and you can then spend time getting them ready to take over when you retire.

    This also works because when your kid owns the place when you are bored you can tell the little sod how he / she should be doing things and be a general nuisance ‘keeping your hand in’

    Jonnie

    • 15 February 2013 11:02 AM
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    I agree with Pete, old news it is exactly what happened to solicitors firms. I opened the article to read, thinking it was about the differrent way our children would buy and sell property. That would make a more interesting story

    • 15 February 2013 10:15 AM
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    The view is a blinkered one of a set model. ''Im sure the same could have been said for horse and cart when cars were first seen''

    IT is changing the way agents can work and work together. The biggest fear must be for the corporates with just 1-2 offices in a town, as when the independents group they can offer marketing via 5-6-7 offices. Better for consumers.

    Just look overseas and your see thriving brokerage and agent models. The rightmove feed has restricted this from happening in the UK. As new technology comes in here and overseas new agency models can evolve.

    Sorry, but those out there with a passion for property in their blood will always adapt and do it.

    With sales due to the economy at a low, as markets pick up so will new models.

    Lettings are the buzz biz at the o, but EU energy restraints are due end of 2013 and 2016 where its estimated that upto 300,000 lets may fall below criteria of energy efficiency which by 2016 and a government chant could flip back to a healthier sales market.

    • 15 February 2013 09:47 AM
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    This has been happening since the 80's . Thats why there were so many sales off to insurance companies Young new partners couldnot afford to buy out the old ones .. Old news if you ask me.

    • 15 February 2013 09:11 AM
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    Isn't it estate agents who say that a property is only worth what someone is prepared to pay for it? So if potential partners can't afford to buy in, doesn't it mean that the business is overpriced? When the banks bought out many estate agents they paid over the odds because of the competition in the market at the time. Many shrewd estate agents bought their businesses back a few years later for a fraction of what the banks paid. As with any investment, values can go down as well as up.

    • 15 February 2013 08:54 AM
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