Any letting agent appreciates the effort, dedication, and sometimes heartache, that comes with running a business yet equally knows that when they are steering a professional and compliant ‘ship’, their customers are happy - and profits are good - that the feeling of satisfaction they gain makes their journey to success even more worthwhile.
For small to medium letting business owners, in particular, they may have invested the majority of their adult life to managing their agency and in creating a good and honest reputation in their local market.
It may be a family concern - where generations have worked hard to establish their brand - and, in turn, have helped the same landlords and tenants over many years.
Yet, for these agents, there usually comes a time when priorities in life may change and when they have to question what the future may hold for them?
For some retirement may be ‘on the cards’, a change of career or perhaps their family has grown up, left home and provided an opportunity to revaluate what matters most in life - other than work.
For others it might be outside influences or key events, like illness or family bereavement, that play a part - or business partners who may steer the decision but also, increasingly, there may be outside influences that are tipping the balance in favour of an agent selling their business.
The consequences of new regulation
In recent months, there’s been an influx of government consultations; Strengthening Consumer Redress, Electrical Safety, Mandatory Client Money Protection, Protection of Consumers in the Letting and Managing Agent Market and, more recently, the need for lettings agents to adhere to a mandatory code of practice and the introduction of a nationally-recognised qualification.
And, who knows, there could be more?
From experience any compliant and professional agent will understand, immediately, the impact that new regulation may bring as a result of these consultations; the additional staff training required, the money needed to invest in new materials, systems or processes or the requirement to be more proactive in advising their landlords of their responsibilities.
It adds even more pressure on the agent to keep ‘ahead of the game’ and to be able to absorb and relay information to their landlords in a correct and timely way. Whilst many of the larger agents are able to withstand this pressure, it’s the small to medium agents who, without the benefit of dedicated compliance and marketing teams, will feel it most.
It takes time and money and, as any responsible agent knows, it has to be done right, Non-compliance is not an option.
Considering the financial implications of regulation, there’s also the impact of the tenant fee ban on agents to consider in any future decision making. A report, commissioned by ARLA Propertymark, suggests agents could lose the equivalent of a fifth of the total revenue made from residential lettings activity as a result of the ban.
For small to medium sized agents, who have fewer opportunities to diversify and, unlike larger agents, don’t have the ‘buffer’ of additional income streams to withstand the ‘hit’, the financial impact of this new regulation could be a drain.
There’s also the online threat to consider
While most reputable agents will feel confident in their abilities to operate professionally and compliantly the fact is, as in any industry, competition will play an important role in determining its future success and, as we’ve seen in the residential sales market, increasing digitalisation means competitors can emerge from anywhere.
Although online agents associated with success such as Purplebricks, have failed to make any real impact on the lettings market, and online lettings agents only represent less than 5% of the market, there are some instances of successful online models, such as OpenRent.
With no geographical boundaries and no branch expenses, they present yet another challenge to the traditional local model and could lead many to speed up their decision to sell.
Questions need to be asked – sooner rather than later
Just as making the right decisions when running a lettings agency business, the decision whether to sell is equally important and needs to be considered with care. Importantly, questions need to be asked about how the business owner really sees their future.
As well as considering their personal aspirations - and how they’d like to spend their days in the future - many smaller or medium sized agents should question if they are able to adapt to the pace of change in the lettings market and if, indeed, they have the appetite for this in the longer term?
They also need to question how any sale of their agency may impact their customers and their staff and, importantly, ensure their professional reputation for honesty and trust - which they have fought hard to secure – can be maintained.
As part of this they need to question which company they sell to, who can ensure their key aims are met and who, by conducting strict due diligence checks, will be able to demonstrate their professionalism within the market – something any agent should hold in high regard.
Importantly questions need to be asked sooner rather than later. As an increasing number of business owners come to the conclusion that now is the time to sell, it’s possible that the market may become saturated with those in a similar position and yet opportunities, in turn, may begin to diminish.
Ultimately, for the small or medium lettings business owner, it’s about questioning what’s really important to them and perhaps being realistic about the future prospects of their agency because, after all, isn’t it better for them to be in charge of their own destiny rather than let outside influences (and the challenges they bring) determine it for them?
If you’d like a confidential discussion about your current position in the lettings market - and options that may be available to you - simply contact me on 07812 623 388 or firstname.lastname@example.org.
*Ellie Hall is Acquisitions & Integration Director at LSL Property Services plc