There is little sympathy for estate agents from anyone who has tried to buy a house in recent years, given their role as gatekeepers between homes and the hordes of movers desperate for a place to live. Property sellers have even less reason to laud them, such have been the costs of a service that sometimes seemed as easy as handing over the keys to the eager new owner.
But that was last year. The first few months of 2008 have seen a rapid change in circumstances as the UK housing market buckles after its stellar run over recent years. The difference on the high street is tangible following the end of the recent house-price boom, which paved the way for widespread changes to the estate agency market over the past decade.
The ease of setting up an estate agency and high profits in the sector led to fierce competition from new companies and aggressive tactics by incumbents. The proliferation of free internet sales portals changed the way houses are sold in the UK and reduced the need for expertise to find and secure buyers.
There was pressure on fees as a result. Commissions of half a per cent have become more common to secure sales instructions and the commoditisation of the industry seemed guaranteed by the threat of entry by supermarket chains such as Tesco and Asda.
But a morning spent in an estate agency in north London confirms what many of the housing indicators are saying – it is a tough market in which to sell homes right now. The agents are often on the phones, reassuring vendors and setting up morning visits with potential buyers, always looking to accelerate the sales process.
There is banter but this is no longer the easy game that many of these young workers have become accustomed to over the past five years. “It is again about working damn hard, being on the phones, calling purchasers, trying to make them see properties, talking to other agents, coaxing sellers to accept a deal ... It is back to basics,” says Robert Bartlett, chief executive of estate agency Chesterton.
There are testing times ahead, according to the agents, and only the fittest will survive in a market not a million miles off the brutal salesmanship portrayed in plays such as David Mamet’s Glengarry Glen Ross.
Current market conditions are arguably the worst for estate agents, who need volatility and turnover to prosper. In a rising or falling market, homes are bought and sold with some rapidity but recent months have seen transaction levels plummet. “It would be ridiculous to claim that the market has not been affected by the economy,” says Dick Ford, head of London residential at agency Knight Frank. “The central London market in particular is affected by the City. There is a period when buyers and sellers peer at each other over the abyss and it takes a while before new pricing is achieved.”
Where estate agents were fighting over new properties in the housing market – in the sure knowledge that such an instruction would lead to a guaranteed sale and fee – now, winning new jobs is no longer as important.
“The amount of stock is up 100 per cent over last year,” says Bartlett, “so securing new business is potentially not the problem. We are back to having to work hard to sell the homes.” He adds that the industry is in the midst of a seismic shake-up as the more testing times will expose the opportunistic that have entered the market over the past five years.
It had been so easy. Although the industry is regulated by the Ombudsman for Estate Agents, in practice the authority is seen as having a light touch. And barriers to entry are low. There is no need for technical training, which has meant that anyone has been able set up a business as long as they could entice vendors through their doors, and plenty did. Now many of these are going out of business.
“It is easy in a buoyant market and there was inevitably a huge proliferation of companies,” says Bartlett. “Now things are tougher, people are looking to cut losses and sell businesses. I’ve had five offers from various firms to buy them in the past week alone. This year I’ve had perhaps 15 or 20 offers.”
Paul Jarman, head of residential agency at Savills, believes that this will be good for the market, helping drive out the more “entrepreneurial” of the industry. “It is tougher and deals are falling by the wayside, and the lower down the market you go the tougher it is. Mainstream competition is finding life difficult and we are seeing people closing offices and shedding staff.”
After years of undercutting competitors and promises of half-a-per-cent commission, it might come as a shock for house sellers once again to see estate agency fees climb. Jarman says that Savills is raising its fees to take account of this new market, where agents will be expected to work far harder for results in a market where buyers are nervous.
“We’re pushing our fees up at the moment as it is all about the bottom-line profit, not top-line turnover,” Jarman says of Savills, which charges between 2 and 2.5 per cent fee on average. “We’re working longer hours to keep sales on track. It is no longer good enough to head home before six o’clock.”
“People should expect a higher fee as they are again paying for an agent to become an active broker,” agrees Bartlett. “Overheads will go up as vendors will expect advertising in glossy magazines, whereas before these were only for a bit of window dressing. There will be an upward pressure on fees, which is fine if an agent can get more money for your house.”
Jarman says that the role of the agent has returned to that of best friend, confidante and business partner, with far less reliance on selling tools such as the internet.
The biggest change in the industry over the past five years has been the introduction of the internet as the main means of selling homes. Most agents estimate that more than 80 per cent of initial interest comes from their website or through one of the many portals that have been set up to collate available properties. There are a number of mainstream branded sites where agents have to pay to advertise but, more recently, there has been a growth of free sites that take home sales, sometimes without even asking the agent, in order to attract visitors to their pages.
But this is again changing, with the larger agents putting more emphasis on interaction with their clients. “There is already a lot less reliance on the internet and more personal contact, talking to vendors about pricing and buyers about paying,” says Jarman. “Two years ago we were reliant on computer systems; now it is about contact and communication.”
Harder work on the high street also means more testing conditions for the website-only companies, and doubts have emerged about the validity of this concept. The most high-profile of those based online will be that promised by Tesco. The supermarket giant dipped its toe in the market last year, before having to suspend the private sales section on its property site because the Office of Fair Trading judged it was acting as an estate agent and so would need to abide by the relevant laws.
Although it was not registered as an estate agent, Tesco had offered customers the chance to sell their home for £199, which bought them a “for sale” sign and a listing on its pages. It was a significant undercutting of the traditional agent’s fee of about 2 per cent.
A spokesman for Tesco said that the chain was still reviewing its plans: “We are still very interested in the estate agency market and we know from the response to our brief entry last year that customers would like us to bring better value and more choice.”
But Mark Anderson, managing director at Hamptons International, says that the changing market conditions must raise question marks over the viability of this business model. “Tesco or Asda coming in with a 1 or 0.5 per cent fee looked good in the boom time but will be more difficult in the downturn. Agents are working a lot harder to make sales happen, particularly keeping them on track, which is where the agent earns his money.
“This is why the Tesco model is flawed – 25 per cent of sales agreed fall through and that margin will be higher for the agents with lower fees,” he added.
The high street chains are likely to enjoy the advantage of presence and brand: sellers will want to know their agents are working hard to sell properties in a market where the fear of house-price falls, and even the spectre of negative equity, is once again widespread.
The predicted commoditisation of the industry is now by no means a certainty, although the internet will prove a useful tool that agents never enjoyed in the last UK housing downturn in 1990s. But if the market slows as sharply as some fear there will be little that agents will be able to do other than to hold the seller’s hand and work for their 2 per cent again.
Daniel Thomas is the FT’s property correspondent