Estate Agency — It Isn’t Working
Here’s a scenario…
To distribute this particular product/service nationally you’d need to have premises in every single town and city in the UK. Not just that, but you’ll choose prime spots in high streets and town centres that cost the highest rents. Each one will have multiple people employed and there will be cars too. Lots of flash cars.
When you pitch for a deal there is at best a 50% chance that your company will get chosen by the customer. But the pitch will take an hour or more, in their home so, plus travelling time. Once you have the gig, there’s only a 40% chance that you’ll actually be successful in helping the customer achieve their aim. Of the 40% of the 50%, 33% of the resulting deals won’t proceed and therefore you’ll only get paid for 6% of what you do. Sometimes those deals will fail after months of processing and workflow, right at the last minute. On average, you will need four deals a month to go through in order to pay our bills. So if you lose just one it may represent 25% of that month’s required revenue.
Oh, and when you do succeed in helping the customer get what they set out to and a deal completes, that’ll be six to twelve months after you first started dealing with them.
Everyone will hate you. Not because you are unregulated and don’t require a licence or any even basic qualifications to transact millions of pounds of other people’s assets, but because you’re deemed as fundamentally dishonest.
There will be little lifetime value in your customers. Zero brand loyalty really.
You won’t get remunerated on effort but rather based on a percentage of the value of the asset that we transact. And that goes up a lot sometimes but every few years or so, may plummet in price by 30%/40%. Liquidity of transactions fluctuates wildly and may be double or half that of the previous or following year.
You will try to contractually tie your customers in to staying with you for up to 6 months, even if they don’t want to. And you’ll shun transparency and accountability and avoid technology at all costs.
This, then is a business model that is rather hard to sell to anyone that you may seek funding from. Yet 25,000 of these entities exist across the UK right now in an industry worth £5bn in this country alone.
But I can imagine, if pitching this proposition to VC’s or the private equity community right now as a new business fresh out of the entrepreneurs’ ideas box, that the corridors of West London institutional investors would be aloud with laughter.
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The Q&A would go a bit like this:
‘You’ll only get paid for a fraction of the work you do?’ Yes, that’s right.
‘When you do get paid, it’ll take months to actually get the cheque?’ Yep
‘And you’ll have no control over pricing the product that you’re selling or the increase or decrease in fee because it is pegged directly to the value of that product?’ Correct
‘And customers won’t like you, will probably never return and will mostly not recommend you?’ Absolutely
‘It’s been nice meeting you, goodbye’.
And so the meeting would end….
From a funding point of view it is incredible that estate agency has managed to exist for so long in its traditional form. But the reason that it stacks up despite the numerous obstacles set out above, is simply because each individual fee is so very, very high. Typically, estate agency fees in the UK are around £4000 per sale. In London, one well known estate agent in particular charges £14,000 on average (their annual accounts confirm).
In essence, what you have here is a situation whereby a broken business model is propped up by its customers paying through the nose rather than everyone paying equitably. Not taking the burden of costs together but instead, the successful subsidising the many more unsuccessful deals.
Estate agency is changing. Not just the way the service is delivered via technology and the internet but to the significant benefit of customer value. And in our case, without compromising on customer service or price achieved.
When I pitch to VCs and PE dudes, they instantly ‘get’ our lean model and we have since been funded by two venture capital houses plus a private equity organisation. And we are in the midst of a crowdfunding campaign with, so far, over 300 individual investors having committed between £10 and £250,000 each. They all get it.
Old estate agency simply doesn’t work as a business model. Not for the consumer anyhow.
