What does the estate agency business model of the future look like?
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Sales channels, regulations, political climate, customers, economic conditions, technologies, competition and more. Nothing in the estate agency industry stands still; change is part and parcel of the business.
One of the most interesting transformations in the sector in recent memory has been one of business models. Even in the past 10 years, the structure of some estate agents has changed dramatically. Online agents have come onto the scene, and revenue streams are markedly different from what they were prior to the 2008 crash.
But what, according to experts, does the estate agency business model of the future look like?
Online vs bricks and mortar
Online estate agents may be on the rise in the UK, but it’s unclear whether the model has much staying power. Many have concerns about the profitability of online-only offerings and are doubtful that such businesses will capture much more of the market.
“Despite a very apparent move towards online estate agencies in recent years among sellers, there have been some indications that the model – although attractive – is unsustainable,” notes Sam Butler of the Cotswold property specialist, Butler Sherborn, pointing towards recent profit reports from Purplebricks. “Although we may see a lower concentration of high street estate agents in the coming years, online certainly won’t take over completely.”
Kevin Shaw, MD Residential Sales at Leaders, part of the Leaders Romans Group, echoes some of these thoughts. “While there’s clearly a small market for the DIY sales approach, the online-only estate agency business model is not something we expect to take off in a big way. Online agents have been around for a number of years now, and have captured just 6% of the market in that time. The vast majority of sellers turn to estate agents for a service that is personal, bespoke, and offers expertise and advice. That’s unlikely to change any time soon.”
Craig Vile, Director at The ValPal Network, sees a place for all business models. “The rise of online agents seems to have tailed off over the last years,” he says. “However, over the next decade, the very best online operators will continue to thrive. As we move forward, there will be a place for all three agency models – high street, hybrid and online – to meet the varying needs of consumers. The key to success will be smarter marketing and utilizing PropTech solutions effectively.”
David Jacobs expects more agents to move this hybrid state. “At Yopa we expect to see significant convergence between the ‘bricks and mortar’ and ‘online’ market sectors, with traditional agents improving their technology, streamlining their processes and closing many of their branches. At the same time, online/hybrid agents will expand their local presence and expertise range of offerings.”
Sales vs lettings
With estate agencies squeezed by market conditions and government policy, many in the industry point towards changes in revenue streams and the need for business models to be flexible.
One interesting ongoing discussion in the industry is about the balance between lettings and sales, with the former becoming a priority for many agents in recent years. At Foxtons, for example, lettings now represent 60% of overall revenue.
“Lettings continues to be a market with good long-term fundamentals, particularly in London where more than one million households now rent,” says Patrick Franco, Foxton’s COO. “As the market grows, landlords are faced with increased regulatory risk and seek an agent that can navigate this complexity, maximize the value of their property and secure high-quality tenants. We expect more estate agents to capitalize on this trend.”
For others in the industry, discussions about revenue shouldn’t just be limited to “sales vs lettings” – agents need to consider streams beyond this. “Pressure on fees and challenging market conditions mean that agents increasingly need to look for alternative revenue streams and cross-selling opportunities such as recommending conveyancing partners and utility providers,” explains ValPal Director Vile.
Quality service will remain at the heart of estate agency
For many industry players, it’s hard to imagine how business models will deviate too much from the personal and service-led approach that has historically been so successful.
“Whether you’re a buyer, seller, landlord, or tenant, you’re ultimately looking for an efficient, reliable experience,” says Leaders MD Shaw. “Estate agency is a phenomenally competitive industry. It’s those agents which put service at the top of agenda – and moreover, tailor those services to meet the individual requirements of customers – that are most likely to succeed.”
Foxtons COO Franco agrees. “ Property and estate agency is fundamentally a people-based business, and high levels of service will always achieve the best results. When you’re dealing with property, the stakes are high, and you need to know you’re working with someone you can trust, who will work hard for you and deliver a great service.”
Final thoughts
Estate agency is evolving, but the core pillars of the industry are still rigidly in place. Although business models have certainly changed over the last few years, a lurch to online-only, or away from service-led models, seems unlikely.
The hybrid model, incorporating online and PropTech, but maintaining that human approach, seems to have the most long-term viability. It’s a model that balances efficiency and convenience with personalization and much-needed expertise.
Estate agencies that have this strategy, especially those that are flexible enough to allow for shifts in the profitability of sales and letting, will thrive.