Despite a noteworthy increase in house prices last year, the number of estate agents going out of business has shot up, according to a major accountancy firm, Moore Stephens.
Residential property prices in the UK rose by 6.7 per cent in 2015, according to the ONS, led by gains in England, at 7.3 per cent, but this was not enough to prevent 185 agents going bust last year, up from 160 in 2014, as local agencies were squeezed out by larger brands and ’no frills’ rivals, such as online players like Housesimple and PurpleBricks.
The volume of agencies closing bucks the UK trend of decreasing numbers of insolvencies, with the national rate of business insolvencies across all sectors declining by 9 per cent over the same period from 16,558 to 15,027.
Moore Stephens believes that the fixed-fee business model of many online agencies is putting increased pressure on margins for high street agents.
At the same time, Moore Stephens says that local firms are losing business to larger chains that tend to have bigger sales and marketing budgets and can break into new local markets by offering greater incentives, such as a zero-commission deal.
Mike Finch, Restructuring & Insolvency Partner at Moore Stephens, commented, “The rising number of ‘no frills’ estate agents at one end of the market and modern, highly branded estate agents is posing a threat to smaller traditional firms in a crowded field.
“Small high street agencies, with their expensive shop space and cost of employees cannot match the ultra-low commissions of online estate agents.
“Those smaller firms do not have the budgets needed to compete with the big chains on marketing spend, investments in database technology, mailshots and newspaper advertising that larger estate agents can afford.
“If a small high street agent cuts costs in order to match the commissions of online agencies, they then put themselves at risk of losing businesses to those big agencies that can outspend with more expensively fitted out offices and customer care.”