During the last six months, there has been a significant increase in the number of agents selling their businesses. So why is this happening, particularly given that the market is looking up?
The number of business sales has increased for four reasons. Firstly, the prices have gone up. The price of a good lettings business has doubled in the last four years and the price of a good sales business has doubled in the last six months.
Secondly, there is a backlog of business owners who want to retire but were unable to sell their businesses for a fair price during the recession.
The third factor is that a boom in the housing market does not necessarily mean a boom in estate agency profit levels. Overvaluing, fee cutting, a shortage of new stock and the increasingly sophisticated marketing methods used by the larger chains have all combined to squeeze the profit margins of independent estate agents. This means an offer worth five or even ten times post-tax earnings can look very attractive.
Finally, there is a real fear that an incoming Labour government might end the ten per cent tax rate for entrepreneurs who sell their businesses. It is hardly surprising therefore that many business owners have decided that
now is a good time to sell.
Who are the buyers and what are they looking for?
The buyers can be divided into five categories: the national chains, the regional chains, strong independents who want a second office, new corporate entrants, such as house builders, and the consolidators.
“With fears that an incoming Labour government would end the 10% entrepreneur’s tax, many owners think now is a good time to sell.” Adam Walker Adam J Walker and Associates
The consolidators are the most interesting group. Several companies have been quietly buying up estate agency businesses and continuing to trade under their original name. By centralising factors such as accounting, marketing and property management, they achieve considerable economies of scale. This model has been successfully employed in other sectors and it is hardly surprising that it is happening in estate agency.
Different buyers are looking for different things. Some just want to buy lettings books which they can incorporate into their existing branches. Some are looking for additional branches to add to their network. Others want standalone fully managed businesses with the senior staff tied in on a three- to five-year service contract.