As I wrote this article, the RICS released a pessimistic forecast about the impact that Brexit will have on the UK housing market. According to their research, buyer demand is at an eight year low, the number of properties on the market has dropped by the greatest percentage ever recorded and there will be price falls across all regions for the next 12 months. During my 35 years in property, many events have had a negative impact on the market. Black Monday, Northern Rock, the sudden end of the ERM and more. No matter what the trigger was, the impact has been similar. There is a period of a few months when buyers and sellers delay decisions, leading to a fall in transaction levels. Then people realise they still want to get married, have a baby, get divorced, the market finds a new equilibrium and transactions recover. So what can you do to ensure that your business survives the shock of Brexit?
My most important advice is to prepare a financial model of your business so that you can properly forecast the impact that the changes will have on your profitability. Here is an example (1).
÷ £4,000 average fee
(£320,000 x 1.25%)
= 100 exchanged sales
÷ 75% completion ratio
= 133 agreed sales
÷ 80% instructions to sales ratio
= 167 instructions
÷ 40% valuations to instructions ratio
= 416 valuations
÷ 52 weeks of the year = 8 valuations per week
If average prices fall by 10 per cent, you will need to make a corresponding adjustment elsewhere in the pyramid to maintain your income. You could increase fee levels by 10 per cent to 1.375 per cent by improving valuers’ negotiation skills. You could improve the completion ratio by 10 per cent to 82.5 per cent by improving your sales progression. You could improve the instructions to sales ratio by 10 per cent to 88 per cent by training negotiators to improve their selling and negotiation skills.
You could increase your valuations to instructions ratio by 10 per cent to 44 per cent by training valuers to improve their presentation. Or you could increase your valuations by 10 per cent from eight per week to 8.8 per week by improving your marketing techniques. As an alternative, you could improve a combination of these things by just one or two per cent and still achieve the same result.
With these actions, the revised pyramid might look like this, example (2).
(£300,000 x 1.5%)
= 89 exchanged sales
÷ 80% completion ratio
= 111 agreed sales
÷ 75% instructions to sales ratio
= 148 instructions
÷ 40.6% valuations to instructions ratio
= 364 valuations
÷ 52 weeks of the year = 7 valuations per week
Even though this business is carrying out one less valuation per week and prices have fallen by £20,000, improvements elsewhere in the pyramid have made up for this. The techniques for achieving these improvements are well proven and understood, many of my clients used them to maintain their profit levels during the 2008/9 recession. However, the implementation of changes on this scale is far from straightforward. Many sales negotiators have only ever worked in a sellers’ market and they will need to be trained on how to change their working practices. Some may not be able to make the transition from order taker to salesperson; you may need to replace them.
Some valuers may not be able to find the words to convince vendors to pay higher fee levels. You may need to re-train them; some won’t survive the transition. One of my largest clients increased their fee levels by over 20 per cent in January 2008. Valuers who were not able to achieve the higher fee levels were forbidden from carrying out further valuations and almost 50 per cent of the valuers were dismissed or demoted. Those that remained were some of the best valuers in the industry and through their efforts, my client made almost as much profit in 2008 as in 2007.
The message from previous downturns in the property market is clear. Good agents can keep on making money almost regardless of what the market is doing. It is not just me that believes this. We’re in the middle of a rapid consolidation of the estate agency and lettings market and by and large the buyers of estate agency and letting businesses have ignored Brexit and are continuing with their acquisition programmes. Things might look a little bleak now but with a new government in place, confidence in the housing market should quickly return and if you hold your nerve, your business will emerge even stronger than it was before.
Adam Walker is a management consultant, business sales agent and trainer who has worked in the property sector for more than twenty-five years.