BLOG: Is the value of a sales agents finally recovering?
After years of limited demand for sales-led agencies, buyers are beginning to take a more positive view of the sector, says Adam Walker.
The sale of Henry Adams, which completed on the 1st September, is significant. The reason is that the majority of its income comes from residential sales not residential lettings.
Until recently it was difficult to sell a business that earned less than half its income from lettings, but the market for sales agents seems to be recovering at last.
The reason for this is that the buyers have decided that the residential sales market can’t get any worse.
A buyer’s greatest fear is that they buy a sales business that is turning over £1million a year with a £200,000 profit only to find that a few weeks later there is a downturn in the housing market.
This could be caused by an increase in interest rates, a tax change or a major political event.
I have seen this happen many times before. When an event like this occurs, confidence in the housing market evaporates and the market falls off a cliff. It is almost impossible to cut the running costs of the business quickly enough to avoid making a huge loss.
Before you know it, a £200,000 profit has turned into a £200,000 loss, which of course has to be subsidised by the buyer.
Sales cycle
Lettings income, on the other hand, is much more stable. Even during COVID, when lots of people could not even live in the properties that they had rented, they still carried on paying the rent and the agents continued to receive their management fees. This is why there is always a good market for letting businesses.
Sales agents only sell for good money for two or three years in every market cycle.
One swallow does not make a summer and there is still very limited demand for sales only businesses. However, I am finding that buyers are now at last taking a much more positive view about buying the sales element of a mixed sales and letting business and this is likely to lead to an increase in demand for such businesses over the coming months .
Adam Walker is a business sales broker who has specialised in the property sector for more than 35 years.
