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The structural deficit in agency

This month Nathan Emerson wonders why, if everything is going so well, is it all getting harder?

Nathan Emerson

Link to Nathan Emerson's CommentThe challenges that face our industry are ever-evolving and changing. The challenges facing small and medium sized businesses are many and somewhat dynamic. One of the biggest challenges facing many businesses at the moment is the emerging prospect of recruitment and the ever-changing attitudes and levels of competition we face from other sectors.

For many business owners, recruiting new talent has never been an issue, yet now this new era many business owners are having to up skill to find good employees. This has never been an issue before and to work as a property professional was, and still is, an exciting and rewarding profession for those that commit to its fullest extent.

A less attractive proposition

But why is it that we find it harder and harder to attract the right individuals into a profession that for many years was one of the most sought-after industries to work in? Why, I ask you, do people not want to work 12 hours a day six days a week? Why do they not want to enter an industry which has seen earnings stay relatively stable for 20 years? Why do they seek employment elsewhere? In fact, why have the levels of income remained unchanged for so many years? Looking back on records from 10 and 15 years ago it is ironic to see negotiators earning broadly similar levels of income and take-home amounts than they did then.

 

A sales negotiator for example then could take home levels of income that out-stripped their friends and peers working in other sectors, hence the attraction. The perceived sacrifices for the earning capacity means many are looking for additional benefits and flexibility of employment if they cannot get the financial recompense.

Doing more for less

So why have we got this problem? Why have income levels not remained high?

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Nathan Emerson

To enjoy the income levels the industry used to attract would mean that a negotiator salary (outside London) alone would need to sit in the region of £43 to £46k to keep in line with inflation which against a backdrop of £30/35k jobs being advertised today certainly puts things into perspective. After all, have house prices not risen, has the average fee not risen, are we not selling as many houses in the UK? Well broadly speaking yes, prices have risen, yet our fees have declined steadily in percentage terms.

There are regional variations but consider this, the average estate agency fee 10 years ago sat at between 1.4% and 1.5% and the average sale price was circa £170,000. The average fee today sits under 1% of an average sale price of £278,000… So, in 10 years, we have manged a mighty increase in average fees of just £89… whilst inflation over the period has increased by 30.4% so effectively we are doing more for less. With average fees being broadly similar it places a strain on agency income levels and profitability.

We have some of the highest house prices in Europe yet we charge the lowest fees.

There were considerably fewer estate agencies than now, which means not only the levels of competition are greater but also the amount of property being sold per agency office has diminished. Thinking further still, when you combine the fact that many agencies are also heavily investing in technology, portal products and ancillary services in addition to maintaining staffing levels it is of little wonder that pre pandemic activity a number of agencies were not in the healthiest of shape. Indeed, the pandemic benefits, funding and market resurgence approaching 1.2m transactions effectively saved some companies from literally going to the wall. Paying increases in salaries over the years to stay ahead of the challenge curve was not just overly aspirational for many, it simply was not possible and as a result wages in the sector have remained broadly in line until now. Many firms are having to dig deep and increase salaries to attract the right individuals or keep those they value.

Higher fees please

The recent pandemic has set people in a position where they are not just wanting higher salaries, it can often be about better working conditions and whilst business owners are making decisions made on the back of healthy trading through the pandemic, historic housing transactions are still below one million. In addition to potential rate rises and inflation it is probable that the market may level out to more average levels over the period. In any event the exponential growth over the past 24 months is unsustainable.

Without the ability to attract good talent the effectiveness of many companies will continue to decrease and the only way to maintain investment in evolution with proptech, to deliver first-rate customer services, to stay ahead of the competition and attract the right talent is to charge to right fees in the first place.

As professionals we often undervalue our services. We have some of the highest house prices in Europe yet we often charge the lowest fees. The current position of decrease is effectively seeing agencies slowly strangling themselves with below inflationary working practices and this in turn has over time created a position of unintended consequences, eroded salaries being just one.

Perhaps now is the time to stand strong and charge proportionate fees that reflect the value we deliver to our clients.

Talk to Nathan: [email protected]

December 29, 2021

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