Foxtons shares tumbled after a broker started covering the UK estate agency market, and gave the firm a “sell” rating.
Peel Hunt also issued “hold” ratings on Countywide, LSL and Savills.
Peel Hunt said it was gloomy about the long term outlook for agents, saying that fees would head downwards in view of competition from online firms.
It said the big issue was when commissions would fall, and by how much. It said: “Estate agents operating in London potentially face the greatest downside to commission rates given the absolute savings that vendors can make using a fixed price agent.”
Peel Hunt said that the general election had been good news generally for the market, ending uncertainty over mansion tax, controls on rents and the banning of tenant fees, and noting that comparatives figures from last year are set to ease in the second half of 2015.
However, it added: “While the near term news is positive and the listed players have diversified into areas with more stable revenue streams, we believe the sector faces longer term headwinds.
“It is still largely exposed to the highly cyclical nature of housing transactions and the growth of fixed price online estate agents is likely to lead to downward pressure, possibly significant, on industry fees and profits.
“The key issue is the pricing structure offered by the online estate agents which have been expanding rapidly and where the difference in fees is material – especially in higher value areas of the south east and London. The big debate for us is how far and how rapidly will fees fall.”
Foxtons last year charged an average commission rate of 2.4%.
Foxtons shares closed yesterday at 270p – some way down from their high of 315p a year ago, but up from last November’s low of 142p.
Comments (29)
You can have high cost high service or you can have low cost low service, some can do medium cost high service and nobody can sustain a business model of low cost high service. Online! We are all online! Some are online without bricks and mortar welcoming vendors or buyers. Some are online with help at hand for viewings, negotiations and sound advice. Really there is no difference between online agents apart from some having a local office. We do have high service and low service. Cutting costs is a stupid idea. If we have 10,000 agents selling under 1m properties that is 100 sales or less per office. If you charged less than £2000 in fees then you are heading for bankruptcy. Average office rent, rates, staff, adverts, portals, utilities and under £200k you will make a loss unless you are very low volume in a low cost area.
So what about all those consumers not on the internet or wanting to? How many years have online only agents being operating and what is their market share? We can all remember the .com boom and bust! EA is a service industry which some people seem to have great difficulty in grasping what that entails. The industry has adapted to the internet and will continue to evolve but all this twaddle is science fiction as the last 20 years has demonstrated.
The more onliners only models that come to the market, the more there will be an opportunity for full service agents to differentiate by providing outstanding face to face service. People will pay high fees for this, especially when full service agents show they achieve higher sale prices. Educated vendors who appreciate they will have more funds available at the end of the transaction, despite paying a higher fee for the privilege, will continue to do so. The onliners will then race to the bottom in fees and many will fold.
I agree with all of this – but re ‘educated vendors’, most vendors are not very educated. It is the job of the local agents to differentiate and position their value offering – ie “The cheapest agent is the one who gets the highest price for your home” – Ultimately it’s not about who is best, it is who is perceived to be the best.
Glenn Ackroyd – Ewemove posted “most vendors are not very educated”
You really need to explain that in detail Glenn, you just insulted a whole heap of people!
I’m so glad you have raised this point, Robert – that one sentence instantly boiled my waterworks last night and I just wonder how many others are wondering why he would make such an impudent statement.
I’m not Mr Ackroyd’s best bud at the minute, as you have seen on a previous thread where he’s got a proper hump on with me gnawing at his ankles – and is now trying to shake me off by wanting me to donate a grand to charity ‘cos it’s impossible to prove he or anyone in the world with the least connection to his firm didn’t ‘Dislike’ my comments on that thread.
I had this exact above scenario earlier this year with another chap who basically insulted the intelligence of his own vendors. It wasn’t pretty, I have to say – but then like certain others, when their empires are smoke and mirrors, they don’t like it when you turn on the fan and chuck a few rocks at them…
In the spirit of fairness, I have to concede that Mr Ackroyd’s second sentence almost wins my approval. ALMOST? – because “cheapest” is a word that our industry needs to make redundant and instead it is becoming the most widely used ‘USP’.
‘Cheap’ is what it says, Mr Ackroyd. Try ‘best value’. Or ‘cost-effective’. I’m sure you had better phrases to justify your fees when you practiced Law that you can implement in your current situation? ANYTHING but the ‘c’ word, Sir.
Don’t worry – your clients will understand ‘value’. Trust me.
Hereby endeth today’s free Consultancy session.
I agree re cheap. Value for money is the ultimate point. I phrase that we like to use is: “If you are price led, by all mean feel free to choose another agent. If you are service led, than we can help because we do x, y, z – but we’ll never compromise our service to compete on price.”
Customers admire you for it.
Hi Robert, the reference is educated in terms of the complexities of the sale process. Ie the rules in relation to property descriptions, Town and Country Planning, restrictions on title, rights of way/use, taxation/CGT on investment properties, anti money laundering etc etc. If it was readily understandable, people would not need an ‘expert’. Not plugging my book, but we give one out to vendors and they are always surprised about the level of information that they didn’t know.
“…the reference is educated in terms of the complexities of the sale process.”
Nope – sorry… I simply don’t buy that. There was NOTHING in the OP you responded to that pointed to a vendor being “educated” or otherwise in that respect. It was all about best value – and the rest of your post shows without a shadow of doubt that it was THAT you were giving your opinion to and NOT what you now try to hide behind.
I’m certainly speaking for you, here – but looking at the evidence before me, if it was me I reckon I would be holding up hands and admitting I’d had a Ratner moment…
S’pose you’re gonna bet me a grand to charity of your choice that it absolutely categorically definitely wasn’t anyone who ever has – or ever will have – the slightest thing to do with you or your company or anyone who has ever breathed air on the planet that posted the latest ‘Dislike’ to my comment, Mr Ackroyd…?
Online only budget agents are a current glitch, they use RM and Z as do other agents but offer cheaper as RM and Z allow them in.
Supporting just portals and not one another is the agents downfall.
Changing the way data can flow between agents to empower agents willing to collaborate would demise budget boy models.
There needs a national other element between RM and Z brought to the table. AND NO thats NOT A N Other portal in RM/Z clone 2 fashion.
The market is brilliant for selling/letting property at the moment……there isn’t enough to go round.
The shortage, coupled with the ease of selling/letting, always means that fees become competitive.
Wait until stock levels increase and the market slows. Online agents will still overvalue and therefore their instruction : sales ratio will decrease sharply. Those sellers/landlords that are left going stale on the internet, with marketing pics taken on an I phone, will be queuing up to pay a much larger fee to engage the services of a local, professional agent.
Biggest threat in agency today onliners, not because they are any good or the public will use them but the fact high street agents are slashing fees because of them and a strong market.
Too many agents drop their pants on fees because they are scared they will lose the instruction. Sell yourselves better identify why you are different and why you deserve your fee.
The public think its about finding a buyer, we all know its about finding the RIGHT buyer be that money, time or even individual.
sorry somehow add this comment while in full typing flow!
* The public don’t think of sales progression and its up to us to educate them, that’s after all where we earn our fee.
Instead of moaning about portals we need to address fees and educate the public on why cheap is not best.
Once fees slip it is VERY hard to get them back up, especially within a town/city/patch with a number of agents.
People make purchase decisions based on removing risk. And they will pay more to reduce risk. Think of your next holiday abroad. Will you drink free bottled water, or buy bottled? The same should go to the positioning of fees. There is a BIG risk that a sale will fall out of bed after a sale is agreed. And unless you’ve got a good agent/sales progressor, you increase the risks. This is where you win hearts and minds at market appraisals. Fear is a bigger emotional driver than reward.
oops, should be free tap water!
They state…. ” agents in London potentially face the greatest downside to commission rates given the absolute savings that vendors can make using a fixed price agent.”
Those absolute savings on fee will likely mean tens of thousands of pounds lost on sale price, plus the stress, heartache, lost sales and frustration experienced by sellers (and as such the buyers will be messed up too) For every ten sales that get put together, at least 9 will have issues that need time knowledge expertise and skill to resolve. The on line agents simply are not structured to provide the support and coverage to deliver this. Nor are they able to be that integral part at the commencement of negotiations. The average seller and buyer are not equipped to adequately negotiate the price and terms of a sale face to face ( I have been an agent for nearly 40 years and i would find it difficult to negotiate face to face with a buyer on my own house- but I represent my clients in a firm positive and inspirational way)
Selling and buying a property are not simple commodity sales. They are life changing experiences for those involved and it is insanity to trust that process to an on line advert and be left to wrestle with all that happens, “IF” that advert should raise an interested party. It will be very interesting to wind the video forward and see how many of this new breed of marketing agents (they are not REAL estate agents) survive the course.
There is an expression that involves the use of an expletive and Sherlock that could relate to this article….
Downward pressure on fees is nothing new. In every high street there will be a wide selection of agents from independents and corporates that have contrasting fee scales and, it has to be said, service levels and turnover. Internet only agents and variations of that model are here to stay and we as agents will need to adapt accordingly. As an independent its far easier to make ‘course corrections’ than a Maersk sized corporate or larger independent. Service is where our battles will be won or lost and, sadly, as technology becomes more integral and accepted in regards to what we do, that may result in less bodies in the offices. What wont change in my view is the underlying desire for advice, service, hand holding and a decent working relationship with our clients and customers.
Totally agree but most importantly, these things will be done face-to-face because that is what the overwhelming majority of consumers still want and will continue to do so for years to come.
Love Foxtons, 2.4%! Anyway, good for them and all that but of the thousands of EA businesses in the UK they are not a great example but the media and city types don’t seem to be able to look further than the area they live in so we always get stuff like this based on Notting Hill.
This bloke might be right about ‘long term headwinds’ and other snippets of the shipping forecast but will a race to the floor bettween the budget lot happen quite soon?
Jonnie
“will a race to the floor bettween the budget lot happen quite soon?”
Bang on the money Jonnie. Already “no sale no fee” budget agents are gaining investment.
I see it ending up at around £350.00 payable on completion with no upfront fees. There won’t be room for too many onliners when that price becomes the online norm.
Don Maclean’s [Not the Crackerjack (CRACKERJACK!!!) one] “Vincent” is strong in this story.
Fee erosion and the causes of fee erosion have been evident for 4 years and were a key driver of the push for a strong affinity group back in September 2012. ( SSR4st ‘trafford’ afffinity group, EAT archive Sept 2012)*
Perhaps you’ll listen now?
The good news is Peel Hunt is wrong and if there were unified cooperation between Agents the fee pressure from central office area rep agency would evaporate like morning dew.
You mean a cartel.
In the UK, anti-competitive behaviour is prohibited under Chapters I and II of the Competition Act 1998 and may be prohibited under Articles 81 and 82 of the EC Treaty.
With respect, if you don’t understand a post please ask rather than posting as if you know what I am referring to. That post has nothing whatsoever to do with anti competitive legislation, it refers to fiduciary contractual obligations between agents and service suppliers.
The net effect will be exactly the same but it is perfectly within competition and contract laws.
If you are accusing me of being the Godfather of 19600 office cartel, I am flattered but your misinterpretation of my post makes you look like a public bar barrister who has latched onto the wrong end of a conversation.
” ….. look like a public bar barrister who has latched onto the wrong end of a conversation”.
So many are posting these days.
The analyst’s /stockbroker/ investment banker /trader etc. etc……..
, warn of headwinds for estate agents? Groundhog Day?
FT article (link below) regarding certain, stable lister?
”The number of estate agents advertising on Zoopla has fallen from 16,261 this time last year to 12,449 at the end of March; it lost a further 106 in April.
Analyst at Edison Investment Research, said Zoopla faced “near-term headwinds”.“Zoopla is at a disadvantage to Rightmove as it generates fewer leads,”
http://www.ft.com/cms/s/0/add07942-febd-11e4-84b200144feabdc0.html#axzz3bxebFLFG
Hmmm what a merry go round …
Well done Countrywide selling off part of your heavily discounted stake in Zoopla only 4.1% to go, Sept 15 will be interesting….
LSL praise to you also, for selling off your stock too, only 2.6% to go and Connells, if Beaufort turns to 10 or 12 doesn’t look good for Zoopla / either of you long-term …. by the way, I know Ebay and Amazon sell sow esters.
Alison, David and Ian …… time you got OnTheMarket.com
I would personally recommend this read to Peel Hunt > Feet of Clay > Terry Pratchett · Corgi · Paperback · 410 pages · ISBN 0552153257
Finally it’s very interesting what FOI act can flag up ….skeletons in purple board room cupboards …..?
……………………………
GuardianIndependenObservor has touched on a few points here that is probably not a million miles away from what these comments from Peel Hunt is all about.
Foxtons….OTM…the industry, make of it what you will.
An interesting few months lies ahead for the portal market/industry.
afternoon all….
I concur Paul it will indeed and looks whats parked up ,long term next to foxtons on the highstreet
🙂 with a big thumbs up
[ as I do a double take and glance over is that “Captain America” or is it Billy ?] on his V-Twin powered cruiser ….
Looks like Will .. has faith in the long term high street estate agents, whose investment portfolio contains some interesting big names …..
Baidu Inc., Fidelity National Information Services, Google Inc., Analog Devices, and Harley-Davidson Inc
http://www.foxtonsgroup.co.uk/news/2015/06/01/22863544/holdings-in-company.html