The estate agency sector in England and Wales is composed of four main groupings: national agents selling and letting exclusive, expensive properties to an international clientele; mass-market national agents; mass-market regional agents; and smaller independents. The independents are increasingly linking up with each other to form marketing groups that have a national and international presence.
In July 2004, the three largest estate agency multiples were Countrywide, Connells and Halifax. Franchising enables independent estate agents to buy into well-known brands. Changes in the control over several leading estate agency businesses since 2001 suggest that financial services groups found successful estate agency harder than they had envisaged.
The rise of buy-to-let has greatly increased the demand for property lettings specialists. Buy-to-let still offers competitive average returns, but the house purchase market began to slow in summer 2004.
THE OFT'S REPORT AND ITS IMPLICATIONS
A report from the Office of Fair Trading (OFT) - Estate Agency Market in England and Wales - recommended more vigorous price competition, changes to the Estate Agents Act, and better and more comprehensive self-regulation to improve customer service. The OFT report found 'no obvious competition problems in relation to the structure of the market'. There were issues relating to fees, particularly the widespread use of 'pricing points', with the vast majority of fees being set at around 1%, 1.25%, 1.5%, 1.75% or 2%. Average fees charged rise in proportion with sales value and this does not reflect the costs incurred. The main proposal put forward by the OFT was for the Estate Agents Act 1979 to be modernised. Changes would include greater enforcement powers against estate agents who breach the Act and requirements for agents to write contracts in plain English and to document their work in detail, to avoid the lack of evidence that at present can make complaint resolution difficult.
AN INTERNATIONAL PERSPECTIVE
The buy-to-let phenomenon is becoming a feature of the European property market, especially in holiday areas. More than half of all the 103,225 new homes that were sold in France in 2003 were bought to let. However, the development of a pan-European property market is impeded by national taxation, legal and planning regimes. Common European tax and planning laws would probably further accelerate the number of international property transactions, to the benefit of estate agents, but the UK is dragging its feet. There is too much opposition to the concept of 'Europe' within the UK for complete harmonisation to become reality in the next decade. The absence of harmonisation creates a demand for estate agents whose staff have excellent knowledge of property, planning and taxation law in the foreign markets favoured by international buyers.
PEST ANALYSIS
Almost two-thirds of new households cannot afford to buy a home, compared with just over half in the late 1980s. They become estate agents' clients for lettings, not for purchases.
The median mortgage advance rose by 120% between 1990 and 2003, yet the median income of borrowers grew by 79% - the affordability gap has become very wide. Mortgage statistics show the struggles of the low-paid to meet repayments. In June 2003 therefore, before the interest rate rises, households with a disposable income of under £1,000 a month spent 30% of it on mortgage payments. Lack of affordability at the lowest end of the market was already holding back first-time buyers when interest rates were at their lowest.
The size of the average household has fallen from 3.01 in 1961 to 2.33 in 2002, but the size of the average new home has increased. The overall trend towards smaller households has probably stopped, but there could be a polarisation: continued expansion in single-person households balanced by a rise in multi-generation households.
THE FUTURE
The first signs of an end to the long climb upwards in property prices appeared in the first full week of June 2004, when Rightmove reported an overall 0.4% fall in asking prices between 6th and 12th June.
The decisions taken by all three of the leading chains to retain respected local brand names make good sense in the light of Key Note's consumer research, in which local agents have considerably more support than national chains. The franchise route to expansion appears to offer many benefits to the larger companies - franchisees tend to be committed to the long-term success of their businesses.
Successful agencies need to be attuned to subtle shifts in the social, political and economic context and to make full use of marketing techniques. Demographic trends point to an increase in retirement developments and greater use of equity release, for which estate agents could adopt a useful advisory role.
Many estate agents are keen for compulsory licensing to be introduced. Government proposals announced on 22nd July 2004 did not go that far. The proposals are for every estate agent to sign up to the Ombudsman for Estate Agents scheme, and for every agent to be required to keep written records of every communication with vendors and buyers.
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