Go big or go bust?

The big national and regional letting agents are buying up their smaller competitors at an astonishing rate. In the
last few months alone, several quite sizeable letting agents including John German, Lampons, Perry Bishop and Chambers, Sullivan Thomas and, most recently, Fitz-Gibbon, have all taken the decision to sell their lettings businesses and I know of
several dozen other firms who are currently considering their options. So why is this happening now and is there a future for the small independent letting agent?

The major lettings firms have a number of key competitive advantages over their smaller rivals. These include:

Economies of scale
Nearly all the major firms have specialist staff to cover each of the different functions. A valuer takes the property onto the market, a negotiator arranges the viewing, an inventory clerk prepares the inventory, a tenancy administrator prepares the contracts and chases references, a property manager deals with management, a maintenance manager organises the repairs, the collection and payment of rent is dealt with by a specialist accounts team and renewals are dealt with by a separate department. That is eight different specialist people in one transaction each with very specialist skills.

In smaller businesses it is not uncommon for one person to perform all of these functions and it is almost impossible for
them to be good at all of them.

Automation
Large firms have invested heavily in sophisticated software that reduces the time necessary to handle each property. For example a lot of property management systems allow landlords to look at their own files using a secure pin number, to check on the cost of repairs or whether or not the month’s rent has been paid. This saves a telephone call to the property manager. As a result some property managers are able to manage over 300 properties each.

The smaller firms have not been able to afford this technology and as a result their labour costs are much higher.

Marketing
The larger firms have invested in sophisticated marketing methods to generate valuations from new and exiting landlords. For example, one of my largest clients has recently invested over £500,000 in a sophisticated CRM database that will keep in
touch with all known landlords for many years after their initial enquiry. Too many small firms have a box of mouldy files in a basement somewhere.

View the rest of this story that appeared in Property Drum here

Appeared – FEBRUARY 2014 PROPERTYdrum