Why big is sometimes good

It seems that almost every time another one of our business sales is announced, there is a cacophony of comments on the trade portals about why big businesses are bad and small businesses are good.

On the residential sales side, this may actually be true. There are still a lot of independently owned residential sales agents. In many towns, the market leader is an independent agent, not a competitor. It is also still possible for a talented agent to run a small business on a shoestring budget and through sheer hard work and ability, to earn more than they would be paid as a regional director for a corporate chain.

I don’t think that this is going to change anytime soon. Indeed, a recent survey suggested that independent sales agents are increasing their market share at the expense of their corporate competitors.

However, on the letting side, the small independent agents are finding it harder than ever to make a decent living for a variety of reasons. The first issue is the cost of keeping up with endless changes in compliance legislation. The corporate firms have large, sophisticated compliance departments to ensure that everyone keeps abreast of the latest regulations. They have also invested a lot of money in technology in order to make sure that their staff cannot make expensive mistakes.

A second issue is that the corporate agents have centralised their systems so that all the skills functions such as tenancy administration and property management are dealt with by highly trained experts who work in regional hubs and are closely supervised in order to prevent mistakes. This is a much more efficient and cost-effective way of doing things. A property manager who works in a central department will be able to manage up to twice as many properties as one based in a branch.

A third factor is the huge investment that many of the large firms have made in PropTech. Modern systems improve the efficiency of the property managers hugely. This doesn’t just reduce costs. It can actually improve the level of customer service for both tenants and landlords. Most tenants would much prefer to report a maintenance issue online rather than having to phone the agent and be put on hold for twenty minutes. Most landlords also prefer to see a picture of the blocked gutter and a builder’s estimate via an online portal without having to phone the agent and be left on hold for ages.

A combination of PropTech and the centralisation of tenancy administration and property management functions have allowed well-run letting agents to drive down the cost of managing a property by as much as 70% and this gives them a tremendous commercial advantage over their smaller competitors. Even a year or two ago these cost savings often came at the expense of service levels but this is no longer true. Independent agents will therefore need to continuously up their game in order to survive.

The biggest trump card that independent agents have left to play is their personal service and humanity but it can be so hard to maintain these attributes in the face of ever increasing workloads.

I can see a time approaching where a hybrid model may develop under which some large specialist companies set themselves up to offer tenancy administration, property management, accountancy and compliance support to the independent letting agent sector. This would leave independent agents more time to focus on building their business and improving their relationships with their landlords. All they would have left to do would be the local functions such as valuations, viewings, check-ins, check-outs and periodic inspections. All the more risky functions would be dealt with elsewhere.

The business model could be a franchise or a white-label service or a business partnership, or some other mechanism that offers landlords the best of both worlds, i.e. a personal service provided by a business owner who really cares together with the protection and cost efficiency of a centralised administration and management service. Some early entrants have already entered this market and I predict that many more will follow.

Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than thirty years.

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