Southgate Estates founder, Jonathan Newall explains why he thinks online estate agency will never dominate the market and explains some of the perils of using new and untested business models when dealing with substantial sums of money.  After building an early cut-price hybrid type agency in 2006, his firm has gradually been brought into line with other traditional estate agents.  After 10 years, the firm has a fantastic reputation and is going from strength to strength in a difficult market.


Before I became involved in estate agency, I would have probably been the first to welcome companies like Purple Bricks, Tepilo and House Simple.  Now, having seen the reality, I wouldn’t recommend them to my worst enemy.


In 2006 I set up Southgate Estates.  It was a very unique agency founded on honest and fair principles.  We designed the business model to be ethical, offer fair terms with a competitive fixed fee and be completely honest in our approaches.  We pushed the boat out on graphic design and came up with a branding that would sit nicely alongside other mid-range agencies.  We launched on 2nd May 2007 with a special offer of £799+VAT for our first 20 properties and very quickly took a good market share.


Within 2 years we had a portfolio of 80+ properties, were charging a no-sale, no-fee sole agency fee of £1599 + VAT and from the outside it looked like a great success.  The problem was that we were working exceptionally hard and were making no profit at all.  The feedback was that we were doing a fabulous job and the local solicitors were telling us that they couldn’t believe what a great service we did for such low fees, whilst we worked all hours of the day and night.


It was at this point that we sat back and realised that there is something to be said for the traditional model of estate agency.  The percentage fee based agency has evolved over many years and there is a good reason for this.  It works!  We then did a bit of a U-turn on our package and turned the business into a success.


So why didn’t it work.  The first problem was that cheap estate agency packages often attract the more price conscious clients.  We realised that our portfolio was full of the type of people who love to save money and want their ‘pound of flesh’.  And if they’re that type of person, they probably have done exactly the same with maintaining their property.  We seemed to have a great proportion of houses that were stuck in the 1980’s, yet the vendors were often looking for top dollar for their property and were expecting the highest levels of service.  It simply didn’t add up.  After adjusting our package to a fee of 1.25%, there was a notable difference in the client base as well as our average fee.


So perhaps the Purple Bricks model of list it, charge the client upfront and forget about it might work better from a business perspective.  But this comes with its own challenges and will undoubtedly attract the same clients that we attracted 10 years before.


Simply put, regardless of how skilful the staff are, I don’t think they can offer the levels of service that are needed to keep their clients content on the money they are charging.  As the financial commitment is up-front, clients will probably be even more aware of how much they’ve paid if the services don’t live up to expectations.  I don’t think it’s a coincidence that Purple Bricks have just changed their Facebook page to stop any more reviews and are now favouring the website ‘Trustpilot’, where they can remove the unwanted reviews at their own discretion.  Take a look at how Purple Bricks rank on Facebook and to see just how distorted review sites can be.  Review sites cannot be trusted anymore!


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The other big issue in my mind is that listing your property with a cheap online brand can be a bit like trying to sell a premium product from a car boot sale.  Take for example another analogy.  A couple of good quality pieces of steak in Marks and Spencers are probably going to set you back in the order of £10 to £15.  I’m sure they sell plenty of these on a regular basis, but would they attract buyers if you put them on the shelves of Lidl or Aldi at the same price.  Probably not – if you’re looking for steak in a cheap brand shop, you’re probably looking to pay less.  My point is that putting your house on the market with a cheap brand estate agency is going to give the wrong impression to buyers before they’ve booked the viewing.


Then what happens when they come to book the viewing.  I’ve heard stories of buyers waiting weeks for viewings to be booked in and then when they do eventually go ahead, the agents are as good as useless.  Even the processes of using the automated viewing booking systems can be so cumbersome that buyers simply won’t bother.  To get the most interest, an agent needs to be pro-active.  If someone isn’t sure if they want to view, then it’s the agents’ job to persuade them rather than place hurdles in the way.  Then they need the all-important follow up afterwards.  Does this happen with a typical onliner? – I highly doubt it!


And so far, I’ve only touched on what happens before we get to the stage of someone offering.  This is only the start of the process.  A good agent often spends countless hours behind the scenes holding sales together.  Negotiating exchange dates, keeping the solicitors moving, settling disputes over toilet roll holders and patches of damp under the stairs.  The list goes on and a lot of the time, the vendors have no idea how much time and effort has gone into keeping things moving smoothly.


So what’s my forecast for the industry?  I believe it will be a tough time for all involved.  The onliners will struggle to make ends meet on their tiny fees – especially if the market becomes uncertain.  They are already putting fees up considerably and I think this is set to continue.  (Nobody seems to yet take into account that the traditional 1.5% to 2% fees that have evolved in estate agency reflect the need to keep businesses turning over when the market is quiet.  We can’t just shut our offices for 3 months of the year or whenever political instability grinds things to a halt.)


The traditional agents will continue to be squeezed by the evolving culture of not paying more than you can get things for online.  Letting agents will struggle due to the prospect of the imminent fees ban.  It’s going to be a tough time.


However, there’s no getting away from the need for good estate agents.  Regardless of how good an internet based agency is, they will never have the local knowledge that is needed from a good local agent and the general public will always need local advice.  Even those internet agents that describe their staff as local experts tend to cover such a large patch, that they cannot have suitable knowledge of the whole area.  Industries, such as the car trade, already have the infrastructure to cut out local dealerships, yet the vast majority of new car buyers will still engage with their local dealership.  Estate agency is likely to go the same way.


Once the dust settles, my prediction is that there will be online packages available, but most people will still use a local agent.  The prices of online packages will need to increase if it is to become a viable proposition and deliver a reasonable standard of service.  In the meantime, I suspect many agents will shut up shop and leave the industry.


The advice I give to friends and family in other parts of the country is to check out their local agents before making the choice.  Don’t be afraid to ask people who’ve bought or sold recently and why not do a quick mystery shop to see how they perform.  Even just walking into each of their offices and asking to be put on the mailing list can reveal their enthusiasm to sell their properties.   Beware if they are more interested in valuing your own property than selling the ones on their books and if an agent is not charging a proper fee, they are probably desperate or not doing a proper job.  Never base your decision on the highest valuation and look for an agent who will support you through the whole process, from valuation to completion.



January 2017