Buying an Estate Agency: Part Two

Estate Agency used to be almost a ‘cottage industry’, composed mainly of independent, locally-run businesses. But not any more.

Increasingly, chains and national brands are dominating the sector, making it more difficult for others to claim a decent share of any housing market. However, there are other ways for skilled individuals to enter this market.

Franchising can offer an easier route

Franchising can offer an easier route for those wishing to lay claim to a stake in this lucrative business. Franchisees don’t even need to have had experience in estate agency – although some high-level management or business skill is essential.

At Your Move, for example, they have around 50 franchise outlets, split between experienced and non-industry operators.

Darren James, head of franchising at the company, explains. “Many franchisees have no direct experience, although you need to be of a certain age and certain maturity, and have a level of management skills. Background is not necessarily an indicator of success.”

Most do have some solid interest in the property market – many, for example, have property portfolios or have had some role in financial services related to residential property. Your Move do not – as yet – have any franchisees acting as 'hands-off investors'.

“You need to manage and motivate staff, but we do provide training in both systems and agency skills. The important thing is having – or recruiting – a highly qualified valuation manager.”

He adds that some franchisees do want to fill that position themselves, in which case they need selling skills, and particularly the ability to close a sale.

They must also have an understanding of increasing Government monitoring of financial services, particularly with regard to money laundering and the role of the financial ombudsman.

To join Your Move as a franchisee, James says, you need to have access to £30,000 of liquid cash – or the ability to raise it. The company provides the remaining £70,000 of the £100,000 needed to cover the acquisition of suitable premises and the installation of the typical Your Move fit-out.

The company charges an initial fee of £10,000 per branch and then charges services fees of 8% of gross monthly takings on top of an IT support fee.

James adds: “You will also need funds for the first few months in which you’re not earning, but still have the costs of running the business.”

If you choose the alternative route – buying an existing business – this will not be a problem, as the cash flows will already be up and running. But buying a successful agency, James says, can cost up to £1m. Cheaper agencies can be found, but will require significant investment in terms of time, energy and money.

Selling the business

Franchisees with Your Move can still sell the business on and take a share in any increased value. But the buyer must be approved as a 'fit and proper person' and must be able to comply with the increasingly strict regulation of the Financial Services Agency (FSA).

But as well as 'cold start' franchises – where a completely new business is set up – Your Move also offer existing estate agents the chance to come under the brand’s umbrella and expand their business – taking advantage of the marketing, advertising and IT spend of a nationwide company. However, this will depend on whether a particular territory is available.

James is unwilling to put an exact figure on the potential earnings of a typical franchise. “There is a massive range,” he says. “It comes down to how you run the business. You can make a living by having a business you run reasonably hard. If you’re prepared to put more time into it, you can earn more.”

So, he adds, some managers will work 9am to 5.30pm, whereas others will work until late in the evening. And although many agencies open six days a week, the dedicated will operate every day of the week, in which case a shift system becomes a must.

However, the company does forecast that it is possible to make over £500,000 over a five-year period. Of course, this is not entirely composed of commission from sales. Your Move used to be part of Norwich Union and still has expertise in home loans and other products.

“There are a range of other services besides residential sales,” James adds. “We offer conveyancing services, insurance services, utility sales, and mortgage broking. We are working on a lettings model which will be introduced shortly.”

He does believe, however, that adaptability and patience are vital in anyone seeking entry to this sector. “You have to have the right personality. You need to adapt to the changing market, although we are seeing a slowdown in growth rather than any crash.”

“It’s all about the individual. But one thing I would say is that this is a massively people-focused business.”