Online and traditional agents future of high street letting agents
How much would a landlord have to pay to find a tenant for a £1,000-a-month flat through average estate agents? On average a landlord will pay 8% + vat for the let and up to 5% for management. This translates to £1,152.00 to let and £630.00 to manage. It is these sorts of fees, common across the fast-growing lettings industry, that are (finally) provoking a revolution in new online players, and that will see high street estate and letting agents go the same way as Blockbuster, HMV and Lunn Poly – business models blown apart by the internet.
Until now, online and traditional agents have had lamentably little impact. Rightmove and Zoopla dominate the search market but, in truth, all they are is an internet shop window. The vast majority of sellers still hire a traditional estate agent, and the vast majority of tenants have little choice but to go through a letting agency and pay often exorbitant fees to find a home.
But this is changing. Already, star fund manager Neil Woodford has pumped £7m into PurpleBricks.com, while easyProperty.com, the latest venture from Sir Stelios Haji-Ioannou, has raised £10m and has begun its assault on the lettings market.
If you are a landlord trying to find a tenant, you will start to notice these players.
What they are all fighting over are the staggering agency commissions and profits. Landlords using a letting agency such as Foxtons can pay 11% + vat of the annual rent to find a tenant, or 17% + vat for the full management service. Let`s not forget fees to tenants. “administration”, “check-in”, “inventory”, “deposit protection” and “credit referencing”.
But will the online agents, even if stuffed with cash for advertising, really dislodge the incumbents, as much as we like to hate them? On a straightforward comparison of costs, there is no case to answer. PurpleBricks has a flat fee of £798, while Emoov’s full service is £658.50. For lettings, OpenRent charges landlords £49 to find a tenant, easyProperty £59.99 and uPad £118.80, although these are for the basic service. To manage a rental, easyProperty will charge 3% of the rent.
For tenants, it’s just as good. OpenRent, for example, charges £20 per reference conducted, and it says not all landlords insist on referencing. and says: “That’s it. No admin fees, no contract signing fees, no hidden charges,” which represents a huge saving for anyone renting.
Crucially, what all these online services have gained is access to Rightmove and Zoopla. The property portals, which are the first step for nearly everyone buying or renting a home, have banned individuals from posting their own properties, or landlords advertising their buy-to-let. They only allow agents to advertise – and are happy for the likes of PurpleBricks to come on board.
But what if the boiler breaks down – can the tenant or landlord rely on the online agent to fix the problem? Will the online agent take lovely pictures to sell your home, arrange viewings, or handle the inventory and tenant check-in? Interestingly, most major estate agency chains have outsourced such services – they use specialist management companies to handle tenants, and external firms for photos and brochures – and the online providers say they use exactly the same people. So you get the same service for a fraction of the price.
Given this, just how much longer can traditional high-charging estate agents and letting agents survive? Watch this space as the war between Online and traditional agents hots up.