How to start an estate agency franchise
It's hard work but selling houses could also be the key to success
If you are committed to starting up a business, dream of fast cash and satisfaction in the workplace yet are stuck for ideas, then you've come to the right place.
If this appears to you to be a business proposition ‘made in America', then you would be right. This is franchising of estate agencies and is big business in the US. However, this is now well and truly inside the UK too and is a business that generates high commissions for the franchisees.
US firms, such as Century 21, are now trying to crack the UK market alongside some of the most-established brands in the UK outside of the financial sector, including Legal & General and Winkworth.
What is it?
We have all heard the horror stories and told the jokes, but do you know what an estate agent actually does? Most of us are on the receiving end at some point in our lives as the vast majority of property transactions go through as estate agent. But maybe you have wondered what it is like from the other side.
An estate agent acts as the representative of someone who wants to sell their house and has a duty to get the best price for the owner. To get started in the business, they need to convince someone to sell their house through them – as opposed to any other agent on the high street.
Sounds easy – well think again. Buyers aren't going to just walk through the door and give you their commission. Getting properties to list with you means spending a lot of time on the phone, becoming entrenched in the local community, being aware of what is coming on to the market and, increasingly, using mailshots to entice homeowners to sell their properties. Then you must be able to offer owners the confidence that you will sell their house better and faster than anyone else.
The second part of the process is trying to convince someone to buy from you. Part of that will be from having a high street presence and strong brand name that entices customers to walk through the door. But should also be trying to encourage people to come to you. Your franchise fee is likely to cover some form of marketing but you need to check how active each franchisor is. Then you should also be mailing flyers or even individual letters, if you can access the electoral roll, to try attracting customers to you. Advertising in local newspapers or magazines is also a must for most estate agents.
“You are listing properties and selling them. It is more about marketing and sales than a romantic notion of being in property,” says Bill Pegram, now a franchise consultant with Horwarth Franchising but formerly of Century 21. A lot of people want to be “in property” rather than be an estate agent, he added.
Who is it suited to?
Running an estate agency tends to appeal for two reasons, Cliff Hulley, IT director at Century 21 explains. “Firstly, a lot of people are already involved in the financial services sector and they see estate agency as complementary to what they do. Usually when someone is looking for a house, they will also be looking for a mortgage. Secondly, property is moving up and you don't need any formal qualifications to get into it,” he said.
At a more fundamental level, it also appeals to a lot of people – everybody needs a house so it is a sector that most people will have some exposure to.
As the housing market continues to flourish it is also a sector that has attracted considerable interest. Even though house prices are slowing down, there are still no signs that buyers are holding back from purchases in anticipation of a big price slump.
There are no real qualifications for this business but numeracy and literacy are a prerequisite. But in essence this is a people business. You must be a good communicator, able to inspire trust and confidence in the public and reassure people as they go through the sale process. But you must also be able to carry on when things get a bit slow. So a sunny disposition and perseverance will be crucial.
The first few months will be very hard work and you must be prepared to fund yourself for some time before you will see the fruits of your labour.
Even if you were able to sign up a new property on the first day that you open your office – it can take one month to find a buyer, two months to exchange contracts, a further month to complete the transaction and the final payment will be made thereafter. That is without any hiccups along the way.
It will cost about £15,000 plus VAT for a Blue Sky Villas franchise but different packages vary enormously.
However, this is likely to be the smallest part of your outlay.
Depending upon where you set up, you should be expecting to pump anything up to £300,000 into the business in the first year. An estate agency in Knightsbridge, for example, will easily eat up the best part of that amount in its first 12 months. That will include the cost of office space and all its running costs. You may find it useful to consider the franchise approach in comparison with our guide on how to start an estate agency business from scratch.
Even if you intend to do most of the sales yourself, you will need to have at least one other staff member on board.
With a high street shop, you need to ensure that it is always staffed even if by an administrator. But you might also choose to take on another sales person to help generate new business. Even though you can expect to offer commission as part of the package, a salesman in London is quite likely to expect £25,000 plus as salary.
But one of your biggest overheads is likely to be advertising and marketing. From leaflet drops to advertisements in the local newspapers, there should be constant marketing activity to help build your business which is likely to run into thousands of pounds a year.
How much can I earn?
So what is it that attracts so many people to put their life savings on the line to get into estate agency? Well you could hardly fail to have noticed that the housing market has been soaring in the UK for some years now and despite a repeated predictions of a fall the market just seems to keep on growing.
So, although the startup costs are high – the pay off can be very lucrative.
Even taking into account regional variations in house prices and volumes of sales, estate agencies tend to show similar figures in the business plans, explains Mark Scott, franchise manager at NatWest. An established business can expect to generate £150,000 per annum in income.
After staff and office costs this still leaves you with an average income of £50,000. This more than eclipses the earnings from other franchise sectors as a typical “man and a van” franchise might offer an income of closer to £20,000.
The market is notoriously volatile, so this is not a venture for the fainthearted. But volatility isn't in itself a bad thing. Although property in the North sells at lower prices and generates lower commissions, there may be more sales to be made.
In contrast, a London office may have only 10 properties on the books at any given time which makes it hard to generate consistent income in the say way. So smaller commissions tend to balanced by higher sales volumes.
Tips for success
Currently, the UK is in the midst of an economic boom with relatively stable interest rates, high earnings and low unemployment. This is the dream scenario for a buoyant housing market. The good news is that it is forecast to remain stable for the foreseeable future. But make sure you go into this with your eyes open.
The ups and downs of the market can easily kill off your business if you aren't prepared for the downturn. This is also fiercely competitive and if the going gets tough it is prices that tumble.
If there is any hint of a recession or interest rate rises on the scale during the 1980's, you will see house sales disappear.
“There may be a great sales market – but you should not establish an estate agency based purely on that. This needs to be a long-term business,” advises Pegram. “An estate agency will make hay while the sun shines but you should look to supplement the income with lettings, surveying and financial services. The more irons you have in the fire the more rounded the business will be.”
It is crucial that you build a diversified business to ensure that you aren't reliant on the good months to tide you over.
Offering financial services and a good lettings business can always provide a steady stream of income. If you want to go this route there are plenty of combined packages and you should investigate what is on offer from each franchisor.
So if you are tempted by the lure of running an estate agency, what can you do?
- Firstly, choose an established franchisor. Although this applies to any sector of franchising, it is particularly relevant here. The market is notoriously volatile and both peaks and troughs in prices are likely to affect your business. You want somebody who will see you through the hard times.
- Secondly, choose someone who is cut to the cloth of the UK market. There are a number of high-profile American brands entering this market but the business model is different. Realtors are required to have high levels of training and the turnover in the market also makes a commission-based sales job viable. With comparatively low barriers to entry here and the volatility in the market, neither of these apply here.
- This leads on to the brand name and image. Your business is dependent upon customers walking through the door. Brand recognition and trust will be vital – but that could mean a local or regional brand. Estate agencies can be well-established in one area while being relatively unheard of in another. Check out the situation wherever you intend to set up.
- Thirdly, look to ways of smoothing out the unpredictability of your earnings. Consider combing your business with a lettings agency and offering financial services as well. With a high street office already set up, the additional overheads are low.
- Fourthly, do take advantage of any local knowledge that you have. A good understanding of the local area and market will be a huge plus in getting established initially and making the sale to somebody else.
- Lastly, make sure you have deep pockets. It can easily take six months to earn your first commissions. But throughout this period you will have to support the costs of a high street office and at least one other salary. You will need to go through the figures carefully, but look out for any phrases like “initial investment”. This should start firing warning signals that your business will need more cash pumped into it within a short space of time.