How do Estate Agents make money?

ddavemac1981

Hi All,

First time post here. My wife and bought our first flat in 2016 - we exchanged the day of
Brexit! Last year, we thought we may well move to South London, so put our flat on the market. EA's were tripping over themselves to get our flat (North London, Zone 3). We were on for about a year, used 3 different agents, and dropped the price from 450k (ludicrous to think now) in stages down to 400k, but did not get one offer!

This led me to genuinely wonder how EA's make money. While our property was new, there were plenty of viewings, but as it stayed on for a while they seemed to lose interest in it. Also, it was wildly over priced to begin. How do EA's sustain this model? My understanding is that EA's fail to sell as many as the succeed at, and surely by over-pricing properties they are shooting themselves in the foot? How do they pay for photos, online listings, paying their staff for viewings etc, when there is no guarantee of a sale?

Any thoughts or answers?

Cheers,

Dave

AnotherJoe

Once they have clients on their books then they wil be getting a constant-ish stream of income from them as a whole even if some take some time to sell.
Looking at a different field, advertising, lets say Alpha Corp spends a million on advertising a year. They need enough income from that to make the overall spend worthwhile. The fact they are paying for adverts i will see and have no interest in, or i may have an interest but buy from Beta Company instead, doesn't matter.
So, regard the extra properties on the EAs books as similar to marketing/advertising spend.

davidmcn

ddavemac1981 wrote: »

How do they pay for photos, online listings, paying their staff for viewings etc, when there is no guarantee of a sale?

In much the same way as any other business which doesn't get cash upfront from its clients i.e. initially by a load of borrowing (and/or the owners putting up their own cash) until the income starts coming in. Of course many of those overheads themselves don't need to be paid immediately anyway.

Their pricing obviously takes into account the amount of time they spend on fruitless sales pitches to potential vendors and trying to sell properties which don't shift.

eddddy

ddavemac1981 wrote: »

How do they pay for photos, online listings, paying their staff for viewings etc, when there is no guarantee of a sale?

Like a lot of businesses - it's a speculative business model.

For example, they might spend money on marketing 30 properties, but only actually sell 10 of them.

As long at the fees from the 10 properties cover the marketing costs of the 30 properties - plus make some profit - everything's fine.


But, if they don't sell enough properties to cover all their costs, the EA will go bust.

ognum

Most estate agents now have a rentals division. Charging management fees is a constant market that can be relied on when sales are low.

NaughtiusMaximus

ddavemac1981 wrote: »

How do EA's sustain this model? My understanding is that EA's fail to sell as many as the succeed at, and surely by over-pricing properties they are shooting themselves in the foot? How do they pay for photos, online listings, paying their staff for viewings etc, when there is no guarantee of a sale?

Is this really the case though or is it an urban myth?

When we were house hunting in 2017, we kept a close watch of Rightmove for a good 6-9 months before we were in a position to make an offer (long story - the short version is we hoped to start the process in June but actually had to wait until November). In that time we must have looked at literally thousands of listings and bookmarked a few hundred (to get a good idea of realistic selling prices for the type of property we were interested in), a lot of them went to SSTC within a month of listing. In addition we accepted an offer on our old house less than a week after listing.

There were of course some houses which had been on for a year or more and others where the listings were removed entirely (presumably meaning no sale with that EA) but it seemed to me they were outnumbered by the quick sellers.

Tom99

On my recent sale the solicitors bill was £825 and the estate agent £8,250.
I don't think the estate agent did 10x the work so my fee helped paid for those sales where they were not successful.

Gwendo40

Most are duel agents and the bulk of their regular income in recent years will have been from the lettings fees money for nothing gravy train, with commission from ever dwindling sales just a nice little bonus.

Once the lettings fees ban comes in (in June) the agents might find they have to get back to the business of actually selling houses, rather than just generally indulging deluded vendors with fantasy figure, pie in the sky valuations and asking prices (which currently results in over half the houses brought to market subsequently being withdrawn after failing to achieve a sale)

Davesnave

ddavemac1981 wrote: »

surely by over-pricing properties they are shooting themselves in the foot?

Gwendo40 wrote: »

Most are duel agents

The risk of self-harm is always there, but when people buy property, there's generally a killing to be made by the facilitators....

Gwendo40

Doh! Well spotted.

Very good!

G_M

Gwendo40 wrote: »

Most are duel agents and the bulk of their regular income in recent years will have been from the lettings fees money for nothing gravy train, with commission from ever dwindling sales just a nice little bonus.

Until June 1st.......