We spend a lot of time talking to estate agents and the most common feedback we get is that they are frustrated by how long deals are taking, the difficulty involved and fall-through rates.
The actual figure for the number of deals that fail is understandably difficult to pin down – it’s not something an agent will want to publicise. Indeed, the recent accusations about the completion rates of “online-only” agents definitely has a whiff of glass houses and stones about it.
When the government published their highly ambitious consultation last year, outlining their plans to “fix the broken housing market” they quoted about 35% of deals fall through, but the general consensus seems be in the range 28%-35%.
Which, when given the downward pressure on agent fees and reduced transaction levels per branch due to increased competition, makes revenue generation even more challenging.
With analysts predicting little change in instruction levels for the foreseeable future, we have come across fundamental differences of opinion from agents on how to address the issue. We have spoken with owners who insist “there is nothing that can be done” placing the blame firmly on the “chain”. However, we are also talking to agents who know that they can influence deals and have the right lawyers, make the difference.
The reality is that agents have two options; either seek additional revenue streams from the deals they complete, or complete more deals.
The choice depends on the individual’s mind-set.
We have found those who believe “there’s nothing we can do” will typically select the “Additional Revenue Stream” approach and sign up to referral-based agreements with panel managers that promise “service-level managed” legal services.
However, to deliver these services at a price that enables the agent to receive a referral fee means the lawyer must charge lower fees. The only way to achieve this is by either exploiting technology, increasing workloads, or reducing costs by employing cheaper staff (including off-shore companies) or a combination of these.
Given the abhorrent state of technology in the legal industry, the usual outcome is higher caseloads being run by inexperienced case handlers, resulting in the frustration of poor communication and slower transactions.
And every agent knows that delays kill deals.
The average time for transactions from acceptance to exchange is now 16 weeks up from 12 weeks only a few years ago, and this figure is likely to get worse. Those “28 days to exchange” found on agents’ sales memoranda are taking on a distinctly “Game of Thrones” look.
For agents competing with “online-only” agents who are charging clients in advance, the “Complete more deals” approach will be key in demonstrating their competitive advantage.
It also helps that it’s supported by the maths.
For example, with a fall-through rate of 35%, agents will get 7 cases through for every 10 instructions, so reducing the rate to 20%, will mean an additional case will go through. Assuming sales commission of £3000, with referral fees of £300 per case, the additional revenue from this single case is equivalent to working 10 more cases.
Achieving higher completion rates is usually achieved by moving deals through more quickly and employing lawyers who are appropriately trained.
Employing sufficient people to respond quickly and using technology to manage the more arcane aspects of the transaction such as the enquiry process, will usually result in reduced transaction times and higher success levels.
Of course, this can only be achieved by charging legal fees that sustain employment levels and investment, which are typically incompatible with the panel managed “spray and pray” model.
It seems the choice is obvious.