Estate Agents Face £1 Billion Commission Losses
Estate agents face losing £1 billion in lost commission if the current flow of sales agreed are delayed or fall through completely.
According to data collated by twentyci, there were 163,000 in the system which have agreed a sale and ordered searches with 155,000 properties at the sales agreed stage in the 45 days to March 31.
Furthermore, the number of property exchanges and withdrawals were almost identical in March.
Whilst there were 110,000 exchanges in the 45 days to March 31, the UK property sector was also faced with 92,000 withdrawals.
Unfortunately, based on the figures from March, the likelihood of a sale falling through in the current climate is higher than 40 per cent.
If these properties fail to exchange, or are delayed for an indeterminate period of time, it is forecast that over £1 billion worth of estate agent commission tied up in the properties at the above stages of the home buying and selling process could be lost.
The data intimated that new instructions had fallen to just 33 per cent of the weekly norms in the final week of March whilst sales agreed had almost halved (56 per cent of the weekly norms).
Twentyci believe that government advice offered to stakeholders in the home buying and selling process last week will lead to more delays and fall through rates. Although this is necessary to stem the spread of Covid-19, it could also have a huge impact on estate agents and other key stakeholders.
The findings from twentyci, stated:
“If we assume that Estate Agent’s commission is an average of 1% of the property transaction price, there is currently around £552m in Estate Agent commission tied up in these properties at this stage of the process.
“In addition to those 163,000 properties above, there are a further 155,000 properties with Sales Agreed that have not yet had Searches Ordered. Using the same 1% commission rate this equates to a further £451m of Estate Agency commission.
“Following the government advice of the 26th March 2020, which effectively shuts down much of the housing market, it is difficult at this stage to understand when this blocked commission will end up being paid.
“It is almost certain that the advice to delay the moving date will increase the number of fallen throughs further and more chain breaks will occur. It could well be that a significant part of this money may never materialise as paid commission. For the online Estate Agents, for whom a payment in advance model applies, this is clearly less of an issue, although from our most recent Property and Homemover Report this represents less than 8% of the property market.
“How this issue is resolved will be one of the key determinants of agent profit in 2020.