How to maintain your agency’s value in a softer market
As markets cool across the country, conversations are being held around the impact this may or may not have on the value of real estate businesses.
To put this in perspective and to provide a greater insight into the level of interest this is creating, we have conducted more agency and rent roll valuations in the last three months than in the previous twelve months combined.
As a principal or business owner, I’d be asking myself, ‘Do I know what’s happening to my agency’s value? What do I need to do to safeguard its future worth?’
What’s driving this change?
In my 25-plus years in the real estate space, I’ve never seen the valuing of real estate agencies and rent rolls change to such a degree.
Our research shows that most principals aren’t even aware of these changes, the possible impact they will have or, in most cases, how to address them.
The traditional method of valuing a rent roll by adopting a multiple of annual net property management fees still has relevance, but it’s changing rapidly to a new order. The ‘one size fits all’ model is gone. This new valuation approach is based on ROI per management and/or profit for each department inside an agency.
Return on investment and sustained profit are the new norm in agency valuations. These, combined with debt/loan serviceability, are the minimum criteria lenders review as part of their LVR.
Do I know what’s happening to my agency’s value? What do I need to do to safeguard its future worth?
We’ve set out several top tips for you to implement:
1. Know your numbers
Set or reset your Profit & Loss accounts to individual department income and expenses. That’s to say, have separate income and expenses for sales, property management and any other specialised services or departments you provide. This way you’ll know very quickly and accurately both income and costs of every aspect of your business. It will show departmental profit, which is critical for reviewed valuation purposes.
2. Get scale
Depending on which part of the country you’re in, scale will vary. When we say scale, we’re saying the minimum number of properties under management and/or sales turnover for the business to be self-perpetuating. Depending on location, the minimum number of properties under management to reach scale will be between 250 and 500.
3. Maximise efficiencies
Conduct an audit of every service that can be outsourced from property management, sales administration and technology. The more efficiencies introduced, the greater the staff productivity will be while reducing running costs.
4. Market spread/concentration
Identify those managements inside your portfolio that are geographically challenged. Replace them with properties in your core area. Unless your property management staff are working in team structured silos, the risk of having too much spread may readily impact the value of your portfolio.
The utopian position for all real estate businesses is to sell their rent roll or agency for a maximum price and receive goodwill. By implementing the above tips, you will have a much greater chance to maintain and increase value than those agencies who focus on tired practices to build rent roll and agency profits.
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