How Estate Agents Are Set to Suffer Due to the Credit Crunch

Experts in the estate industry predict that as many as 15,000 estate agents will lose their jobs in the UK this year due to the downturn in the economy. Predictions for the future say that deeper cuts are coming to the tune of 40,000 job cuts in the next five years.

The Centre for Economists and Business Research (CEBR) forecasts that the next few years will be tough ones on those who work in this industry. They also offer comfort in saying that although sales of homes are the first ones to decrease when the economy is going through a credit crunch, as it is right now, this industry is the first to rebound after the economic situation starts to improve.

Estate agents are regarded as highly paid with the exorbitant fees they often charge for their services in selling homes. Therefore, they are not likely to garner much sympathy from the general populace, many of whom are also facing job losses as well. Even though there have been difficult times in the estate industry in the past, the present economic situation is expected to be worse because of the predicted paralysis of the transactions in which these agents make their living.

With so many companies having to cut jobs, workers are uncertain of their own economic future, this translates into fewer buyers even though there may be more homes on the market than ever before. Banks and financial institutions are concerned about where the economy is heading in terms of the estate industry and are keeping a close eye on the market trends. Therefore they are approving fewer mortgages than they did in the past.

Along with the uncertainty in the job market in all industries, there are the increased costs of fuel and energy. This compounds the problems for estate agents who are trying to make a sale.

Homeowners are more concerned than ever before about how much it costs to heat a home and the increased costs of electricity and this plays a part in their decision in to whether or not they will buy the property.

Activity in the estate industry has fallen to a record low in 2008 and according to the CEBR, the industry will not start to see increases matching the level of sale reported in 2007 until at least 2012. As other companies announce job cuts, more and more homes will come on the market as current homeowners try to sell their properties to improve their financial situation.

The problem is that there are not many buyers for these homes and the market is actually flooded.

According to an article in the Times, John Socha, Vice-Chairman of the National landlords Association, the crisis in the estate industry is expected to be much worse in the West Midlands area than it is in other parts of the United Kingdom because of the naturally lower costs in these areas.

Simon Bond, managing director of O’Riordan Bond, however said that “It is now a genuine market. House prices will remain steady, but the number of transactions will fall slightly. This is because banks are less likely to lend money to people who cannot afford it, and because there are less people who are buying houses to make a quick profit, rather than buying them as a home.”

He added, “This is a good thing, and a steadier market gives more opportunities for good old-fashioned estate agencies going out and actively selling houses. The days of some estate agents just putting a for sale board outside a house and it selling itself are gone.”

Due to the difficulty in selling their homes, many homeowners are lowering their prices. This means they will realize less profit and the fee the estate agents get for the sale will also be substantially less. In many cases, after a home has been on the market for quite some time and after dropping the price several times, the homeowner will simply decide not to sell at this time.

Many mortgage holders cannot reduce the asking price by a lot because they do need to make enough money off the sale to repay the mortgage and cover the lawyer’s and the estate agent’s fees, as well as have some left over for their own needs.

Estate companies are suffering from falling shares and severe cash flow problems, leaving them no choice but to reduce the size of the staff in their offices to help keep them from having to declare bankruptcy.

The main reason is not the lack of properties to sell, but the rising interest rates that banks are charging for mortgages and a lower number of qualified buyers. For some homeowners who feel that they were overcharged by the agent, this may be welcome news, but it is not to those who make their living in the estate industry.