It’s a tough time to be an estate agent. 

Not only is the economy slow, with banks refusing to dish out home loans like they once used to, but a fraud case against prominent agent Wendy Machanik created a public relations nightmare for an industry that is already viewed with cynicism by the general public.

First National Bank property analyst John Loos says the estate agency industry is under pressure, due to the stage of the economic cycle.

“Far lower property transaction volumes has meant that many thousands of agents have exited the industry,” he says.

“We expect to see estate agents being surveyed continuing to tell us that a very significant percentage of sellers – near to 25% – will be selling their properties in order to downscale, due to financial pressure.

“But this is a very normal occurrence in a cyclical industry, such as property, whose booms and slumps are very long. So while it is always sad to see people’s businesses fold, cycles will come and go and this will probably repeat itself.”

While there are alternatives to selling through agents, such as auctions or private sales, Loos doesn’t think these alternatives are gaining significantly in terms of market share.
Agents appear to remain overwhelmingly the sellers’ choice, and thus still appear to have a solid future, he says.

While lending has gradually relaxed since 2008, banks are still far more conservative than they were in pre-recession boom times.

“We are lending to solid clients and, on our new business since 2008, we have very little bad debt. However, banks do indeed show pro-cyclical behaviour in their home lending, so I wouldn’t go as far to say that the recent boom-time lending splurge won’t be repeated.

“However, what I do believe is that it will take many years before this happens again, as the extent of the bad-debt pain felt by home-loans banks was severe enough to be etched in memories for many years to come.”

Agents are, however, refusing to let their spirits be dampened.

Pam Golding chief executive, Andrew Golding, says “on the current trajectory” his firm hopes to have concluded R12 billion in deals for the group’s financial year ending in February 2012.
He explains that there is “a growing acceptance” among sellers for the need to price properties realistically, in line with current market conditions.
On the other hand, he says: “Buyers are continuing to place their confidence in solid, tangible real estate as a sound investment.”

There is also a “pent-up demand” among potential and aspiring home-buyers, exacerbated by the continued restricted access to finance and credit.
But it’s more than the slow pace of the economy that the industry has to worry about.

The fraud case against Machanik has brought the estate agency business to the public’s attention. Sellers and buyers speak more sceptically than ever about how their money is treated by estate agents.

Machanik, and her company’s chief financial officer Bruce Bernstein, have been out on bail after being charged with failing to keep accounting records and failing to reflect over 100 transfers between the corporation’s trust and business accounts.

The two allegedly made irregular transfers, totalling R28 million, from Wendy Machanik Property Holdings to a fictitious account. Machanik allegedly used this money to keep her company afloat, and for personal expenses.

Agents and property experts steer well away from discussions about the Machanik scandal.

But people involved in the industry, who wanted to remain anonymous, say she wouldn’t be the first to have dipped into an agency trust account.
Some are calling for the estate agency business to take a hard look at itself and do something to recapture its integrity.

Editor of The Property Magazine, Nicky Manson, says the Machanik scandal was a shock for the industry.

“When Wendy Machanik’s house was auctioned, it attracted a big crowd and that was a good wake-up call for agents,” she says.
Many realised that they would have to watch their step.

The Estate Agency Affairs Board, which did not return answers to questions, has made it more difficult for agents to qualify. Stringent measures are now in place to make sure that agents have the necessary skills and ethics.

Despite its problems, Manson believes the industry is in good shape.

A lot more franchises of various realtors are opening up around the country, which is a positive sign for the industry, she says.

She says successful agents in the future will be those who can adapt to the internet.

“Young people are internet-savvy, and they are the new market, so agents will have to be prepared for that,” she says.

However, many buyers still want face-to-face interaction, which means that they are unlikely to ever turn to the internet exclusively.

“They want human contact and they want more information than a website can give,” Manson says.

Lew Geffen, the chairman of the Sotheby’s property group, believes there will always be a need for estate agents.

The industry has seen its agents shrink from 80 000 to 30 000 due to the recession. The 30 000 who are left are mostly the professionals, he says.

“Sellers have tried to get rid of estate agents since time immemorial,” says Geffen.

“They have not succeeded because agents are the buffers between two emotions – the buyer and the seller.”

Auction Alliance chief executive Rael Levitt expects a few more companies to go out of business as more trust fraud “rears its head”.

After various scandals, the market will start to query who is standing behind the agents, who are well versed in the “hyperbolic press release” and “well-honed marketing speak”, he says.

“If you look at the type of service that the market is now used to in financial services, sellers and buyers are wary of who they deal with and how their money is handled by service providers,” he says.

The industry, he says, simply has to attract a better calibre of agent.

“I think we are already seeing that in many companies, but these tend to be in the country’s wealthiest suburbs.

“Estate agents became good marketers in the 1990s, and I think in the next 10 years agents will ‘match the froth with the beer’. I foresee a time when estate agents will become more advisory.”

During the current property downturn, the larger estate agencies may well become larger and bigger brand names. They will not be able to hide behind franchising and licensing agreements without taking full responsibility for the public’s money, Levitt says.

“I think, in the short term, you will see a few more companies going out of business, franchises failing and more trust fraud rearing its head.

“In the medium term, the more reputable estate agencies will improve – a case of the strong getting stronger. In the long term, I think some sort of innovative disruption is on the cards, as we have seen in many other industries that haven’t changed their business models in years.”

With a cloud over it and uncertain economic times to come, it may be the right time for the estate agent industry to reinvent itself and perhaps recapture its integrity along the way.