Letting agencies looking to get ahead of the competition should offer full-service packages for landlords instead of a let-only option, according to PayProp.
The lettings payment automation provider says challenging market conditions, including fierce competition and increased regulation such as the tenant fees ban, have made it more difficult for letting agencies to make healthy profits.
According to a recent study, agencies who provide a let-only service could be earning 80% less than full-service agencies, missing out on income from referring and cross-selling additional products.
The study also found that a full property management service could boost an agency's average income per tenancy by up to 63%, and its capital business valuation by 600%.
Why let-only could devalue your business
Not only does a let-only service affect the revenue agencies can generate, it could also significantly reduce the value of a business if it is ever sold.
Adam Walker, a business transfer agent who has been selling lettings businesses for over 25 years, says if any part of a portfolio is tenant find only, it will sell for a much lower price than the managed or rent collection side of a lettings book.
Walker says: "Following the tenant fees ban, many agents have decided that let-only landlords are unprofitable so they will not buy let-only portfolios." adding that prospective business buyers tend to view let-only landlords as less loyal and future income from them as not guaranteed.
Moreover, outside London, most agents do not get renewal fees from landlords, so if the tenant stays for another year, the let-only agent will not receive a further fee.
Walker explains that let-only can also cause agents problems with landlords and tenants: "Let-only landlords often want to be given all the services that they are not paying for and can harm your reputation with negative online reviews if you don't give them what they want. They are also often ignorant of the law and, as a consequence, agencies could get blamed or even fined for [landlords’] mistakes.
Some tenants will not understand that the letting agency does not deal with repairs, and this could cause problems if the landlord refuses to carry out a repair."
How to maximise a full-service offering
Some businesses may only offer let-only due to the additional resources and time needed to provide a full range of services. However, those agencies offering a full-service can improve results and profitability by reviewing their current processes.
Neil Cobbold, Chief Operating Officer of PayProp UK, explains: "Utilising the best PropTech products to become more efficient and streamlined is an important next step for agencies to take.
The extra time this creates can be used to focus on the needs of clients and put into providing a personal service."
Cobbold says training staff is also hugely valuable when it comes to providing a comprehensive property management service.
He adds: "If your staff are fully trained as lettings experts, they can provide crucial guidance and ensure that all clients are up to date with the latest industry legislation. This can inspire confidence in landlords and position your agency as a trusted business partner for years to come."
Agencies can also benefit by being clearer about the range of services they offer.
Cobbold concludes: "By explaining to landlords all the services they’re offering in their full-service package, an agency can demonstrate the increasingly complex nature of letting a property legally and remind them of the excellent value for money they will be receiving for their management fee."