Although I am an optimist at heart, I like to be as prepared as I can possibly be for every conceivable scenario.
With rising interest rates, ballooning inflation, and property prices falling, it is important to make sure your own house is in order.
According to CoreLogic, monthly sales volumes across Australia have been trending lower since November last year. In May there was an estimated 39,790 sales settled across Australia, which was 26.9 per cent lower than in April 2021.
Macquarie Bank’s Business Barometer Survey revealed that in 2021, even though we went through a strong sales period with rising house prices and properties selling quickly, most agents had not seen an improvement in net profits.
That means agents were selling more, but not making more!
The survey found that 57 per cent of agents anticipated a net profit of less than 20 per cent this year, despite 87 per cent of respondents expecting the 2022 year to be profitable.
Why are profits down?
Pressure to lower fees
I believe this may be a result of increased pressure on agents to lower their professional fees, which could be addressed by training staff in effective negotiation skills to combat the request from sellers to reduce fees.
This trend exists in property management as well. Over the past few years, we have seen a distinct drop in management fee percentages.
Rising operating costs
Although there is an offset with increasing rents which has helped to maintain income levels, this does not consider the increase in operating costs which have been rising significantly across the board.
Investment in tech
There is also the added cost of technology solutions offered by IT companies to assist agencies to become more productive and to improve their customer service.
The Macquarie Bank Business Barometer found that in 2021, the industry had some of the highest levels of investment in technology across all sectors at 64 per cent.
Unforeseen disruptions
On top of this, we have had a market full of disruptives, some of which we could never have anticipated or planned for (COVID-19 comes to mind).
As life normalises, we need to be planning for a quieter market.
As I mentioned earlier, now is the time to be getting your house in order.
So, where should you begin?
Check your numbers
Cashflow is always a top priority, so do everything you can to improve what you already have. Check that your sales fees are realistic and that your rents are at market rate. Your management fee income per property should be at least $1000 per property per year (for a suburban rent roll).
Introduce value-added services or upgrades
Start improving your other fee income or adding a small extra fee where possible. Remember that every extra dollar you make will bolster your bottom line.
Spring clean your tech
I am all for using technology to gain efficiencies and economies within your operation but be careful not to take it on just because it sounds or looks good. Every solution needs to improve your operation financially to be a worthwhile investment.
Here are some tips on how to evaluate tech so you can get the most out of it for you and your business.
As we are already well into the second half of 2022, take some time out to see what changes you can make in your business to end off the year on a high.
I hope that I have got you thinking about how you can plan ahead and future proof your business.
Onward and upward to 2023 and beyond!
