Slaying of the super-agents

Autumn Property Survey

MANY dreams were ambushed by the recession, among them the idea that large financial institutions can run huge chains of estate agents at a profit.

This was one of the defining marketing theories of the 1980s. Take a big insurer or building society and pour millions into buying out hundreds of small local estate agents. Put the lot under a single corporate umbrella and cross-sell your mortgages and endowment policies.

Wonderful theory. In practice it has turned into a huge loss-maker. For instance, Prudential Property Services, which peaked at 805 offices in 1988, was dumped by the Pru in 1991 after incurring losses of pounds 400m.

Two years ago Abbey National sold its Cornerstone estate agents chain of 357 offices for just pounds 8m, after losing at least pounds 243m on the business since it was launched in 1987.

Other institutions have joined this retreat, often selling back the offices at a huge loss to the local business people who had founded them.

Other big names have shrunk, rather than disappeared. Halifax Property Services had slimmed down from 709 offices in December 1989 to 526 at the end of last year. General Accident Property Services had reduced its branches from 623 in 1989 to 358 last autumn.

There are two main reasons for this failure. The first is the worst residential property crash since the Second World War, with no real recovery in sight (but small agents continue to prosper). Then there are the top-of-the- market prices paid by the big boys in the 1980s. When a local agent received his windfall, there was little incentive for him to stick around and work under the new bureaucracy. Quite the opposite - he would take the money and run.

Some of the cannier chains allowed small offices to keep their original names, but elsewhere the absence of local knowledge has been badly missed. This is critical. Being an effective estate agent involves knowing where local schools and supermarkets are - the general lie of the land. Without this special knowledge, the agent offers little of value.

Another flaw in the grand design was the idea that people would first select their houses, and then arrange their mortgages and buy their endowment policies through the same estate agents. The theory went that people would be happy to do everything under one roof. If it worked for Sainsbury, surely it would work for estate agents.

Perhaps people would even start buying other personal financial products, like unit trusts, some hoped. It has not happened. Cross-selling has stubbornly refused to take off, clients preferring to make their mortgage arrangements separately.

One company has spectacularly bucked the trend towards retrenchment: Hambro Countrywide. Owned by Hambros, the merchant bank, it recently bought the 11-branch Spencers chain in Leicestershire from the National & Provincial Building Society. This brought Hambro's strength up to 757 offices, by far the biggest in the UK and an advance of more than 200 on its total in December 1989.

The City is convinced Hambro can make a lot of money if the housing market recovers, but this is a huge if. Last year the estate agent operation made losses of pounds 6.4m, and broker Smith New Court expects it to lose another pounds 17.4m this year. Other big operators are hanging in there, but the longer a housing recovery takes to arrive, the bigger the pressure to get out.

There is one piece of advice the big boys might take: open on Sundays. Not to do so seems silly when this is one of the few days most people can view properties.