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KEY NOTE Market Report Estate Agents : August 2004

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This report covers:sole agency agreements, joint sole agency agreements,multiple agency agreements,rising house prices, pressure on fees, caution among buy-to-let clients, seasonality,

Companies covered include: The Home information Pack, the OFT Report, Countrywide Estate Agents, The TEAM Association, Connells Residential, Halifax Estate Agencies, Bradford & Bingley, Your-Move.Co.UK, Spicehaart Group, Reeds Rains, Arun Estate Agencies, Kinleigh Folkard & Hayward,

EXECUTIVE SUMMARY

Executive Summary

This Key Note Market Report examines the estate agents market in the UK. It focuses on residential agencies and excludes property services such as auctioneers, valuers, estate managers, property companies and property consultants.

Key Note estimates that there were more than 1.5 million property transactions in the UK in 2003, which represents a decline of 12.9% on 2002. Total estate agency revenues were worth an estimated £5.46bn, down by 1.4% over the same period. Agency revenues include financial services income and property management income as well as commission from the sale of property. However, around 70.5% of estate agents' revenue still comes from sales of residential property.

The major estate agency chains, most of which are owned by major companies, continue to hold a dominant position in the market. Of the top ten agencies, six are owned by large public companies. Nevertheless, although these large agencies play a major role in the market, it is noticeable that, with one or two exceptions, they continue to reduce their branch numbers. The major estate agency groups include Countrywide Estate Agents, Connells Residential, Halifax Estate Agencies, and Bradford & Bingley Estate Agents. The most important development has been Connells' acquisition of the Sequence group of estate agents from Royal & Sun Alliance in October 2003.

Although the market was very strong throughout 2003 and for the first 4 to 5 months of 2004, the market has become more competitive. There is undoubted pressure on fees and, since late April 2004, the market appears to have slowed. Property is apparently moving more slowly than it did at the beginning of 2004, and property prices are said to be softening. The Bank of England considers that current property prices are unsustainable and has promised gradual interest rate rises throughout 2004. Consequently, there is some concern about the market's immediate future among estate agents.

Meanwhile, the Housing Bill is going through the Parliamentary legislative process. It includes the Home Information Pack (formerly the Sellers' Information Pack), which only has the full support of the Consumers' Association. Estate agents and surveyors have serious reservations about the Pack and are still in discussion with the Government on various points.

The market has been growing rapidly since the mid-1990s, but in summer 2004, there were widespread fears that the market's activity was about to peak before slowing down. Although a market crash is not anticipated, Key Note forecasts that property transactions and estate agency revenues will fall between 2004 and 2008.

TABLE OF CONTENTS

Executive Summary

1. Market Definition

REPORT COVERAGE

MARKET SECTORS

Table 1: Estate Agent Agreements by Number of Agents Involved and Typical Fee (number and %), 2003

Sole Agency Agreements

Joint Sole Agency Agreements

Multiple Agency Agreements

SOURCES OF REVENUE

Table 2: Estimated Breakdown of Total Estate Agency Revenues in the UK (%), 2003

MARKET TRENDS

Rising House Prices

Pressure on Fees

Caution Among Buy-to-Let Clients

Seasonality

Table 3: Seasonality of Estate Agency Business in England and Wales (000 transactions and %), 2002 and 2003

ECONOMIC TRENDS

Population

Table 4: UK Resident Population Estimates by Sex (000), Mid-Years 1999-2003

Gross Domestic Product

Table 5: UK Gross Domestic Product at Current and Annual Prices (£m), 1999-2003

Inflation

Table 6: UK Rate of Inflation (%), 1999-2003

Unemployment

Table 7: Actual Number of Unemployed Persons in the UK (million), 1999-2003

Interest Rates

MARKET POSITION

The UK

Overseas

2. Market Size

THE TOTAL MARKET

By Volume

Property Transactions

Table 8: Property Market Transactions in the UK by Region (000 transactions), 1999-2003

By Value

Estate Agency Revenues

Table 9: Estimated Breakdown of Total Estate Agency Revenue in the UK (£m), 2003

NEW HOUSING

By Value

Table 10: Value of New Housing in Great Britain (£m), 1999-2003

By Volume

Table 11: Number of Permanent Dwellings Completed, 1998-2003

BUY-TO-LET PURCHASING

AUCTIONS

3. Industry Background

RECENT HISTORY

INDUSTRY SYNOPSIS

Table 12: Average Financial Results for Estate Agencies in the UK (£000, % and £), 2003

NUMBER OF ESTATE AGENTS

Table 13: Estimated Number of UK Estate Agents, 1999-2003

CORPORATE ESTATE AGENCIES

FRANCHISE AND AFFILIATED OPERATIONS

Table 14: The UK's Largest Affinity Groups and Franchise Operations by Number of Branches, January 2000-2004

EMPLOYMENT

REGIONAL VARIATIONS IN THE MARKETPLACE

Regional House Prices

Table 15: Average House Prices at Mortgage Completion Stage by Region (£), Third Quarter 2002 and 2003

DISTRIBUTION

HOW ROBUST IS THE MARKET?

LEGISLATION

KEY TRADE ASSOCIATIONS

Incorporated Society of Auctioneers and Valuers

National Association of Estate Agents

Ombudsman for Estate Agents

Royal Institution of Chartered Surveyors

4. Competitor Analysis

THE MARKETPLACE

Table 16: The Top 30 Estate Agencies by Number of Residential Branches, January 2000-2004

MARKET LEADERS

Countrywide Estate Agents

Company Structure