In the last financial crisis in 2008, we saw several estate agents move into the lettings market, with a view to subsidising income; delivering a recurring income stream; and adding value to their business.
Fast forward to 2022, with day-to-day lettings activities at an all-time high and rent reform on the horizon and it is understandable to see the logic behind outsourcing property management and client accounting.
Any estate agent considering entering the lettings market will probably consider an outsourcing strategy, given that the skill set required to deliver property management and client accounting may not exist in the business. But there are risks associated with outsourcing and research into how to deliver the service in-house should be completed before making the final decision.
Property Management software and automation can be deployed to reduce repetitive business processes in an estate agency and help keep them compliant. It can also help manage headcount in the lettings department, which in turn can help agents scale their business. It can appear easier to throw people at the problem rather than invest the time, money and effort in systems and technology, but this can often prove to be false economy.
Many areas can be automated for example, chasing rent arrears; reminders for upcoming gas expiry dates; electrical testing; and CO2 detectors. It can also be used to manage external communications, internal reporting and day-to-day reminders. If agents use automation over outsourcing, relationships can be built throughout their client accounts and property management teams and new opportunities can be identified.
There is risk involved when outsourcing because you are trusting an important service to an external company, which may include the management of bank accounts, client money and tenant deposits. An example of this was seen with the demise of ARPM, a property management company, which evolved into an outsourcing service. But when the company went into liquidation, it created chaos for those agents who had trusted ARPM to deliver the service.
As with any liquidation, assets and bank accounts were frozen, which means that the client accounts were also locked. It was reported that a number of agents had to subsidise their landlords in order to comply with the terms and conditions they had signed.
There are areas where outsourcing can work, such as an inventory company, to ensure that all check-in and check-outs are documented accurately. Also, ‘out of hours’ or overspill call answering is a good use of outsourcing, to minimise the need for your staff to take emergency calls outside of working hours, or at antisocial times.
We recommend that agents keep property management and client accounting inhouse. Our view is that when your services become disjointed, it adversely affects communication and relationships are not built across the business. There are lots of good software solutions available from established companies to help ensure that agents can provide a comprehensive management service and remain compliant.
The combination of a sensible fee structure, good people, and a sound technology stack will allow you to deliver a viable service and maintain profit margins, whereas outsourcing will cut into your profit. You will also mitigate any serious liability issues should the outsourcing company fail, and you remain in control of client monies and deposit protection.