David Airey, who has just ended his 12-year stint on the governing board of the Real Estate Institute of Western Australia, said boom-town agencies should get their businesses in shape to survive a downturn that will have to arrive sooner or later.
“Sydney and Melbourne markets are enjoying pretty strong upside, but they’ll inevitably be looking down the other side of the hill,” he told REB.
“The mistake most agencies make is not adjusting their costs and staff and methods to the market."
He added: “They over-employ people during boom times, they put on any number of reps, they put on PAs and somebody to serve the coffee and somebody to arrange the flowers, and they wonder why they’re going broke when the market slows down.”
Mr Airey estimated that the number of sales reps in WA has declined from 10,000 during the boom to between 6,000 and 7,000 today.
The number of licensed agents has fallen from about 3,500 to 2,500, he added.
“Too many people make the mistake of thinking a [boom] market will go on forever and prices will keep jumping 1 per cent per month. We had that in Perth […] it peaked in September 2010 and ever since then we've been on a downturn,” he said.
“If you’re used to making 20 sales in your office and it drops to 15, that’s 25 per cent of your business that’s gone out the door, and in revenue terms that could be $50,000 to $100,000.”
Mr Airey said small independents with lower fixed costs would probably find it easier to cope with a downturn than large, inflexible franchise offices.
That ties in with recent comments from small business consultant Sarah Cobb, who said agencies currently enjoying the good times should create flexible business structures that allow them to decrease spending in the event of a downturn.
“If our profitability dropped by 20 per cent, what would happen to our costs, what would that do to our cash flow and how quickly would we have to react?” she told REB last month.
“If our lead indicator dropped by 30 per cent, how long have we got to scale down the size of our business to be able to survive?”