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Why Are Eas Closing?

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Following my discovery that one of the EAs in my town had closed (and I am hearing reports of others), I must admit I was left a little puzzled.

I mean, obviously I understand that the present market conditions are fairly bad for EAs: too many houses on the market, barely any sales, too many EAs (there must be an average of five EAs per person in Tunbridge Wells).

But, I have to say that I honestly thought they would have held out longer than this, given that the market only really started to waver about six months ago, and considering the ENORMOUS profits they must have been raking in over the last six years or so.

Wouldn't you have thought that this would have left them with a huge, comfortable buffer of cash behind them to see them through the lean years?

The fact that they don't seem to have squirrelled away all their ill gotten gains can only lead me to conclude that they are quite possibly ECONOMIC MORONS.

But surely I must have gotten that all wrong.

p.s. Dr Bubb, sorry to be EA-bashing again. It doesn't really give me that much pleasure. Honest...

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Following my discovery that one of the EAs in my town had closed (and I am hearing reports of others), I must admit I was left a little puzzled.

I mean, obviously I understand that the present market conditions are fairly bad for EAs: too many houses on the market, barely any sales, too many EAs (there must be an average of five EAs per person in Tunbridge Wells).

But, I have to say that I honestly thought they would have held out longer than this, given that the market only really started to waver about six months ago, and considering the ENORMOUS profits they must have been raking in over the last six years or so.

Wouldn't you have thought that this would have left them with a huge, comfortable buffer of cash behind them to see them through the lean years?

If the volumes are only half what they were a year ago logically you only need half the number of people, and you can afford to lose some branches too. If you growth fast and and then stumble it can impact pretty quickly, EA's themselves have borrowed to expand.

In business they have to look forward and see how they can reduce costs into the next quarter and the one beyond that, they cannot just resting on their laurels and use up the fat from the good times, that isn't a sustainable option.

The fact these branches are closing an admission they don't expect the good times to return quickly, if it were really a "blip" as they describe then they would ride it out, the companies themselves don't even believe this, actions speak louder than words.

I wouldn't say this is EA bashing btw, just a function of the market.

Edited by BuyingBear

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Mr Bear, thank you for imparting your financial wisdom - being no economist, I knew I didn't have a clear grasp on the whole 'big old stash of cash cushion' theory.

I do declare you've hit the nail on the head when you say that the actions of these EAs speak louder than their bullish words. I have to confess to being rather emotional about the whole thing...

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Mr Bear, thank you for imparting your financial wisdom - being no economist, I knew I didn't have a clear grasp on the whole 'big old stash of cash cushion' theory.

That cash would have been paid a long time ago in the form of dividends and nice large bonuses, so aside from operational reserves there may be no cash pile, or certainly not one large enough to run the business for any length of time. Those directors who recieved the dividends may have even followed their own hubris and invested it in property, this is what makes the uptrend in most bubbles self-sustaining.

Remember the story of that EA up north that got into trouble recently (£5m in the red) and was bought up by its former founder, he cashed out a long time ago and came back to grab the assets for a knocked down price and left all the liabilities with the defunked company. There is no charity in business, even if he had the cash and the moral obligation to pay those bills. :angry:

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But, I have to say that I honestly thought they would have held out longer than this, given that the market only really started to waver about six months ago,

I am honestly surprised that they have held out as long as they have!

As buyingbear states, if they feel that the market is likely to turn in their favour in the near term they are likely to hold out, otherwise better to cut any losses early.

If you win a fortune at the bookies backing a particular horse do you continue backing it in the knowledge that it is now lame? or do you try your hand at another until it gets better?

Remember EA's are generaly salesmen rather 'property proffessionals' (whatever that may be). Many will be as confortable making the switch to selling cars, windows or electricals rather than clinging onto trying to sell the modern day equivilent of Betamax recorders.

I'm anticipating 50% consolidation in the number of EA outlets in my town within the next 18mths.

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Don't forget that Countrywide reported a massive fall in profits (down something like 89% in 2004/05 - and a loss for the 1st six months of this year) about a month ago. With that kind of fall, shareholders are gonna want to see some attempt to stem the tide.

I imagine what has happened to Countrywide is mirrored in many other EAs.

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Agree with the other posters. But, interestingly, this boom was different from the one in the late1980s in that the transaction levels were lower but the number of EAs still mushroomed like there was no tomorrow, so I guess that competition for instructions was partly fuelling the rise together with cheap money, but I think there were too many EAs even before the peak. So as you and the other posters have said, when transitions dried up this year (30% down?) you might expect a corresponding fraction to bail out, especially if their head office thinks it’s not a blip.

Edited by spline

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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