Why is a real estate agency valued in parts?
Most agencies run two different businesses under one brand. Property management earns fees every month from agreements that continue until a landlord leaves. Sales earns fees when a property sells, which depends on listings, the market and, very often, on a few individual agents. Some agencies add commercial leasing, strata management or project marketing.
Applying one multiple to the whole agency's turnover blends a durable income stream with a volatile one and gets both wrong. A valuer values each part on its own basis, adds them, and then checks the total against the agency's combined earnings so nothing is counted twice, such as the principal's time or shared office costs.
How is the sales business valued?
Usually by capitalising maintainable earnings: the profit the sales business can be expected to keep producing for a new owner, after paying every agent and the principal a market rate for their work. The capitalisation rate reflects how risky those earnings are, so the questions that matter are about durability.
How many agents produce most of the sales fees, and are they staying? What do their employment or contractor agreements say about restraints and the database? How much of the listing pipeline comes from the rent roll's landlords, the brand, or an agent's personal network? Listings not yet sold are a sign of activity, not guaranteed income. If the top two agents could walk across the road with their vendors, much of the sales income would not reach a buyer.
Which earnings adjustments matter most for an agency?
Normalising restates the accounts to what a buyer would actually earn. Common adjustments are:
- ·A market cost for the principal's own sales, management and licensee work, whatever they actually drew
- ·Rent restated to market where the office is leased from the principal or a related entity
- ·Unusually large or one-off sales, such as a single project, removed or spread
- ·Agents' share of sales fees checked against their agreements, including any bonuses owed
- ·Franchise or brand fees kept in, because a buyer keeps paying them
- ·Private and one-off expenses added back with evidence
What does normalising look like in practice?
Illustration only, not a market multiple. The figures are hypothetical and rounded. They show why reported profit is rarely the figure a valuer capitalises.
| Item | Hypothetical agency | Note |
|---|---|---|
| Reported earnings before interest and tax | $400,000 | From the financial statements |
| Less market cost of the principal's work | ($180,000) | The principal drew no salary |
| Add back above-market rent paid to a related trust | $30,000 | Rent restated to a market rate |
| Less one unusually large project sale | ($90,000) | Not expected to recur |
| Add back one-off legal costs | $20,000 | A dispute that has ended |
| Normalised earnings | $180,000 | Then split between rent roll and sales business |
What changes between an asset sale and a share sale?
In an asset sale the buyer pays for the rent roll, the sales business and whatever else the contract lists, and the seller keeps its own liabilities. In a share sale the buyer takes the company, liabilities and all, so the value of the operating business is bridged to equity: surplus operating cash is added, and bank debt, amounts still owed for earlier rent roll purchases, tax and employee entitlements owed by the company are deducted.
Trust money is never part of either. In Victoria an estate agent must hold client money such as sales deposits and rent in a trust account, and in NSW those funds cannot be used for any purpose other than for that client.
Two other questions belong to your advisers. When a business transfers, Fair Work guidance says the new employer must recognise an employee's prior service for most entitlements. And a sale is GST-free as a going concern when the conditions in the GST law are met, including that the seller supplies everything necessary for the enterprise to continue.
What do we need from you?
A list for a whole-agency valuation. For a rent roll on its own, see the rent roll guides.
- ·Three years of financial statements and the current year to date
- ·Sales fees by agent for the last two to three years
- ·Agent and staff agreements, including restraints and any equity or bonus promises
- ·A rent roll schedule and twelve to twenty-four months of management fee income
- ·The office lease and any franchise or brand agreement
- ·Recent trust account audit reports
- ·Loan balances and any amounts still owed for earlier rent roll purchases
What does a real estate agency valuation cost?
Every valuation is a fixed fee, agreed in writing before work starts, and it does not change with the value concluded. The band is set by the annual revenue, excluding GST, of what is being valued: for a whole agency, or shares or units in it, the agency's total annual turnover; for a rent roll on its own, the roll's annual management income. Exactly $3 million is Medium; exactly $10 million is Large.
Add-ons are $495 per retrospective (past) valuation date and $795 per additional entity. Delivery time starts once payment and all required information have been received.
| Package | Annual revenue of what is valued | Fee | Delivery |
|---|---|---|---|
| Small Business Valuation | under $2 million | $1,495 + GST | 2 business days |
| Medium Business Valuation | $2 million to $3 million | $2,495 + GST | 3 business days |
| Large Business Valuation | $3 million to $10 million | $3,495 + GST | 3 business days |
| Over $10 million | above $10 million | quoted in writing before work starts | delivery date agreed before commencement |
| Expert report (dispute or court) | any size | $4,495 + GST | delivery date agreed before commencement |