What is the real value of goodwill in a real estate agency sale?

When you decide to sell your real estate agency, the first question on your mind will be how much it’s worth. 

The answer depends on a number of factors, but with few tangible assets to transfer, a great deal comes down to the reputation and goodwill you have built up over the years. 

What exactly is goodwill when it comes to real estate agencies?

Goodwill is an intangible asset which factors in reputation, customer relationships, brand recognition and customer loyalty. It is a significant component of any real estate agency’s overall value.

Your buyer will pay a premium for goodwill because it provides a foundation for continued revenue generation and a competitive edge in the market. However, they will need evidence, and goodwill can be difficult to quantify.

To answer the question ‘What is the real value of goodwill?’, it depends, but a lack of goodwill does have the potential to strip a significant amount from the final sale price. 

How is goodwill measured for a real estate agency?

Measuring goodwill involves analysing several aspects of the business. Here’s what your real estate agency valuer and buyer will be looking out for:

Measuring goodwill involves analysing several aspects of the business. Here’s what your real estate agency valuer and buyer will be looking out for:

1. Client retention, referrals and loyalty

In real estate, goodwill can be tied to customer loyalty. For example, a long-standing relationship with property developers who regularly list properties with the agency can enhance goodwill. Similarly, a database of repeat buyers and sellers, as well as positive client reviews on platforms such as Google and RateMyAgent is evidence of goodwill.

As you prepare to sell, keep track of where new vendors come from, whether it is seeing an advertisement, finding you online or being referred by a friend. The figures you gather can be used to measure goodwill (the more referrals, the better). 

2. Net Promoter Score

Does your agency request feedback from every client? Sending a formal survey at the end of each transaction can help you gather a Net Promoter Score. This can be presented to a buyer (and can also be used to identify issues within your business so you can fix them before you sell). 

Don’t forget to conduct staff satisfaction surveys so you can prove your team feels positive about coming to work.

3. Brand recognition and market position

Having a well-known brand in the local market with a strong reputation for delivering results can significantly contribute to goodwill. Buyers often value the ability to leverage an established name to maintain or grow market share. Confirm you have good brand recognition by conducting market research and keeping track of how often people search for your agency online. 

4. Team stability and expertise

Goodwill can also encompass your team's skills and experience. Buyers will assess whether your top-performing agents are likely to remain with the business after the sale. A stable team with a proven track record of success and their own reputations as good operators adds value to the agency’s goodwill.

5. Quality of systems and processes

Agencies with streamlined operations, effective marketing strategies and reliable administrative systems tend to command higher goodwill because it makes life easier for clients and staff. You may need to invest in a quality CRM if you want to boost goodwill and enhance the value of your agency.  

Read more: How is goodwill valued in a rent roll sale?

The role of a professional valuer in determining goodwill

Figuring out the value of goodwill for a real estate agency requires expertise and an outsider’s perspective. It’s not generally something a generalist business accountant can quantify because it involves so much more than numbers. 

A business valuer who does not specialise in real estate may also struggle to value goodwill because of the unique nature of the industry. 

If you want to know the real value of goodwill in relation to your real estate agency, work with a specialist who will conduct a holistic assessment based on extensive industry knowledge to determine current market value. 

A professional valuation from an expert makes sense for two reasons. First, it helps you understand the true value of your business. It also provides buyers with the confidence they are making the right decision and paying a fair price.

Read more: Why you need to choose the right valuer in a partnership dispute.