EA depth guide #71 | Author: The Business Acquisitions Group
The AMFI multiple in a lettings agency sale is applied to normalised EBITDA — not to the profit as reported in the accounts. Normalisation produces a maintainable earnings figure: what the agency would generate if operated at market-rate costs by a typical owner. Getting the normalisation right — and supporting it with documentation — is one of the most directly valuable things a seller can do before marketing.
What Normalisation Is
The reported EBITDA or profit in the accounts reflects costs incurred by the current owner — including personal expenses, a salary that may be above or below market, and one-off costs that will not recur. Buyers do not pay a multiple on personal expenses or non-recurring costs. Normalisation removes these and produces the figure that genuinely reflects the maintainable earnings of the business.
In a lettings agency context, AMFI is used to value the managed portfolio (determining the headline consideration), while normalised EBITDA is used as the secondary profitability benchmark — relevant to buyers assessing whether the business generates enough profit to service any acquisition financing and to run successfully post-completion.
What Can Legitimately Be Normalised
Owner salary or drawings — the most significant normalisation. Many lettings agency owners pay themselves a salary below the market rate for a branch manager or portfolio manager, taking the remainder as dividends. A buyer will need to pay a market-rate salary to whoever manages the business after completion.
The normalisation replaces the owner’s actual salary with the market-rate cost of a replacement manager. Where the owner is paid below market, this increases the salary cost and reduces the normalised EBITDA. Where the owner is paid above market (less common), the excess is added back.
This is the adjustment buyers will focus on most heavily. Sellers should calculate it transparently using market salary data for a comparable management role.
Personal expenses. Costs that are personal to the owner and that a buyer would not incur:
- Personal vehicle costs (fuel, insurance, depreciation) where the vehicle has limited genuine business use
- Private mobile phone or broadband costs paid by the business
- Personal health insurance premiums
- Subscriptions and memberships of a personal rather than professional nature
- Personal travel or entertainment costs that have been treated as a business expense
Each item must be documented specifically. A generalised “personal expenses — £X” without breakdown will be challenged by buyers’ accountants.
One-off, non-recurring costs. Costs that arose in the period covered by the accounts but will not recur:
- Professional fees for a one-off legal matter
- A recruitment fee for a key hire that will not be repeated
- IT system migration or setup costs
- One-off marketing or rebrand costs
Document the basis for treating each item as non-recurring.
Above-market rent paid to a related party. Where the agency occupies premises owned by the owner or a connected entity and pays above-market rent, the excess is a personal benefit to the owner-landlord. The normalisation adjusts rent to the market rate. A market rent appraisal from a local agent or surveyor is useful supporting documentation.
Below-market management fees to connected landlords. Where the agency manages properties for the owner’s family or friends at below-market management fee rates, the discount is a personal benefit. Buyers may normalise the fee income upward to market rates — which would increase the AMFI figure. This is less common but should be disclosed and discussed with the broker.
What Cannot Be Normalised
Staff costs at market rate. Property manager salaries, administrator costs, and any other genuine operational staff costs cannot be normalised. These are costs a buyer will face.
Office occupancy costs at market rate. Rent, rates, utilities, and other premises costs at market rates are genuine ongoing costs.
Technology and compliance costs. Property management software, client money protection fees, redress scheme subscriptions, and regulatory compliance costs are real operating costs.
Marketing costs. Ongoing marketing — portals, advertising, local brand presence — is an operational cost.
The Manager Replacement Cost: The Most Important EA Normalisation
In most lettings agency sales, the most significant normalisation is the replacement of the owner’s personal management contribution with a market-rate manager cost.
The test: if this agency were owned by a passive investor, what salary would they need to pay a branch manager or portfolio director to run the business? That cost is the normalised management expense — replacing the owner’s personal involvement.
Where the owner has a large personal landlord base (clients who would deal only with them), the replacement cost calculation should be conservative — a high replacement cost may understate the retention risk. Where the business is genuinely team-managed, a market management salary is an appropriate normalisation.
How Buyers Test Normalisation
Buyers’ accountants will:
- Check personal expenses against business bank statements and card statements
- Test whether “one-off” costs are genuinely non-recurring (if a similar cost appeared in multiple years, it is not non-recurring)
- Verify the owner salary normalisation against market salary data
- Challenge above-market rent normalisations without independent market rent evidence
Normalisations unsupported by documentation will be reversed or become a price chip. Prepare documentation for every item before marketing.
Presenting Normalisation in the Information Memorandum
Present the normalised EBITDA as a clear, line-by-line table:
- Reported EBITDA (from accounts)
- Each normalisation adjustment — named, quantified, described in one line
- Normalised EBITDA
A clearly presented normalisation table that holds up to due diligence scrutiny is a more powerful pricing tool than an inflated reported figure that gets challenged. Buyers who can see the reasoning for each adjustment are less likely to reject the normalised EBITDA wholesale and more likely to negotiate at the line-item level.
For a full guide to the estate and letting agency sale process, see how to sell your estate or letting agency. For a guide to how letting agencies are valued, see estate and letting agency valuation.
Contact our team for a confidential discussion about selling your estate or letting agency
The Business Acquisitions Group — specialist brokers for estate agency and letting agency sales across the UK.