KEY POINTS:
It is always regrettable when a company offering a relatively new service goes into liquidation, doubly so when the enterprise seems to have struck a chord with consumers. Such is the case with The Joneses, a self-proclaimed but now short-lived attempt to buy and sell real estate for a flat agency fee.
The company stumbled on a combination of ill-starred timing and ill-considered judgment by its founders. At the very least, however, it has prompted a more searching analysis of the whys and wherefores of conventional commission selling.
The Joneses' model involved offering house sellers a service at a fixed price. A set fee, starting at $7995, was charged regardless of the asking price for the property. In another point of difference, the company's staff were paid a salary. Announcing its arrival in late 2006, The Joneses claimed sellers would pay less than half the average fee charged by other agents, all of whom operated on a percentage commission.
The Real Estate Institute has been keen to pour scorn on this formula in the wake of The Joneses' collapse, saying it is unworkable. That view does not stand much scrutiny. In Britain, Foxtons, which has taken on the industry in a similar cost-discounting manner, has been extremely successful. Indeed, aided by some slick marketing, The Joneses achieved a small but significant foothold in the market. The fact that the company was turning sellers away from its doors confirms a growing acceptance. That also, however, points to the fact that the company was ill-equipped to meet demand.
The Joneses' failure is probably, first, a product of inadequate capitalisation. A second, related cause is a slowing property market, which made it difficult to sell houses at the pace required for such an operation. The Joneses lost $6 million in its first 14 months, during which it employed a staff of 80 in Auckland, Wellington, Christchurch and Dunedin and sold just 433 houses.
It sought a way around the funding strain with a stock exchange listing. That, however, foundered on a sharemarket downturn, and a view that the company's founders were seeking to extract too high an acquisition price. The failure of the capital raising was the final straw; it had been required not so much to allow The Joneses to grow, as directors claimed, butto survive.
The attempted stock exchange listing may, however, have been unnecessary if the company had not run into an increasingly weak property market. To compensate for charging lower fees, a rapid turnover of housing is essential. That may be readily achievable in a booming market or even a solid one, but difficult in times when potential sellers sit tight and buyers go about their business in a far more leisurely fashion. Houses that do reach the market take far longer to sell.
The Joneses' sales record indicates the extent of its struggle. Fatally, it did not have the funding to take every opportunity to increase throughput during such a downturn. Nor, indeed, the wherewithal to survive such a period.
Questions have also been asked about the quality of The Joneses' service. Doubtless, there is some truth in the view that the best real-estate salespeople will opt to sell by commission rather than by salary. But that is hardly enough to suggest The Joneses' model is impractical. Indeed, it simply provides a degree of balance to the widespread view that much in the conventional industry is not as it should be.
It was never going to be easy to turn around traditional beliefs about how a house should be sold. To achieve that, time was needed. That was something The Joneses never gave itself.
