'The Jones' Real Estate company in liquidation

[Realtorman]

http://www.stuff.co.nz/4405981a10.html

Interesting piece of information here.
This company will not be the last to fold in these market conditions.
I know alot of you think normal commissions are too high but they are at that level for a reason. That reason is survival.

[Halfway To Paradise]

http://www.stuff.co.nz/4405981a10.html

Interesting piece of information here.
This company will not be the last to fold in these market conditions.
I know alot of you think normal commissions are too high but they are at that level for a reason. That reason is survival.

In the UK Real Estate agents get by on a 1-1.5% commission and they survive in tough times. Should point out though that you pay extra for the advertising.

Rob

[Realtorman]

Yes I believe that is the case but unfortunatly many Vendors here are loathe to cover any marketing costs etc so that has to be built into commission rates. I have discussed the UK way of selling with some who have worked there and levels of service are significantly less that here as well.

Perhaps that was the Joness problem. Rolls Royce service on a Mini budget.

[SuperDad]

Perhaps that was the Joness problem. Rolls Royce service on a Mini budget.

From what I hear it was far from a Rolls Royce service.

Paul.

[xris]

Should point out though that you pay extra for the advertising.

Rob

And that's what should happen here, and often does.

To survive as a low commission outfit you really have to be spot on and hard nosed.

You have to go for the market that is driven only by the sight of low commission, not service or any of the many other factors that make up selling a property.

I know of a couple of 1% outfits that have a very large market share - they have to in order to survive. They can churn out three times the sales at only a third the commission.

I gather from the Jones that they were neither one nor the other - they tried for low commission and good service, but they were neither the lowest nor the best.


1% commission
You pay a minimum of $300 marketing up front.
When that runs out so does our marketing, unless you pay more.
You sign a 150 day sole agency.
we run four open homes for you, after that you run them if there is no more marketing money.

This is lousey service but there are many who will only see the 1% commission. Look at all the people around who insist on selling privately and who make a hash of it and undersell. They do not care because they are blinkered and do not see that the commission they saved has just been given away the the vendor.

xris

[sheree99]

In England

thre are a few differences such as the far larger population. RE companies have the opportunity to sell far more properties therefore they can still make a nice profit on a lower %.
Also as has been mentioned earlier they don't do as much for their commssion. Over there the owner may end up doing their own open homes on the weekend because the Sp doesn't work weekends and may even show the property if the Sp is not available or the time is inconvenient. Here the Sp are expected by the vendor to be available 24/7.

[Beagle]

Real Estate Agents

The option is the vendors - do it yourself 0% commission but costs you time and requires expertise. Which is something most people have very little of it, therefore they have pay someone to do it for them.

You are really employing a trained salesperson on a contract basis. Work out the hours that they work, their income and then see if they are making much more than you on an hourly basis.

And, lastly, if you cannot negotiate a discount on their rate then they are a better salesperson than you are - hire them and manage then process.

[Halfway To Paradise]

The option is the vendors - do it yourself 0% commission but costs you time and requires expertise. Which is something most people have very little of it, therefore they have pay someone to do it for them.

You are really employing a trained salesperson on a contract basis. Work out the hours that they work, their income and then see if they are making much more than you on an hourly basis.

And, lastly, if you cannot negotiate a discount on their rate then they are a better salesperson than you are - hire them and manage then process.

No point negotiating a discount, if you get a deal of 2 or 3% they are not going to rush to sell it when they can sell one they are getting 4% on.

[Realtorman]

No point negotiating a discount, if you get a deal of 2 or 3% they are not going to rush to sell it when they can sell one they are getting 4% on.

That was the problem for the Jones,s.
Why would any agent that was any good work for half price.
If they thought they were going to do it on volume why would anyone work twice as hard for the same pay.

Would you do this?

[Davo36]

I was actually quite sad to hear about the Jones' today.

As an ex agent, I've blogged here about them. In one of my last posts I gave 2 options, 1: They would run out of money as the market turned and 2: They would pick up even more vendors as the market turned and do really well. I predicted option 2. So I was quite wrong.

I've owned and run small real estate businesses. There are so many costs. Rent, telephone costs, office staff, ADVERTISING, REINZ costs, rates, insurance (on the building), prof indemnity insurance, electricity, IT costs, office fitout, signage, production of marketing material like flyers (you need digital cameras, printers, staff working on this). And then of course the cost of having sales staff, training them, and giving them a split of the commission. I'm sure I've left many things off the list.

Take $8995 (was $7995 incl gst) incl gst : After gst it's $8000. After tax at 30% it's $5600. You have to split that with the agent. Lets say they only pay their staff 40%. This leaves around $3300 for each house sale for the office.

Out of that they have to pay all of the above costs and try to show a profit. Pretty tough.

Since I've been involved in the property scene this is the second large scale discount type real esate agency to go under. The first was REAL. I doubt many people remember them. The acronym stood for Real Estate Agents and Lawyers. It was a bunch of lawyers who reckoned real estate was easy, and why should those lowly agents make all the money when we are the professionals. They lasted about a year or so from memory.

The thing is, not only are these businesses not really viable, they were both set up at the wrong time, i.e. towards the end of the boom when things were going really strong but not long enough before things slowed right down. If The Jones' started up in say 2001, they would have built up a big enough base and be a substantial force by now. Then they may have stood a chance.

David

[whitt]

Take $8995 (was $7995 incl gst) incl gst : After gst it's $8000. After tax at 30% it's $5600. You have to split that with the agent. Lets say they only pay their staff 40%. This leaves around $3300 for each house sale for the office.

Out of that they have to pay all of the above costs and try to show a profit. Pretty tough.

That made me think a few weeks ago.

Sales volumes are down to 1/3 of what they used to be not so long ago.
With the same amount of staff this means a real estate office now has income at 33% of that previously.

Unfortunately this will make an agency or any business bleed.

[Davo36]

Yeah all the same costs, less money coming in.

The Jones' didn't even begin to survive the downturn. Obviously had no cash reserves at all - or didn't want to lose it all.

David

[roseneath_rat]

Davo I believe The Joneses structure was one where agents were not remunerated by commissions but by way of salaries. This is an increase of risk transfer back to the The Joneses as they still have that large fixed overhead cost even if they're not selling properties.

Part of me thinks its a shame because I still believe RE commissions are too high. I can only speculate that this is partly due to an oversupply of RE agents relative to the number of listings.

Another part of me thinks it was a flawed business structure with poor timing.

Low/No commission RE companies don't have a great history in NZ. The franchised based 'no commission property' group folded a year ago, however there are still successful operators out there. David Graves founded Borders Real Estate (check them out) and seem to be still going well.

[CJ]

Obviously had no cash reserves at all - or didn't want to lose it all.

I understood that they had new cash lined up but this was pulled when the markets turned and they couldn't arrange anymore.

They were going to do a reverse listing on the sharemarket but this wasn't to get new money, the new money was to be injected before theh listing.

If they were a couple of years earlier, they would have got the cash, and business would have grownn to where they might have survived the slow down. Maybe next time they wont wait till the end of the cycle.

[charley6]

Look, negotiating the commission is easy.Just make your final offer as a buyer or seller just short of what you would expect to pay or receive and dig your toes in.Obviously no good at auction.Watch the commission come down.Ignore the agents tears.Try to avoid being reffered by an agent to another, as the commission is already split.