The Unconditional Blog

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15

The Joneses – a review of their impact on real estate in NZ

Posted on: February 18th, 2008 | Filed in Real Estate Industry

the-joneses.jpgThe Joneses ambitions and impact on the NZ real estate market ended today with the removal of their website and the notice to vendors that they had placed the operation in the hands of a liquidator. Just 18 short months ago The Joneses burst onto the real estate scene in flamboyant style very much reflective of the background of the key directors Chris Taylor and Andy Haines whose expertise in consumer goods’ marketing showed through so well in the very much in-your-face advertising strap line of “Flat fee – Not fat fee: Real Estate Reinvented”.

In a rather prophetic foreboding of today’s notice the prospectus for The Joneses reverse listing on the NZAX was titled “Reinventing Real Estate” some might say a rather work-in-progress judgment on their ability to truly reinvent real estate.jones-profile-document.jpg

The Joneses were an agent-of-change negatively impacted by the combinations of a weakening property market and grand plans requiring too great an up-front investment for the original shareholders to fund.

So what was right about The Joneses and what was wrong – here is an opinion piece from an interested observer’s point of view as I have watched their progress over these 18 months.

The proposition for The Joneses was a simple as it was compelling – Chris Taylor explained it to me a year ago. He said – “5 years ago the average commission on the average NZ property sale was around $6,000 – the industry at the time was successful. Why then 5 years later when costs have not markedly increased do commissions now total $12,000”? – it was this premise that drove to The Joneses offering of a flat fee of originally $7,995 – recently increased to $8,995 to sell any home regardless of selling price.

The fixed price was not the only point of difference to traditional high street operators, The Joneses took true customer service to the heart of its business – they chose to employ their staff, rather than adopt the industry tradition of commission based salespeople who are all independent contractors. The Joneses premise was employ capable people. Pay them a good salary. Motivate them through incentives based on customer service and utilise skills efficiently for employees to work together in teams. There is a specialist salesperson to seek listings. A specialist negotiator to aid the transaction process. There are dedicated marketing individuals and a central call center come customer management center providing one point of contact for sellers and buyers alike.

The Joneses model is or was by no means unique. Its closest relative is Foxtons in the UK – this hugely successful real estate company puts the same focus on consumer service and brand marketing, it has been around for over 25 years and currently lists over 40,000 properties for sale or rent per annum. They like The Joneses employ salespeople and motivate them for exemplary service. foxtons-uk-offices.jpgThey have a highly web-centric service environment complemented by smart customer friendly high street meeting places (the word office does not do it justice). Their fees are scale based reflective of property selling price but are equally a lower fee than traditional real estate companies.

Now the interesting deeper parallel between Foxtons and The Joneses is the fact that based on the success in London, Foxtons ventured to New York state in 2004 with a staggering offer to the US public with their new breed of real estate pitched with a 2% commission on sale – remember the US market is traditionally a 6% commission market with a buyers agent and sellers agent each getting 3% to facilitate the sale. Now as a function of the US market and high overheads Foxtons in the US closed its doors in September last year putting 500 employees out of work.

So what did The Joneses get wrong?

I believe their weakness was a function of the current market, not their model. Unfortunately time was not on their side. If they could have had another 12 months of a steady market to build brand value and establish word of mouth then their ambitions could have been realised. They offered a compelling proposition of professional service and powerful brand advertising, the latter would have become deeper ingrained in the consumer’s mind within another year. There have been questions raised as to the quality of their service and people’s acceptance to the use of a call center when people expect to be able to speak directly to the listing agent who is working on behalf of the vendor, but given time these would have been minor issues.

What The Joneses got right was their ability to grab the media attention and this they did to great effect at the time that the government was seeking input into proposed changes to the real estate act. They showed a fresh and appealing face to an industry that is seriously in need of a make-over. They set about offering a clear offer at an affordable price. The fact is the numbers though did not stack up.

Reviewing their prospectus document of just a month ago showed that over the period from Sep 06 to Nov 07 they achieved a total sales of 433 properties grossing them $3.5m – as at today they had 297 listings on realestate.co.nz spread across the 4 major centers of Auckland, Wellington, Christchurch and Dunedin. With a staff of 80 employees though; the pressure on The Joneses to deliver sales was critical as the break-even point was around 125 sales per month, not an insurmountable target which would have represented a 1.5% market share, however hard to attain in a slowing market when you have yet to change entrenched mindsets borne of many decades of established practice by the major franchise groups.

As a closing comment I think it is to the credit of all the directors and staff of The Joneses for having the passion and commitment to “give it a go”– and as someone pointed out to me today when was the last time a high profile company went into liquidation and you find the major shareholders and directors prepared to front the media. I can’t recall Bridgecorp fronting up!

Article Discussion

  1. Andy Hamilton says:

    A well balanced piece Alistair.

    On a slightly different topic, I think someone was asking on another thread (it may have been Kate) whether it would be possible to mine this website to track the number of mortgagee sales (as has been done on the TradeMe site). In fact if you go to the property search page and select All properties, all regions and price limits $0-2.0m and type in ‘mortgagee’ you get those currently available on the website (the figure seems to stand at 100 at the moment). The terms ‘mortgagee sale’ and ‘mortgagee auction’ don’t work as they pull in all ads with ‘sale’ and ‘auction’ in (rather a lot!).
    It will be well worth keeping an eye on this figure, will it not?

  2. The post to which you are referring was from Kate. It is certainly interesting and as with most aspects of the web everything is trackable!

    However a note of caution when you type in the word “mortgage” on the search function of the site – you get 100 listings that feature the word mortgagee in the copy text. This does not mean they are mortgagee sales by deduction.

    This is able demonstrated by the fact that one listing could be an ad using the copy “this house was originally bought in a delapidated state at a mortgagee sale and has over the past 4 years been carefully restored to its former beauty…”

    Equally a listing using the copy “The vendors have got in over their head and the banks has served notice to recall the loan, therefore this property has to be sold…”

    As we do not create the content or equally have a category called mortgagee property then we cannot track the true number – this would be equally true of the Trade me data.

  3. Jon Hunt sold Foxtons just before the credit crunch hit last year to a private equity group for an estimated £390m.

    Now that’s clever

  4. Kate says:

    Excellent point made in your closing comment – it was admirable of them to front up to the media. A fantastic ad campaign, great branding … and I liked the flat fee concept – but perhaps two different flat fee brackets (i.e. house under $500,000 and houses over $500,000) might have assisted their cashflow and still have been a huge price incentive for the higher priced homes. I also think they needed a package with no up front advertising costs, or perhaps they could have charged the advertising on successful sale only? I think they missed out on getting the listings volumes needed early on in the campaign due to the cost of the up front advertising. All in all though, an innovative concept, sorry to see them go.

  5. Ant says:

    Albeit excellent branding and ad campaign but any company that markets itself by “bagging” it’s competitors (flat fee not fat fee)is not going to get much sympathy from the industry. Interesting that this company chose to appeal to Kiwis on the surmise that the rest of the industry was a rip off. Obviously more than 98.5% of the market did not agree. Still, an innovative and gutsy approach but one many are not at all surprised to see fail. I can’t help wondering if such sympathy would be extended to any other company who hadn’t appealed to the customers using this “us against them” approach.

  6. Dane Brown Dane says:

    Not an innovative concept, an ill conceived concept. There were many glaringly obvious faults with the business model it is hard to believe someone thought it was a good idea.

  7. To aide a healthy debate let me state that I doubt (it would be for The Joneses themselves to confirm)the use of the phrase “Flat fee not Fat fee” was an attempt to “bag” the competition.

    A smart brand with an innovative proposition neither has the need nor the necessity to even refer to competitors. The clear message of the advertising campaign was targeted at the audience of prospective sellers encouraging interest in understanding their new and innovative service for the real estate market.

  8. Steve says:

    Alistair you’ve read my views regarding ‘you get what you pay for’ on my blog. I was out negotiating a (full fee) property sale at midnight a few months ago and noted there wasn’t a Joneses agent in sight.

  9. Steve

    For the benefit of the broad audience to this blog – could you help explain what you mean.

    1. How can anyone (that should be could anyone) identify a Joneses agent – as far as I knew they did not wear any uniform

    2. Just because you did not see them – does that necessarily mean that they were not there?

    3. I fully appreciate the demands of real estate – it is a 7 day a week commitment and at times requires work at midnight – but to be honest would you not want to be working “normal” hours where the vendor’s respected your time and did not expect you to attend at midnight? Is it not about working smarter!

  10. Dane Brown Dane says:

    Alistair, respectively, the Joneses did! “bag” the industry – on their website, advertising, media releases etc with various comments, statements and insinuations, therefore were! “bagging” the industry for commercial gain. They were always clutching at straws to try and get momentum and frankly whoever drew up the business plan needs to go back to school!

  11. Steve says:

    Thanks Alistair, you make good points there and I’ll be reviewing my work habits for sure! For the benefit of the wider audience, what I’m really saying is that I believe sellers are better served by competent commission salespeople as opposed to competent salaried salespeople because the former are more motivated (by $$ and/or the potential of future business through referrals, repeat business etc) to go the extra mile if required. To qualify myself for this comment, I’ve sold properties whilst on salary only and on commission only.

  12. […] of which have been focussed on the costs of service. We watched the very public rise and fall of The Joneses but away from the headlines business models charging 1% commission instead of the standard 3-4% […]

  13. Clive says:

    Having been in real estate for over 20 years I have seen other players enter the industry with promises of “a completely new way to sell property” and none of them are in business today. The cynic in me is more interested in the attempted floating of The Joneses on the sharemarket…they almost got hold of a hefty sum of Other Peoples Money before the bubble burst…lucky public I say.

  14. Clive

    I appreciate your comment. I would say that whilst many people have tried to “reinvent” real estate, never before in the past 20 year or even 50 years have the circumstances created by the mainstreaming of the web had the potential to so significantly disrupt an industry.

    Time will tell whether “never say never” holds true for real estate – that change will not happen.

  15. […] is very open, transparent and highly competitive – every year competitive models appear – last year The Joneses tried valiantly to reinvent real estate, there are operators in this country charging 1% – in the […]

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