After 8 years, Foxtons, the NJ-based discount real estate company, is planning to shut its doors forever, and may file bankruptcy.
And I couldn’t be happier.
Glenn Cohen made a splash when he founded Foxtons in 1999 promising to save home buyers and sellers money.
By cutting their commission to just 2% … one-third of the standard 6% commission.
Their collapse is a much-needed reminder that discounting — competing based on price — is a lousy long-term business strategy.
The average real estate agent working at brokerages charging traditional commissions has a modest income — around $47,000 a year on average.
One-third of $47,000 is $15,667.
What kind of professional do you think you can hire for $15,667 a year?
Discounting stinks as a business strategy, because the more you lower your price, the less money you make.
Eventually, you end up working for peanuts — a terrible way to live — for customers that don’t value your service, experience, or knowledge.
Also, if low price is your only selling point, what happens when the guy across the street undercuts you in a price war?
Low-priced vendors and their employees resent working for so little, which translates into crappy service for the customer.
So instead of being the low-priced bidder, think about how you can add value, and by doing so, command average or even premium rates.
You’ll make more money, and attract a better class of clientele, who will respect you more and be happier with your service.
Ironically, Glenn Cohen was honored in 2002 as one of 10 NJ Entrepreneurs of the year — apparently by a committee that doesn’t know squat about business in the real world.
Source: Lynn, Kathleen, “Foxtons calling it quits,” The Record, 9/28/07, p. B2.