Ding, Dong, Foxtons’ Dead

October 4th, 2007 by Bob Bly

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.

How?

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.

Nobody wins.

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.

Everyone wins.

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.

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13 responses about “Ding, Dong, Foxtons’ Dead”

  1. Michael said:

    >>What kind of professional do you think you can hire for $15,667 a year?

    A professional who doesn’t tie in his professionalism to price? Someone who loves doing the best job he can regardless of how much he’s paid?

    So, what are we trying to say about our commitment to professionalism? That it’s entirely price driven? Although I’d love to get the most value for my writing, I’m not going to dumb down my professionalism because of price. I’ll give a client my best efforts—whether I’m being paid $100 or $1,000.

    Pricing low can be useful when you’re just starting out. I don’t think there’s an automatic perception in the minds of consumers that low prices means low value. You just have to give the best value you’re capable of.

  2. Suzanne Ryan said:

    Bob–I absolutely agree with you. Entrepreneurialism is all about making a profit. Not so that you can become rich and fat and decadent. But so you can live above the survival level.

    I guess this real estate company, Foxtons, sunk below the survival level–and drowned.

    About discounts: I am about to move into a specialty niche and will offer a crazy discount to the first 3 takers—just to get my foot in the door. Short term and a carefully strategized discount. Otherwise…pffft…wouldn’t consider it.

  3. Suzanne Ryan said:

    yikes! major grammar typo: I mean to write sank instead of sunk.

  4. Bob Bly said:

    Michael: discounting can work in product sales, where the marketer can make it up on volume. But for the solo service provider, it is a disastrous path. I talked to a guy yesterday who writes ebooks for $500 each, and it takes him 2 weeks to complete each book. I recommended he switch into a writing niche where clients can afford to pay him what he’s worth.

  5. Ted Grigg said:

    So true Bob about pricing your services low.

    It’s better to work for $200/hour for 50 hours a month than 200 hours for $50/hour. At the lower price, all you can do is go down.

    Frankly, it is far better to learn how to price a a job for a flat fee and forget about the hourly rate bit.

    I’ve been an independent direct marketing consultant off and on since 1985. If I’ve learned nothing else, pricing by the job is the best and most profitable way to go.

    How can you go from $50 to $150 an hour when the client was only willing to pay $50? Qualify your clients by selecting those who are worth your time. The cheap clients won’t listen to your advice or respect it anyway.

  6. Susanna K. Hutcheson said:

    Bob,

    Your point is well taken. I totally agree with you. While we expect sales (discounts) on things like books and software and items of that nature, services should never be discounted.

    If professionals don’t charge and earn what they’re worth, they won’t do nearly as good a job for their clients. I know that when I’m well paid, I work harder for a client. I go the extra mile. I stopped underpricing my services a long time ago and am glad I did.

    Professionals can’t afford to discount their services and they deserve to go bankrupt if they do. If all people in our profession charged what they should charge, we’d all be better off and the clients would be better served.

    Susanna

  7. John Kelly said:

    Bob,

    Right now, the real estate market is undergoing a fundamental sea-change. I agree with you that price discounters don’t always win in the long run, but the one example you state, Foxtons, will not be the only realtor going out of business in the near future. I expect many, if not the majority, to go out of business. And that includes the high-priced ‘value-added’ realtors as well as the discounters.

    For what it’s worth, I haven’t met many real estate agents worth what they charge in commissions, especially when it was a hot sellers market. I would hazard a guess that when it comes to real estate salespeople, Pareto’s Rule has to be modified. Only about 5% of the agents are worth their salt. This comes from personal experience – I ended up selling my last three properties myself in San Diego when I found the agents to be lacking. (I use that term charitably.)

    When a neighbor of ours, who was a real estate agent (and every other person in San Diego had that title it seemed), learned we were considering selling our condo, she rushed home to her computer. 10 or 15 minutes later she was at our door with a printout of recent comps. That was nice & I thanked her. Later, when she learned that we were going to sell the place ourselves, she was more than miffed, she was downright angry. How dare we, after all the work she did for us already!

    That was one example of many.

    As to the low average pay, much of that can be contributed to the wild over-abundance of agents, especially here in California. The industry has a very low bar to climb over to become an agent; basically if you’re breathing, they’ll hire you!

    But the market is rapidly changing, and that will change everything.

  8. Fern said:

    Does any one ever win the price war? I don’t think so.

  9. Bob Bly said:

    Fern: In products, Wal-Mart. In services, India. Wal-Mart has a downside for their workers, but not consumers. As for outsourcing to India, many would argue that American customers are not happy with this trend.

  10. Abdul Rahman said:

    But it seems that trying to win price war while you are in a service industry is stupid.

    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.

    Going to put this on my blog. ;)

  11. Tom Padden said:

    Bob

    I agree with you completely about price marketing. All it does is make you work twice as hard for the same money or just make less. Speaking of real estate, my appraisal business is facing similar problems now with banks and appraisal management companies cutting fees to the bone. We continue to get a $350 fee for an appraisal of a modest house. However, work from the management companies is now offered at a miniscule rate of $225. Some appraisers are even doing the same for $175. These kinds of customers don’t seem to want value added services at a higher fee. We are continuing to look for other than bank work to maintain fees at a reasonable rate. What do you think?

  12. Jimmy V. said:

    For the record, I worked as an agent for Foxtons back in 2004. Yes, they went bankrupt for the reasons listed above, BUT also bc of horrendous and immoral business practices. I felt so dirty working there that I purposely got myself fired so I could at least collect unemployment until I found another job (luckily it only took me 10 days to land another job). Long story short, they rewarded us for several things that hurt the clients, like price reductions, etc. For ex., if a client calls you 2 weeks after house is listed asking why nobody is coming to look at the house the FIRST thing you’d say to them is “reduce the price”, when that likely wasn’t even the issue. I could go on forever, but trust me I would NEVER in my wildest dreams do business with a company run by Glenn Cohen. I would bet my left leg that he will eventually be in jail at some point in his life.

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