As I previously reported, Foxton’s the now-defunct east coast discount shop, is, well, defunct. They recently fired most of their staff and declared bankruptcy. What to do with the thousands of listings they had, however?
RIS Media reports that a tranche of some 1400 of them have been taken over by another broker, Fillmore, for about $110,000, which puts a value of $78.57 per discount listing. With most agents spending hundreds or thousands of dollars in acquisition costs per listing, this sounds like an absolute bargain.
However…these being discount listings, the math might be different. For a full service listing netting, say, 2.5% on the listing side, I’d be willing to pay significantly more than $78.57. I believe Foxton’s, however, only charged a few thousand dollars per listing, out of which they had to cover employee costs (their agents were largely salaried, not commissioned), office costs, and the nifty little cars each agent got. This model only works well in volume, when the market is spinning along comfortably. With the market slowdown, however, things didn’t go so well. As Foxton’s VP of Sales Mark Horvat delicately puts it:
We regret to inform you that, due to the recent down turn in the residential real estate market, Foxtons has decided to conduct an orderly liquidation of its business.
If Foxton’s couldn’t make it happen with their fees, how will Fillmore manage it? Only two ways to do so profitable that I can see:
- Charge more. This is a non-starter, however. The listing agreement that Foxton’s clients signed specified a certain listing fee, and Fillmore would be contractually bound. Mark Horvat again:With the exception of the identity of the listing broker, all of the terms of your listing agreement with Foxtons would remain the same.
- Lower costs. Fillmore doesn’t seem to be going down this road either. It appears they’ll be launching new satellite offices, hiring some 40 top-performing Foxton’s agents, buying their agents laptops, renting them cars, and putting them through their “Fillmore University” training program.
The math just doesn’t make sense to me. If Foxton’s couldn’t swing it financially, how is this not financial suicide for Fillmore to take over the listings at the same fee, with the same cost structure? What am I missing?
Foxton’s did not, apparently, have any Boston coverage. If it did, I find myself wondering if Redfin might have tried to purchase any of those listings.
Tags: Fillmore, Foxtons, Industry, Redfin