Monday, February 18, 2008

The Joneses Real Estate business fails to keep up with market conditions

The prospect of the only float this year, so far, to kick off, certainly piqued my interest and following in The Joneses, a cut price, flat rate real estate agent that planned a back door listing on the NZAX early this year.

c Fox Corp 2007

According to the Real Estate Institute, The Joneses real estate business model
was flawed and it led the their liquidation. The business case is no Bart Simpson
fly by night though, the Joneses simply undercapitalised and were unable to function
in the current property and stockmarket downturn.


Its business model differed from the run of the mill Real Estate agents like Barfoot and Thompson, Century 21 and Harcourts, who all charge much larger selling fees on a sliding scale, tapering off as the price they might get for your house gets higher-no incentive here to get a better price for the seller.

Unfortunately the Joneses were not able to keep up with the market uncertainties surrounding them.

In the face of a marked and welcome (in my opinion) downturn in Real estate sales and property prices the IPO was bound to have “done a Burger Fuel” and tanked because the appetite for real estate and sharemarkets in combination was a recipe for disaster.

Joneses management say the business model was sound and I would agree with that. Their problem was that they needed volume of sales for this business model (just like most businesses) and their cash flows simply ran out before they reached critical mass.

The Real Estate Institute came out today and trumpeted their old fashioned model as the only one that could be a success and clearly they were rubbing hands together as their competition bit the dust but they shouldn’t be too quick to dismiss the likes of other cut-price real estate companies that operate successfully.

This sector works well overseas and here but is expensive initially to set up.

Increasingly these days, individuals have become savvier when selling property. Negotiating fees with the full price brokers and as the internet and businesses associated with the net matured, to allow that media to process house and property sales, websites like Trademe have taken business off the big boys.

Contrary to popular belief the best person to sell your property is you. You know better than anyone else, you know your suburb like the back of your hand and the incentive really is there for you to get the best price.

It is human nature for us to be lazy and that is where these Real Estate agents see the gap and try to fill it. We “just don’t have the time”, or “we don’t have the expertise” to sell our house, quite frankly that is bullshit. It ain’t hard.

The laziness also extends to the agents, their “incentive” to get you a better price just isn’t there. When their fee slides downwards as the sale price of your house goes up then one can see they just aren’t living in the real world or working for you or the buyer. They are in it for themselves.

How much extra time do you have to spend at work to pay the $15,000.00 or more these companies charge?

But I digress.

Given better market conditions the Joneses IPO would have been a success. As with most things financial, timing can be 80% of your success. The Joneses management were just not able to time the market to make this thing a goer.

Having said that, clearly the capital to help make this business float wasn’t there from the beginning and the IPO would have allowed them cash to develop the company in a sustainable way.

It would have been wise for Joneses management to have got extra capital from the get go, make the business profitable for a number of years, then list.

The stockmarket is better off without the likes of the Joneses in its present guise and one can see a return of such a company to the market when financial stability returns to the global equities and the real estate sectors.


Related Share Investor reading

Can the Joneses keep up with the market?
IPO quality indicative of poor economy


New From Fishpond.co.nz


Hubbard: A Biography of Allan Hubbard

Fishpond


c Share Investor 2008