The Joneses have left the neighbourhood

The real estate alternative to traditional agencies in New Zealand have gone into voluntary liquidation.

Their business model was to sell houses for a flat fee. Agents usually operate on a commission.

The problem with their business model was that the average sale commission in New Zealand is about 2% of the total sale price - and the average sale price meant the Joneses fee was higher than the average commission…and you had to conduct your own open home days (viewings).

Changes in the market, a downturn that corresponded with the US sub-prime morgage market collapse (but which was inevitable here anyway)meant the maverick Joneses suffered soonest because it squeezed their already beleaguered cash flows. The firm had planned a listing on the stock exchange which did not proceed (I doubt it would have been more than a penny dreadful in any case).

But here is the rub. One of the attractive things about the Joneses was that it offered an alternative to the, sometimes, dodgy practices of New Zealand realtors. There is the perception that estate agents are overpaid fat-cats. In most cases that is simply wrong. Most agents are ineffectual and their talents insufficient to acquire the listings which lead to sales (bearing in mind that it is unlikely many thinking people are ever 'sold' a house - one is shown a home and decides whether to buy it or not. That is why, without listings to show, agents only have modest incomes. Showing another agent's listing means sharing only a portion of the success fee.)

Most agents are rubbish. They are worse when they are deluded. Many agencies have disgraceful practices such as mobbing a vendor when the initial listing enquiry is made - every man and her dog show up to the initial appraisal, then the most junior agent is assigned to represent the property (it happened to me - my house remained unsold and I fired the agency. The next one was worse.)

The worst aspect of the demise of the Joneses was hearing the head of the Real Estate Institute dancing on their grave. Unfortunately for him, though, this event doesn't vindicate the REINZ from the shabby practices of some of its members or the inadequate protection consumers have from those practices. Heinous frauds committed by MREINZ have been punished internally with insipid penalties, giving us consumers the impression, stirred by Clayton Cosgrove, that all agents are sharks or behave in their own interests first and foremost.

The Joneses may not have been the right model to surplant the antiquated Real Estate business - but there will be an altenative that will work. It is an attractive market because the potential returns can be substantial. My view is that it will have some thing to do with two factors: Advertising/Promotion + the Internet.

Thinking caps on.


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