Real estate discount company Foxtons’ turbulent ride through the U.S. real estate market is approaching an end.
Foxtons, a low-commission real estate firm that had grown to 500 employees who served consumers in New Jersey, New York and Connecticut, this week announced that it is releasing 350 of its 380 remaining employees “and may be filing for bankruptcy protection in order to close the business in an orderly fashion.”
The company blamed the real estate market downturn as a contributor to the company’s financial problems. “The plain fact is that we have been battling against a real estate market that recently has turned into a sharp decline, and the company no longer has the liquidity to operate as a going concern,” Foxtons’ Senior Vice President and General Counsel John D. Blomquist said in a statement.
“We understand the impact of the action we are taking, but there comes a point when you can’t stand in the way of a hurricane, and it is a property hurricane we are facing.”
First launched by Glenn Cohen in March 2000 as YourHomeDirect, the company later received a $20 million investment from London-based real estate company Foxtons and its name changed to YHD Foxtons. In April 2003, YHD was stripped from the company name. London-based Foxtons bought out Cohen in March 2004 and brought in real estate veteran Van Davis as president and CEO for U.S. operations.
Davis, a former Century 21 president and CEO who took over at Foxtons in July 2004, left Foxtons “for personal reasons” a year later, and Foxtons founder and CEO Jon Hunt stepped in as chief executive for U.S. Foxtons operations.
The company had offered consumers the opportunity to list their homes for sale for a total 2 percent real estate commission — commissions typically are in the range of 5 to 7 percent of the home’s selling price — and tweaked this commission structure in 2004 to a minimum 3 percent, with Foxtons getting 2 percent of that and the other 1 percent offered to the brokerage company participating on the buyer’s side of the transaction.
Foxtons has an estimated 4,400 active property listings, “and the intention will be to preserve the value of these listings, to minimize customer disruption and to dedicate the anticipated revenues to pay creditors.”
The company had its share of critics and opponents in the real estate industry — Foxtons officials complained to state officials in New Jersey after receiving dozens of letters from Realtors advising that they would offer a 1 percent share of the commission to Foxtons when the company represented a buyer in their transactions as payback for the company’s own 1 percent offer.
“We will be vigorously pursuing the elimination of any practices that are designed to limit competition,” he said in June 2005. And the New Jersey Real Estate Commission in December 2005 announced that state code prohibits real estate brokers from offering varying commission splits “that are ‘punitive or retaliatory’ in response to another broker taking listings at a lower gross commission rate than that charged by the broker offering the modified commission split.”
Despite its plans to shut down, Blomquist stated that the Foxtons business model “has proven itself and, we believe, will have lasting influence on our sector.”
Larry Cragun, a real estate and mortgage professional who maintains a blog at MortgageUndressed.com, said he wonders what will happen to the company’s clients, based on the massive staff reduction. “How do they serve their clients properly? I would be concerned about the clients.”
He also said the Foxtons announcement could be a sign of difficult times for other real estate companies that charge low rates for services compared to other competitors. “The market going forward is going to be real difficult for people who don’t charge enough for the cost of doing business.”
And Glenn Kelman, CEO for real estate discount company Redfin, said that fixed costs in cyclical industries such as real estate “are painful sometimes,” and “Foxtons may have been caught in the middle, trying to develop an alternative business model without doing anything particularly innovative in its consumer-facing technology.”