Friday, January 9, 2009

The ‘most hated’ estate agency on its knees

Foxtons caught in housing market slump

The future of another one of Britain's most recognisable high street brands was hanging in the balance last night after it emerged that the estate agent Foxtons had breached lending agreements with its banks. The buyout firm BC Partners, which bought Foxtons in May 2007, is reluctant to pump any more cash into the company after worse-than-expected market conditions pushed it into crunch talks with its lenders. BC Partners paid £360m for the company just before the credit crunch hit, borrowing £360m to fund the purchase. They have now acknowledged that the acquisition was ' 'mistake' after a 60-70% slump in sales led the company to breach its banking covenants,

Posted by little professor @ 12:21 AM (2388 views)
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50 thoughts on “The ‘most hated’ estate agency on its knees

  • little professor says:

    The borrowed £260m to fund the purchase, including £50m from Jon Hunt himself, the former owner. He walked away at the top with a hefty fortune.

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  • You’re working hard tonight LP.

    Jon Hunt timed it perfectly, however, didn’t he plough a load of money into some sort of Realtor in New York.

    Must have kept enough back to stay comfortable though.

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  • May I be the first to say Mwahhahahwahhahaha. MMUhahahahahah *coughs* Mwahahahahahaha.

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  • I’m going to enjoy watching these going bust.

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  • I’m with you fubar.

    But lets say this: If someone like Foxtons can gert shakey with their marketing and size in “Britains property hotspot” of London, then it must be a really cold draught a la “The Day after Tomorrow” that is blowing into Estate Agent offices.

    But I think this is because many EAs have still been misleading their customers as to likely sell or rental value. Get this wrong in todays market and people just walk away. Walk away means no commission.

    In my neck of the woods (Beaconsfield) EAs are just recently starting to drop sale prices and rents – but they are still waaaay too high. If you make them an offer, they will buckle. However, I think most people don’t have the confidence to go in with a 30% offer – they still believe “it’s a bit cheeky” and display British courtesy.

    Once more people start to feel it’s game on, then you will see some real marketed falls. This phase is coming next plot on the curve as we get over the denial phase into panic phase good and proper.

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  • When I see prices fall in Gerrards Cross, that’s when it’s game on growler…

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  • “BC Partners, Foxtons’s owner, has conceded that its decision to buy the company from Jon Hunt, the property magnate, for £360 million just before the credit crunch hit was a mistake.

    It said yesterday that Foxtons breached performance terms set by its lenders, Bank of America and the Japanese bank Mizuho, last month, adding that it would not put more cash into the business unless lenders agreed to write off some of their £260 million debt.

    Andrew Newington, a BC partner, said: “As housing markets fall, so do estate agents, so we got that wrong. In hindsight, we made the wrong assessment of the market,” he said.

    http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5478477.ece

    glad to be the second MWAH HAHHHHAHHAHAHHHAH HAHAHAHH *choke choke*

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  • Freewheelin' Franklin says:

    Bloomin’ heck, my crumpet almost went down the wrong way, if you’ll pardon the expression.

    I hope Foxtons doesn’t go bust. Not yet. I want to wait six months and then enjoy a sustained campaign of going into their offices to take the mick – while drinking their cappucinos.

    Unprincipled scumbags the lot of them….

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  • Anyone need a mini?

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  • Paddles will be chilling the champaign on this news.

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  • It_is_going_with_a_bang says:

    I would think the Bank of America are not calling in the debt because there probably are no assets to speak of.
    No doubt a lot of leases on offices and minis but nothing of any real value owned.

    The £360 price tag was probably “good will”.

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  • Its the same story in the whole economy. Any business that is saddled with debt – Woolworths, wedgewood, viyella, to name a few, are in deep trouble. Many EA’s did not borrow to fund their expansion as they were racking in the fees. How long their balances remain positive is anyones guess

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  • growler & pochi pochi

    Marlow is showing signs of weakening ‘described by one agent as in it’s ‘own’ bubble’ – your telling me.

    I think the agent thought they were immune.

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  • Thanks for the links Confused 76

    It’s hard to believe that people who could put their hands on 360 million were daft enough to enter the London Estate Agency market at such a time.

    More daft to have paid way over the odds for an agent with a fairly dubious reputation.

    Even basic maths says you must be able to open an estate agent branch for £100k and lets say an extra £100k in the kitty to cover cashflow until fees start coming in.

    36 branches would give reasonable coverage.

    So that would be a good sized agency for 1/5 of the price that was paid.

    Beggars belief.

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  • They borrowed 100% of the purchase price and now they want teh lender to write off some of the debt. It’s like BTL – take a punt with someone elses money. If it goes well you’re a genius. If it goes bad it’s someone elses problem/fault.

    I wonder how many BTLers are selling up or handing the keys back to the finance company now? How are finance companies going to lend when everyone wants their debts written off.

    I remember a program where some nut munch BTLer in a big 4×4 owed millions on his BTL portfolio. He said that if he oowed the bank a few grand he would be worried, but becuase he owed millions its the bank that should have been worried. I don’t think the banks have even started to feel the pain yet. Not until the sheople are well out of the denial phase will the true scale be visible.

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  • Inbreda

    There you go again abusing 4×4 owners.

    I did see that programme, he was a to**er, had race horses aswell as I recall.

    As long as people are running around with that ‘Not my problem if it all goes wrong’ attitude and banks are lending them money then we will never get out of this horific mess.

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  • inbreda

    That sounds like a quote from John Paul Getty –

    “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem”

    Apparently, if the bank is owed 100 billion it becomes your problem again – as a tax payer.

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  • £360million in May 2007!!! How many years had this site been going at that stage? How many people on here knew the writing was on the wall at that stage? It’s truly amazing just how wrong these so called “experts” can get it. Jon Hunt must have been amazed that he actually got away with it.

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  • My dream is to buy a foxtons mini at auction for about £1000 and ram it into the front of one of those big glass fronted Foxtons that has a mini bar at the front.

    It’s good to have dreams.

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  • Key paragraph:

    “Bank of America and Mizuho declined to comment yesterday. However, a source close to the banking syndicate said that the banks are unlikely to force the company into administration because they believe it does not face an immediate need for cash and is expected to bounce back strongly once the housing market recovers.”

    For ‘once’, I think one should read ‘if’, and it’s a rather big ‘if’. I doubt that Foxtons will see in 2010 (conservative prediction).

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  • I wonder if now is the time for the EA business model to change. A move a way from no-sale-no-fee (but sale=very big fee).

    Turbulance creates opportunities.

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  • Luckjim

    Great minds think alike – we should talk.

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  • The thing with Foxtons is that at the time of the sale the calculation (according to my memory) was that the debt servicing was £26million. At the same time based on the last set of figures, they had managed to make close to that.

    SO even if they had the same income, it could only have just managed to cover the interest. So the assumption must have been ever increasing prices.

    “We got it wrong” Really? The [add your own expletive] did a linear projection and used that as the model. Actually words do fail me on this one.

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  • crash bandicoot says:

    luckyjim, estate agents in shops is a very dated model anyway. They all clubbed together to fight off the Tesco dalliance a year or so ago but that was just a stay of execution. I would guess that there wasn’t that much money to be made otherwise Tesco would have fought harder. The future will be online. Rightmove showed the way but it was a vehicle for traditional estate agents rather than being a new concept. Look what the web has done for music, book, car and holidays. It’s only a matter of time before it reaches houses.

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  • There are a few self-selling schemes but they aren’t too effective. A no-frills estate agent might be more succesful. I’m thinking – “if Easy Jet did Estate Agents….”

    For example, why do estate agents need expensive high street premises ? I’ve been watching the market for a year but I’ve barely stepped foot in an agents office. Many sellers prefer to take viewings themselves – do they get a discount for this ? And do people really still wade through pages of houses in the local rag ?

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  • cb

    I think rightmove is key. If I could have advertised my house on rightmove I wouldn’t have needed an agent. As it was, the lady who bought it just a happened to pass my house one day and liked the look of it (my name IS luckyjim). The EA fees for this were over 5k.

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  • why the need to even bother with “estate agents”?
    The ability to use a tape measure, take a few photos and write up a short description isn’t that difficult.
    Would it not be far better to have a qualified person, such as a surveyor more involved in the sales prosess, thereby cutting out these spiv chancers completely.

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  • sold out

    Are you forgeting about their ability to identify the purpose of a room simply by looking around it ? A single glance followed by “This is the kitchen”. It takes years of training.

    And then there are the advanced negotiating skills. My buyer offered 10k short of the asking price. Disaster! But the agent came up with a brilliant suggestion – ‘Meet them half way?” I would never have thought of that. He should be out in Gaza negotiating a cease fire.

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  • Do you remember the last boom? Insurance companies and lenders were piling into estate agency like there was no tomorrow. Large and small firms were being snapped up, ostensibly so that they could ‘get in at ground level’ and sell mortgages and insurance to house buyers. Names like Royal Life, Prudential, Nationwide etc were all jumping on the badwagon.

    They all thought it was different that time too, and paid substantial sums for estate agencies based on the adjusted net profit over the previous 3 years trading. Trouble was, they were boom years and not the norm, and the prices paid were ‘optimistic’. My former partner and I did OK anyway. Many agencies had sold a high percentage of their housing stock and were running out of things to sell. Some owners of these firms saw the writing on the wall and were pleased to cop the dosh to get out. Many subsequently bought their old firms back at knockdown prices when the market inevitably crashed, but a lot of agencies closed down then, as well.

    So ‘it was different this time’ in 1990, different in 2007/8, and will probably be ‘different this time’ again in the next bubble.

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  • crash bandicoot says:

    luckyjim, you obviously found a sharp one. Krustie would have suggested upping your asking price instead, because house prices only ever go up.

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  • In all serious lj, cb & so

    The majority of people selling do need a little help presenting a house for sale, particularly uploading it and dealing with viewings and negotiations etc.

    However I think there is a half way ground between current estate agent set ups & diy.

    Any of you going to the London Meet next week ?

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  • p doff – i remember “black horse Agencies” taking over someone…yes another indication when companies get out of their core business. Having ssaid that (at not such silly prices) it would have made sense because of some vertical integration.

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  • i agree Str2007 people do need help in selling a house, but what they need is real proffesional service and value for money and that is not what most ea’s provide.
    Would it not be too much too ask for estate agents, if they are going to exist in the future to hold a professional qualification.
    Should they not at the very least have a real in depth knowledge about buildings and property, beyond knowing what colour Magnolia is?

    As for there negotiating skills, Lucky Jim sums it up nicely at 28.None of them would survive being that inept in any other field.

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  • @ str 2007

    Where and when is the London Meet ?

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  • Little Prof

    LOL that link to daily mash about EA’s is brilliant, garanteed to make you laugh.Thanks

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  • str, lj, et al

    As anyone knows on here, the estate agent “does the deal” and then takes the commission for the sale price percentage and then seems to do very litte. Whilst in boom times this is not so apparent, but you go get all the hiccups and tosh involved in the buying chain. Most peoples solicitors never see the property. Not defending the EA – but highlighting a service you’d need to solve – a lot of the time the EA ends up ensuring a chain goes through.

    If you do direct sales marketing site like “wrongmove” and then offer a “chain-chaser” service for an additional fee, then you have a model that means sellers pay for their advertising and can “upgrade” to a chain-chaser service that does the job of the EA post sale. They can of course elect to do the chain chasing themselves, but this structure breaks down the cost into transparent chunks.

    Placed onto the internet and and simultaneously marketed in magazines such as Chartered Surveyor Weekly, Country Life and a few more, awareness amongst those people that might tender for “chain-chasing” work to supplement weaker income streams will also mean the message gets spread on both sides.

    You’d have underutilised property people (or out of work negoitators) taking sub-contract work to make a deal happen.

    There is a model here. If WrongMove were a bit smarter, they’d make the right move before its too late.

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  • @34 WageSlave

    Ace Cafe north circular? Maybe we can all hire a Foxtons mini?

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  • Growler

    There is an opportunity there I’m sure, not sure this is right place to discuss the intricacies of what could be a nice little business. But I’m not far away if you want to.

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  • str 2007,

    Thanks for the information, hopefully I will be able to make it on the 15th.

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  • str 2007

    I’m afraid I can’t make the meetup but I am going to put more thought into this. Maybe others can do the same ? Growler makes a good point about the chasing up service. I wasn’t too impressed with my agent but it is perceived as a selling point.

    BTW I noticed that ebay now have a dedicated ‘immobilier’ (real estate) section on their french website. Surely the UK will follow – watch out Rightmove.

    http://annonces-immobilier.ebay.fr/

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  • LOL. Didn’t the bank manager ask for the business plan before lending these people the cash to buy Foxtons. A shiny suit and a big ego do not a businessman make. Rank amateurism all round.

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  • @str

    Indeed. Trouble is the Fleet Street meet is not great for me – out of the country then.

    Maybe a trip to B&Q in High Wycombe some weekend soon might be a good idea…

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  • Thanks lucky jim, great vid absolutely hilarious.

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  • Growler

    Don’t think they serve coffee or beer at B&Q but it is central so let me know.

    [email protected]

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