SELLING houses has been good for Jon Hunt. It has built him a business worth more than £400m, bought him a Suffolk mansion, a grand townhouse in the west London street dubbed “billionaires’ row”, and a fleet of luxury cars. Hunt is the man who built Foxtons into one of Britain’s most successful estate-agency chains.
In 26 years Foxtons has grown from a one-man oper- ation to one that employs 1,200 people in Britain, has 25 offices and this year is due to make a mouth-watering UK pre-tax profit of £25m on sales of £90m.
But now, at the age of 53, Hunt is considering one of the most ambitious moves of his career: to create a pan-American estate-agency network.
Such a move means that he may float Foxtons on the stock market to raise the capital to finance the expansion. He is talking to several advisers but no decision has yet been taken.
Five years ago Foxtons first tested the American market with a £12m investment in New Jersey. The estate agent later expanded to embrace neighbouring New York and Connecticut. The operation is still losing money, running up losses of £6m this year — in addition to the $60m (£32m) investment it absorbed — but its market share is growing.
Hunt said the hardest part is still to convince house sellers that there is “no catch” in the 3% commission it charges, compared with the standard 6% charged by American estate agents.
Foxtons is also vastly outnumbered; it now employs 600 people in America compared with 92,000 registered local agents.
When the firm started in America, its advertising campaign proclaimed “beware of sharks charging 6%”. At the time it was charging 2% for a no-frills service where sellers showed prospective buyers around their own homes. The commission and campaign sparked a heated debate.
Most American estate agents are independent contractors with no salary or health benefits. But with fees at 6%, successful “realtors” — as estate agents are known — can make serious money. On a $500,000 home, the traditional 6% commission works out at $30,000. Commissions on sales of residential property totalled $59 billion in 2004, according to estimates by Real Trends, an industry publication.
Foxtons has now increased its commissions to 3% and can get agents to show houses to buyers.
Mark Levine, a property expert and professor at the University of Denver, Colorado, said pressure is growing on the American industry to cut commission rates. “With access to the internet, clients now have much more information about properties in their area,” he said. “Brokers argue that they offer a package of services and the services they offer are different from those that estate agents give in Britain. But there is pressure to unbundle that.”
America has been a graveyard for dozens of British entrepreneurs, but Hunt is confident that the opportunities outweigh the risks.
The rate of Foxtons’ American expansion will depend on two outlets that are to be tested in shopping malls belonging to Simon Group, one of the country’s biggest property owners. In America, estate agents don’t operate out of shopping complexes, but if customers warm to the idea, Hunt could roll out hundreds of outlets in Simon-owned malls across the country.
He said: “There is a chance that if we get the business model right, we could ‘cookie-cut’ across the states ... there are all sorts of deals we could cut with Simon.” Such a plan would require hundreds of millions of dollars and at the moment it remains one of several options under consideration.
In its home market in London, Foxtons has a reputation as a sharp and controversial operator. Earlier this year the firm was at the centre of a sting by an undercover television reporter. She discovered agents putting in false offers to inflate prices and faking the signatures of some landlords to hasten deals.
Hunt said the allegations have been “exaggerated”. But lessons have been learnt and additional training put in place. Hunt makes no apology for the firm’s reputation as tough negotiators — it’s what the customers want, he said.
Competition is built into the group’s culture. Every Friday evening at 7pm, sales staff gather in four locations in London to address colleagues on how they have performed that week.
The meetings take just 25 minutes during which time the information is collated in the firm’s central computer system. A list of top performers is then drawn up and circulated. For Hunt the information is useful for working out the week’s operating profit.
The top five places are filled by female estate agents and in the testosterone-fuelled world of house selling, that has not gone down well with male colleagues.
The weekly rankings are a religion for the staff and from them spring incentives ranging from black-tie dinners to free champagne. But the ultimate incentive for the staff is the ability to make money.
A top sales executive can earn £150,000 a year, with other sales staff earning at least £70,000. The reason they work for Foxtons is because it has more houses on its books and, therefore, offers more opportunity to sell and make commission.
Hunt has come a long way since his days at Millfield, the private school in Somerset to which he won a sports scholar- ship for tennis and rugby. He left after O-levels and tried his hand in the army, but didn’t see it as a long-term career.
He had a stint of part-time employment, including one job as a car washer in California, but his talent for business came through when he joined an independent estate agency in Woking, Surrey. He worked there for eight years before striking out on his own.
Hunt is keenly aware of the cyclical nature of the estate-agency business and how operational gearing can work against you in a downturn.
To that end he is cautious about predicting the future of the housing market and has protected his revenues by building up a lettings business.
“The City bonuses coming next January mean the market will remain pretty good and there is nothing on the horizon to suggest that the market will slow down.”
Hunt himself has no need of money. He has taken out enough in dividends over the years to ensure a very comfortable life and, if he wanted, he could take the £25m the firm will make this year in the form of a special dividend.
The firm is also raising more than £14m through the sale and leaseback of several offices and some of that could be used to finance new offices in the Home Counties which cost about £1m each to open.
Now that Hunt has worked out how to make his estate- agency business work — it’s largely down to recruiting the right team leaders and building a state-of-the-art service centre in west London — he wants to use that experience to expand internationally. As well as New York, he mentions Los Angeles, Moscow and Shanghai.
When the firm was criticised for sharp practices and its corporate image was tarnished, Hunt was forced to come out of the shadows, something he had been very reluctant to do.
He is proud of his business and remains deeply ambitious. Over the next few years we will see just how brightly that ambition burns.
