In news this week, on Tuesday Go Gecko Pty Ltd went into Voluntary Administration leading to the closure of 2 Go Gecko stores with 6 more facing a review by the Administrator.
As reported by the Courier, Geoff Doyle CEO and founder resigned ahead of the Administrators being appointed. The article also hints that the administration, resignation and office closures have come as a surprise to the franchisees who were concerned the corporation were putting growth ahead of welfare of each agent.
Some supporters of these low cost real estate models believe they are immune to slumps in the real estate industry, because vendors tighten their belts and look for selling options which are more cost efficient than a traditional agent. But as these closures have demonstrated, this is not always the case and very few real estate business models are totally resilient to property slumps.
Lets hope the Administrators can salvage the situation so the remaining franchisees aren’t significantly affected.
20 Comments
MAC
Franchising is a hard gig. What was the model here? What % was payable and how much marketing per month? I wonder how the franchisees are doing as distinct from the franchisor.
JT
Good thing if they go under, I know of a buyer who was told while the property was on the market for $530,000 he could get it for $490,000, with low fees you have got to have high turn over. The first thing to be spun out in the process are the ethics of all involved, what vendors save in fees is minuscule when compared with what they lose in sale price hence the old saying “pay cheap pay twice”
Glenn Batten
Mac…
The Queensland market is pretty tough at the moment and this group was primarily a Queensland one..
When I heard about the administrators going in I did a quick check on the individual offices last night. This is hardly a scientific study but I looked at the first 10 offices on this list http://www.realestate.com.?au/find-agent/is-go+gecko/?list-1?source=location-sea?rch
The average across the 10 offices was 27.4 listings and just 1.6 properties marked under contract.. This is a little under 6% conversion in about a month. Even in this market you want to be doing better than that but there were a couple of standouts amongst those 10 offices though.
GoGecko claimed that they have had “enormous success and public demand ” but according to these numbers at least the buyers and sellers all but ignored them.
At their commission rate thats just a maximum of $11,200 per office for about a month to pay for franchise fees, rent, wages, phone, internet, REA and everything else..
I have no idea what the franchise charge was but for the sake of simple maths lets say it was 10% that is just $11,200 for head office for those 10 offices. . I have not got the time to process the rest of the 40 offices.. but lets assume the same figures apply.. thats only going to rack up $55k a month for head office to run a franchise, and one that wanted a national expansion…
A discount model like Go Gecko relies upon volume and from what I can see they were not getting good listings numbers and their conversion rates were very low. It will be interesting to see if the Administrator can do anything of if the franchisees themselves who were not effected can do anything together. Refund home loans started recently so I wonder if they are going to try and enlist the offices to switch branding
Does anybody know if the franchisees would be free to cancel their agreement in the event the franchisor went into administration ??
Very concerned
We had just listed our home for sale in Canberra with Go gecko. It was on a week and fortunately we have an offer however our agent has gone, our ad is gone and I really hope I can get in touch with our buyers. Our agent was excellent and had good results even as the market slowed, which is why we chose them. Really seemed unesesary to close the Canberra agency as it has a solid almost immune market because of the public servants. Feel a little let down ATM, especially as there was no warning, and were still listing homes. Someone needs a good kick in the ass. Anyway, that’s life I guess. Getting screwed no matter what we do.
PropertyNow
That’s a fine analysis you did Glenn and I think its spot on.
I can never understand people who run businesses with numbers that are never going to work and it seems like those numbers would just about need a bull market to be doing any good.
Andrew Blachut
PropertyNow
Glenn Twiddle
Nicely put Glenn. Maybe I should have been a little more ‘factual’ and a little less emoptional in my article. Hey it got some interest but I copped a few emails I can tell you.
All brands are being affected, and I hope others learn from this. And yeah, with Refund Real Estate coming, if full fee agents are rejoicing thinking they have got an easy time coming, think again.
Glenn Twiddle
Free Real Estate Training
Wayne
Not suprised.
7 offices on teh Gold Coast closed under the previous director/ owner Paul Edmund Harrison
I can only hope ASIC has a good look at this mess
forsaleforlease.com.au
Very Concerned
I would be happy to list your property on all the necessary sites at no cost and no commission to help you sort out your situation.
At least this way you should be able to locate the potential purchaser and not lose the sale.
It a genuine offer, call Monday if you are interested.
Michael Atwell
Very concerned
Thanks for your offer Michael, I have since found out the info I was after. My agent at Go gecko has always been very good to us and has organized all the details. Happy to say the buyers were not overly bothered and are in we are in the process of sale. I have to say that I did pretty much panic when I heard the news. Hard enough to get a good price ATM and really didn’t want to advertise again. Amazing how it effects others but I feel for ones who lost their jobs.
MAC
Thx Glenn. That’s why I asked about the relativity between franchisor and franshisee. Would you buy into an ‘outlet’ if head office wasn’t viable? While the franchisee might be struggling to survive, the franchisor here has no hope. There’s a lesson here for regulation of transparency in information available to potential franchisees.
Vic
I feel for Geoff Doyle and his dreams of setting up a genuine alternative to commision agents. Wrong times to do it I’m afraid. I can’t see it possible for the administrators to make a go of it without considerably watering down the services to franchisees. However I wish them all the best and hope that the franchisees can at least hold out long enough for the times to get better..
Glenn Batten
Vic,
I think the questions comes down to whether a bricks and mortar agency can run on that sort of discount level. The staff and rent costs of your typical agency make up the majority of the expenses and just because you are a discount agency does not mean you get them any cheaper.
IMHO A discount model can only succeed on two levels:
1/ Reduced expenses such as the online agents
or
2/ Volume transactions
No volume and traditional rents dont mix well with discounted revenue.
MAC
Hmmm…would 3% be a standard Qld commission or 2.5% Glenn? $6,000 fixed is only about 1/2 what they wld need from a $400k sale – Egad! So, who is buying in to these types of shows and what is their reason? Are they experienced or not? It has 50 offices, after-all. Who is going to pick-up the pieces and how?
Glenn Batten
Mac,
They were $5,000 incl GST but recently increased to $6000 including GST. That made it pretty clear at the time that their model was in trouble..
Standard commission in Queensland is 2.5% (+$450) +GST. We still have a regulated maximum however that is going to be changing soon probably…
The politicians believe that the commission rate will drop throughout the state. In a recent meeting with Campbell Newnam the LNP leader I asked him why he thought that was the case. Agents in Queensland have always been able to negotiate down we could just never go higher.. What logic suggested to him that by removing the UPPER limit we would start dropping the commission rate?
Paul
Go Gecko are still firmly on the ground. My understanding is that Go Gecko Pty Ltd was only incorporated to operate the Corporate sales offices and is owned by the Parent company. Therefore all other operations are still 100% functional. In my opinion it would have been the best ‘financial’ decision for wanting to close their under performing corporate offices with minimum recourse. Now was this the best decision for the ‘Brand’ or the ‘Greater Good’ probably not. But again, the organisation is still by and large completely functional from what I understand.
Ian
There have been some questions about Qld commission structure and the move to deregulate in Qld. I don’t mind the deregulation but think all should be aware that the Gov’t are trying to push through the unthinkable as well.
The gov’t wants to give the option to the owners to lodge an objection to the amount of commission paid after the settlement of the property. In short if the property seller thinks they have paid to much for the work you have done then they can lodge a claim to a third party (QCAT – small claims arbitration) to review your efforts and amend your commission paid or owing.
It will give the power to sellers to negotiate the commission after the sale is settled.
This will effect all offices cash flow and will destroy a lot of real estate offices.
Should this get up in Qld other states might also follow. Copy of ministers
http://www.cabinet.qld.gov.au/MMS/StatementDisplaySingle.aspx?id=75249
MAC
Thanx Glenn. Gee that new scenario is fraught with problems and will see lawyers rubbing their hands with glee! How ridiculous! I would be restructuring a new Agency Agreement to ensure all services are itemised and signed-off by the vendor. Could actually lead to decreased service levels for fear of deviating from the Agreement!
Glenn Batten
Mac,
QCAT is the old Small Claim Tribunal and it is by primarily by self representation although there are limited circumstances when lawyers are allowed to represent. It already covers residential tenancy dispute, consumer and trader dispute, small debt dispute, dividing fence or property damage dispute.
IMHO It’s because solicitors are not involved that it may become a real problem. A seller could always dispute a commission in court but the overall cost, potential to have the agents costs awarded against them and solicitors advice about likelihood of winning often stopped frivolous action before they ever started.
By locking disputes about real estate commissions to QCAT the chances that some crazy claims will be made because the sheer cost of losing is lessened. Then you have the decisions. Property Managers often see decisions that leave them dumbfounded at QCAT. The law is clear about the rights of landlords to evict tenants for non payment of rent but you still hear of decisions where tenants drop a few tears and they are allowed to stay and pay back thousands in arrears at $100 a week because they seemed like such nice people.
Appealing a QCAT decision is very very very hard.
Essentially what the Queensland Government is proposing is changing the time in the real estate transaction that “Fairness” of the commission is determined.
Currently fairness is determined at the time of signing the appointment. The disclosure required these days means that the owner is fully aware of the fees involved and chose to proceed because the commission was fair. The way that Paul Lucas is proposing it, the determination of the fairness of a commission is weeks and months after the sale has settled. The owner appointed the agent and considered it fair, signed the contract and still considered it fair, settled on the sale and then before paying the commission decides its not fair.
Imagine if the fairness of all payments under contract law in this country was decided after the transaction was completed. I wonder if solicitors would accept their fee based on what their client decided was fair after the court case.
Very concerned
Completely screwed, still haven’t got our keys back from Canberra go gecko. Chase them to the receivers who claim they are sent to main office, main office says they are with receivers . Lost our offer then used the excuse that local drug dealers were the reason they withdrew there offer and apparently got this info from the police themselves. Contacted police and they assure me it’s a sackable offense to reveal such info and would not have. Contacted the so called drug dealers and they really are nice people and have never seen any drugs from that house. Its the quitest house on the street. A real bunch ofassholes who not only lied but went out of their way to deceive us their clients. They are just shit, shit people with shit ideas who are extremely selfish, maybe naming names will help, dirty bastards.
kelly Smith
A corrupt outfit that promised and never delivered, the Go Gecko Model was set up purely to make money out of selling to Franchises. The CEO Geoff Doyle, a man of no integrity nor concern for the staff that were used to maintain his business model. He did not pay the staff that was employed by Head Office. I should know l worked over 80 hours per week all over SEQ and never got paid for the properties l negotiated and sold.