Foxtons estate agents gains promotion to FTSE 250 index

Foxtons, the estate agent that Londoners love to hate but cannot do without, is set to join the ranks of Britain's leading companies on Wednesday when it is promoted to the FTSE 250 index.

Foxtons' elevation is the latest landmark in the rise, fall and rebirth of the notoriously aggressive chain, which has ridden the wave of London's housing market for more than 30 years.

It also marks another peak in a property revival that is quietly concerning the Bank of England.

With its fleet of liveried Minis, cafe-style branches and ruthless marketing tactics, Foxtons has divided opinion for decades. Some see its arrival in a community as the hallmark of gentrification – while others see it as the death knell for the neighbourhood.

When Foxtons opened a branch this year in Brixton, which has steadily moved upmarket since the 1981 riots, someone spray-painted the word "yuck" on the window. The paint was cleaned off but, in case anyone missed the point, it was soon replaced by "yuppies out".

Alan Piper, secretary of the Brixton Society, said Foxtons' arrival added to concerns about longtime residents being squeezed out by rising house prices.

"Foxtons is probably a symptom of that more than the cause, much as people like to hate them. Some of us thought the graffiti was understandable in the circumstances but we couldn't work out who did it."

Foxtons has been held up as a prime example of the pushy practices of British estate agents – always among the least respected of trades. Its agents have been accused of pulling down rivals' signs and the company was fined in 2003 for "flyboarding" – putting up boards outside houses it was not selling.

The chain's flotation document gave insights into how it goes about its business. When a new agent is hired, they are given the use of a brashly painted Foxtons Mini and can choose to earn a £10,000 salary – less than the minimum wage – plus 10% commission or a £17,500 salary plus 5% commission.

This, the prospectus said, "encourages a positive culture of competition among its employees to deliver its premium service offering". The price for that service is a non-negotiable 2.5% as the sole agent on a house sale compared with an average of about 1.5%.

Foxtons was founded by Jon Hunt, who had a spell in the army and worked at another estate agent before opening in a converted cafe in Notting Hill in 1981. At the time the area was rundown, despite its closeness to upmarket Kensington, but it gentrified and Hunt began expanding into other London hotspots.

A major plank of Hunt's growth drive was his offer of zero commission for sellers in the first three months after opening – a tactic Foxtons still uses to gain an early foothold in a market.

But the ploy is also at the heart of one of the accusations against the firm: that it lures sellers by giving inflated valuations and ties them in until they drop the price – still paying Foxtons' premium fee.

The manager of a rival, long-established estate agent in Enfield, where Foxtons opened this year, said: "I know of more than a handful of people who successfully moved without paying an agent's fee and that's great for them.

"But what I'm finding is they fundamentally overvalue. It's as old as the hills. I was valuing a house just the other day and the client showed me all the valuations he had been given. They were all around the £350,000 mark – except for one at £390,000. It was almost comical."

The manager's claims have not been independently verified.

But Foxtons' business methods have also been highly successful and have shaken up the industry. Its branches open 362 days a year, 12 hours a day and it was an online trailblazer in the late 1990s.

By 2007, the firm had 20 branches and business was thriving as house prices boomed. Hunt sold the company to private equity firm BC Partners in May 2007, making him about £360m. Two months later, the housing market froze as the financial crisis loomed.

Some said Hunt's timing showed he was a genius, though he rejected this. He now spends his time restoring the beauty of a 1,800-hectare (4,500-acre) estate in Suffolk while developing property.

But Foxtons was saddled with big debts in a dead market. Michael Brown, now in charge, set about cutting costs and by 2010 Foxtons was expanding again with five branch openings. The firm floated in September at 230p, giving it a value of £649m. Brown, whose stake was valued at about £52m at float, remains in charge.

On Tuesday night the shares were 294p and the £830m market value put Foxtons firmly on track to enter the FTSE 250.

Just as Hunt sold when the market was booming, so the flotation was made possible by the sudden revival of house prices, especially in London. But some economists warn that rapid price gains are the sign of a pre-election bubble fuelled by the chancellor's Help to Buy scheme and near-zero interest rates.

Danny Gabay of Fathom Consulting said prices have been too high since 2000 and that London prices are 70% above their long-term sustainable rate

Gabay said: "The debate about whether we are in a new property bubble is nonsensical. We never got out of the old one.

"Let the good times roll for them [Foxtons]. It's a great time to be an estate agent but how long can it last? My guess is until about May 2015 [the date of the next general election]."

The good times are rolling at Foxtons. Last month's trading statement said turnover in the third quarter was up 18% from a year earlier with property sale revenue up 29%.

Analysts at Credit Suisse, one of the two leading investment banks on Foxtons' float, argued the company was undervalued. First, they said the housing market was in good health with low interest rates making mortgages affordable and loan approvals rising. Second, they said Foxtons' disciplined culture would keep it ahead of the pack as it expanded in London and elsewhere in the South East.

Henry Pryor, who negotiates house purchases for upmarket buyers, said Foxtons was still as aggressive as ever but that its negotiators knew their job.

"I haven't always approved of all their methods but I never have any doubt who they are working for and that is the seller.

"The fact that their brand has risen and fallen like the tide of the Thames means they have racked up their fair share of critics but there's no law saying you have to sell through an estate agent and you only have to look what they've achieved."

Foxtons declined to comment for this article.