New Jersey-based Foxton's just found out the hard way that undercutting other brokers' commissions as part of its business model is a good way to get whacked. Yet hope springs eternal among discounters as Iggy's House thinks it will go public and make lots of money ... for its founders, not for you.

Foxton's just announced that it is letting 350 out of 380 employees go as it attempts to wind down its business without declaring bankruptcy.

In a press release, Foxtons senior vice president and general counsel John Blomquist said the company had been "well run, very efficient" (wasn't our fault) and had "a great team that has pioneered a new model in the real estate business (discounting is new?) -- a model which has proven itself and, we believe, will have lasting influence on our sector." (Then why are you going bankrupt?)

The press seems surprised at Foxton's demise. Newsday lauded Foxton's as "the 800-lb gorilla in the 2 percent market."

After all, in the site's early years, says Newsday, Foxton's had "more than 1,000 employees and more than 10,000 homes for sale." Further, "Foxtons created a huge advertising splash, spending close to $12 million a year on television, radio and billboard ads. It even used buses, bus shelters and subway platform ads to attract customers."

That's a lot of expense for one and two-percent commissions.

The real truth is that the business model was laughable for a number of reasons, none of which require hindsight:

1. The margins were too thin to make a profit.

2. Cooperating brokers are not required to show homes of competitors, particularly when paid less than market rate (And don't give me that ethics guff. Between ethics and eating, eating always wins.).

3. One percent (two percent) commissions was the foundation of Foxton's business model. But it was unrealistic to impose their 800-lb gorilla selves on other brokers and think they wouldn't push back.

4. Discounting is always the path of least resistance to the a. new business, b. unimaginative business, c. unneeded business, d.nefarious business, and e. IPO-bound business.

5. Discounting is a bet on seller's market tailwinds. When housing slows, discounters can't hope to achieve the volume necessary to overcome too-low pricing.

Need any more? Here's one I'll bet you didn't think of.

Discounting in New Jersey is like thumbing your nose at the Sopranos. While California-based discounters can occasionally report some mild success, that's because California is Disruption Central. Venture-capital-based start-ups are a dime a dozen out there, and the first pitch to Wall Street is that I'm-new-and-can't-make-it-without-your-money and-pretending-to-be-Realtors'-friendDOTCOM is going to be the ram that brings down the impervious real estate industry.

Stupid Wall Street just gobbles that stuff up and throws money at it in the arrogant hope that it will happen.

But it doesn't always turn out as planned:

• eRealty, a precursor to Foxton's, sold for pennies on the venture-capital dollar to Prudential. All they got was a whiny ex-president who is expert at tattle-taling to the Feds, if nothing else, and some pretty good technology, I hear.

• Proving that starting in California doesn't always work and that discounters need sellers' markets for wind, zipRealty has bled red ink in 2006 and 2007 after showing a profit in 2005.

Noting zipRealty's continuing losses through second quarter 2007, The Motley Fool , a contrarian and disrupter itself before it pied-pipered millions to lose trillions in 2001, is unimpressed. "The real estate brokerage specialist is disrupting an industry that could use a little cage-rattling, but last night's preliminary fourth-quarter report may find you opting for a catnap instead." zipRealty started life as a public company at over $16 a share in 2004, and currently trades around $6 a share.

Losing money isn't the way to rattle anyone's cage, but that doesn't stop companies from trying.

Now Iggy's House is seeking an $15 million IPO. They probably will go public successfully because Wall Street never gets it about the real estate industry, and it never will.

Iggy's House is based in Chicago, and their innovative take on discounting is to offer free admission to sellers to the sacrosanct MLS. (Funny how all the discounters want into the MLS, isn't it?) Where they make their money is by representing buyers with deep discounts.

According to a report from one of our erstwhile competitors, this isn't the founders' first time at the circus. Joseph and Avi Fox started an online stock brokerage company in 1996 and sold it to eTrade two years later.

Could that be what they're planning for real estate? Get in, make some noise, cash out and get out?

Like many other young IPO-bound companies, Iggy's House isn't showing a profit, and doesn't expect to for some time to come.

According to an SEC filing, the company confesses, "Since our inception in 2005, we have a limited operating history and a history of losses from our start-up operations. As of March 31, 2007, we had an accumulated deficit of $7.6 million." It goes on to say that it expects "significant future expenditures related to the development and expansion of our business," and "we will have to generate even more revenue to become profitable."

No kidding. Ya think?

But by then, it won't matter. The aptly-named Foxes and their VC buddies will be laughing all the way to the bank, as Iggy's House leaves its shareholders devastated.

And you'll be left explaining to uncomprehending consumers why you charge so much in commissions.