Thoughts on realestate.com.au Price Increase
July 26, 2010 by Simon Baker
realestate.com.au, the market leader in Australia, has announced a price increase that will come into play as of the 1st August. This announcement came in the form of a message that appeared just over a month ago in the administration section of the realestate.com.au site. While the message didn’t reveal the level of the increase that agents could expect, discussions with insiders suggest that the price rise could be as much as 30% for some customers.
Price increases are nothing new, especially from market leaders such as realestate.com.au. However, while agents will not like the price rise, it will be interesting to see the impact the increase has on the number of subscribers that realestate.com.au has in the Australian market and more importantly, their desire to spend on premium products and services.
As a bit of background, realestate.com.au is the market leader in the Australian market. 95%+ of Australian real estate agents pay for a subscription from the site and this subscription allows them to advertise as many properties they want in the “for sale” and “for rent” sections of the site. On top of this, the agents purchase a range of premium products such as feature properties, banner advertising and eBrochures.
It is my view that the price increase will mostly flow through to the bottom line of realestate.com.au.
Firstly, realestate.com.au is the dominant player in the Australian market. They have 5m+ UB’s to the site each month, a strong lead over the #2 player domain.com.au, and in some areas, they drive 70% of leads to real estate agents. With this level of dominance most agents practically don’t have a choice but to accept the price increase.
Secondly, in many parts of Australia, the vendors actually pay for this advertising rather than the agent. In these markets, the agent will simply pass on the costs to the vendor and while these costs continue to be significantly less than print, the vendors are unlikely to argue.
However, the more interesting question and potential challenge for realestate.com.au is the impact the price increase will have on its reputation, premium product sales and competition in the market.
The problem with market leaders is that often they are seen as a necessary evil by the estate agents. It doesn’t matter where you are in the world agents tend to not like to pay the market leader for advertising. This problem may be compounded for realestate.com.au as it is rumoured that they have had very poor results from a recent customer survey following on from the launch of their new site in April this year. Any price increase is likely to increase the negative sentiment towards the business.
Secondly, agents may start to reduce the amount they spend on premium products to offset any increase in advertising costs. This may result in not all of the price increase flowing through to the bottom line. To protect these revenues, it is important that the realestate.com.au sales team are 100% on their game and work with the key agents to ensure that premium revenues are protected.
Finally, with any price increase, there will be talk of more competition for realestate.com.au. The problem with this is that it is mostly just talk. Knocking off a well entrenched market leader like realestate.com.au is extremely difficult and there are few players, if any, that have the resources, skill or ability to be successful. If any decrease in market dominance does occur, it is likely to be self inflicted.
The bottom line is that while the price increase is unlikely to be welcomed by agents, it is the easiest way in which realestate.com.au is able to increase revenues from its core Australian business.
Simon Baker is the former CEO and Managing Director of the REA Group, the owner and operator of realestate.com.au
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Interesting that so far no comments on this one.
realestate.com.au is no different to any one holding premier spot in the market place. They operate on the commercial supply and demand principle. They supply leads to agents based on the demand from their searchers. If the searcher stops being a buyer and becomes a tyre kicker the ratio of leads per 000’s eyeballs will determine whether agents will reconsider their subscription, but realestate.com.au will not be the loser it will be no2 and no3 paid portals.
The world of realestate selling is changing since the GFC set in and we haven’t yet seen a sustainable pattern emerge yet in Australia. It will come, and agents need to watch their results carefully. They will need to be far more proactive in watching their ROI and constantly review their marketing/advertising strategies.
They will need to look more at two fundamental marketing principles:
Shotgun approach- that is get your listings to as many sites as they can for the lowest cost they can. Look at getting into as many of the free to list sites, particularly if they are connected to their bulk up loaders.
Rifle approach- look at where each individually property is best marketed ie niche portals specializing in waterside or rural or just generally luxury. Is the property one that meets FIRB requirements, if so consider listing globally.
Whatever, there is a paradigm shift in the way properties can be brought to market and that shift is leaning towards, Free to List, Niche markets and global listing.
The astute agents will be doing their marketing strategies more diligently and when they do all pay to list sites bar realestate.com will be dropped. If I was Domain I’d be worried and REview won’t be getting off the ground unless they become part of the paradigm shift and change to free to list..
There was an interesting write up today in The Age newspaper about the reaelstate.com.au price increase.
Here is the article from The Insider section.
(http://www.theage.com.au/business/ubs-revisions-irk-boral-investors-20100726-10slj.html)
REAL QUANDARY
With a website that drives up to 70 per cent of leads to real estate agents in some areas, the REA Group always faces a balancing act when trying to figure just how far to ratchet advertising prices.
The online advertising component in the total transaction cost of selling a home is extremely low, and in the short term price increases should flow straight to the bottom line because real estate agents have little reason to move away from the company’s realestate.com.au.
However, the biggest risk of pushing prices too far is that it brings forward the day when an aggressive competitor sets its sights on REA’s dominant market position.
With a fresh round of price rises starting on August 1, only time will tell whether REA is pushing too hard. According to industry chatter, the price rises will be a hefty 30 per cent this time around for some customers.
If the talk is correct, the increases are substantially more than investment markets expect. At present analysts from Macquarie are factoring in revenue growth of just 11 per cent from REA’s Australian operations in the year to June next year, the driver of the expected 23 per cent profit growth.
When it comes to new competition, Google is the only name to rate a mention. The search engine giant has already entered the market with a free listings product linked to a maps tool. To date, only one in ten agencies have signed up to feed real estate inventory to Google, but that statistic will be worth keeping an eye on if REA’s price rise stretches the friendship with its agency customers.
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I didnt know The Age was a reader of http://www.propertyportalwatch.com
Further information in about the realestate.com.au price increase.
It appears that most agents will get a 25% increase on the subscription price while premium products will increase by 30% or more.
E.g. a feature property will incease from $88 to $119 per month – a 35% increase
Let me know if you hear more
Simon Baker
The percentage increase might sound high, but gee – if my realestate agent says it will now cost me $119 to have my property “featured” for 4 weeks I’d laugh and say go ahead.
I’m trying to sell an asset worth hundreds of thousands or millions of dollars. Last nights dinner with my partner cost more. Even if it was $1,190 I’d still pay as a vendor.
So I don’t see the REA “pushing” very hard at all. Agents don’t pay this – they pass it on to vendors. And vendors are hardly going to hesitate at these price points. Or am i missing something?
The latest increase in realestate.com.au for a feature property went from $115.00 to $186.00 for 30 days in our particular area. And the Exclusvie Agent Showcase for houses went from $170.00 per week to $243.00 per week.
It was hard enough before this increase to get vendor paid advertising, let alone now.
Wow, these are some serious price increases…but when you are the only major player in the Australia market, it is what it is.