Online real estate portals

Online real estate portals

Published on 2 July 2018

“Over the past 20 years, property searching by consumers and property marketing, primarily by agents, have both changed radically. For consumers, online searching has become the norm with over 90%t of searches starting online rather than in an agent’s office.” OnTheMarket admission document, January 2018

Why are real estate portals popular?

The popularity of online real estate portals is in part a reflection of the fragmented nature of the underlying real estate market. In the UK, the three largest agents only account for an estimated 11% of all branches nationally.

Agents that group their listings with other agents via an online portal share expertise, marketing costs and broaden their audience reach. Listing on a portal also allows the property to be viewed by potential purchasers who lack familiarity with local agents, improving the visibility of both the property and the agent.

How do real estate portals function?

In the UK property market, the estate agent’s customer is the vendor of the property. For an online property portal, the client is the estate agent, paying fees to the portal to have its inventory listed.So the portals customers are also supplying the inventory in the form of property details, driving traffic. Using a portal is essentially an important element in the marketing of property.

Which are the largest online portals?

The largest operator globally is Zillow in the US (Z.US, market cap US$12.5bn), with Australia-based REA Group (REA.ASX, market cap: A$11.8bn) the next largest player. The global portal leaders all offer valuation and data services and the industry data they handle clearly gives them a strong proposition to offer participating agencies.

The largest portal operator in the UK is Rightmove (RMV.LON, market cap £4.5bn). It is also the most expensive, charging an average revenue per partner agency (ARPA) of £879 in 2017, up over 10% from the previous year.

Zoopla is the second-largest UK portal in what was effectively a duopoly. Its parent company, ZPG, which also owns the uSwitch, Money, PrimeLocation and Hometrack brands, has recently agreed a cash bid from tech investor, Silver Lake.

Are there any challengers to the duopoly in the UK?

While Zoopla and Rightmove generate high levels of traffic, prices charged to participating agencies have risen inexorably year-on-year.Set up by estate agents as an alternative to the duopoly, OnTheMarket (OTMP.LON, market cap £105m) is now the third-largest UK property portal provider. It raised £30m on its IPO in February 2018.

How are real estate portals differentiated?

In most major markets, the market leader has adopted a policy of maximising its core customers’ property-derived revenues. The secondary players have, for the most part, adopted strategies to drive traffic by offering more products and services to the property purchaser.

In the UK market, Rightmove and ZPG have also adopted very different strategies to grow their top lines. The former focused on building out the products and services that it can offer its customers, whereas the latter built a much broader offering aimed at its clients’ clients.

Coming into the market as a portal operator with the interests of real estate agents central to its proposition, OnTheMarket can offer its customers the added value derived from the data it gleans from the portal. It has also been building its market share by offering free and discounted fees to attract new clients, supporting the associated marketing with the IPO proceeds.

Does a weaker housing market affect the portal market?

The UK housing market does not directly affect the health of the portal market as portals’ revenues are based on the number of participating branches and agencies rather than on transaction levels.

In fact, a weaker market may stimulate the use of portals by estate agents as they look to drive interest from a broader audience of potential purchasers. However, a protracted period of stagnation in the housing market may still pose a risk, as agencies will be generating less commission and fee revenue.

Even then branches are unlikely to withdraw from all portals, as this would severely affect their ability to market properties. It may be, though, that agents limit the number of portals to which they subscribe.

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