OpinionIndustry News

Business models for online real estate

Perspective: From Property Portal Watch

Editor’s note: The following post is from Property Portal Watch, a site that offers information about property-search portals around the globe.

When looking at property portals around the world, there are various financial models that are being chased. Each of these models is discussed below. The models that are truly delivering returns to the operators are the subscription model and the pay-per-listing model.

Subscription Model

Many sites offer agents, or more likely the offices (brokers), the chance to buy a subscription to list all of their listings on a site. This model has the advantage in that they can get all of the listings from an agent onto the site and therefore offer the consumer a comprehensive search experience. Additional revenue for these sites is driven by the sale of "depth" products that allow an agent to upgrade their listing or to brand themselves on the site.

These sites often use the face-to-face approach or telemarketing teams to generate sales.

Some of the sites that take this approach are Realestate.com.au in Australia, Rightmove.co.uk in the United Kingdom, Propertyfinder.com in the United Kingdom, Athome.lu in Luxembourg, Allrealestate.co.nz in New Zealand, and Casa.it in Italy. Most of the companies that take this approach and reach scale are very profitable. For example, realestate.com.au in Australia generated $105 million in revenues in fiscal year 2008 (June 30 financial year) with a 50 percent EBITDA margin.

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Pay-Per-Listing Model

Some sites, such as Myhome.ie in Ireland, Immoweb.be in Belgium, Tradme.co.nz in New Zealand, and Entreparticuliers.fr in France choose to charge on a per-listing basis. This means that the advertiser (either agents, offices or private parties) pays for each listing to be placed on the site.

This has the advantage that the company is able to monetize each and every listing from the get-go. However, agents or offices often choose not to put all the listings up on the site in order to keep the costs down. This model, therefore, leaves open the door for other models to gain a foothold in their market. What is interesting to note is that all of the above players have strong revenue streams and are very profitable and are not chasing the goal of being the online property marketplace in the countries where they operate.

Free-to-List, Pay-to-Upgrade Model

Over the last few years the free-to-list, pay-to-upgrade model has been gaining momentum. This model allows agents to place their listings on the site for free and the company then tries to make money from either upgrading the listings (i.e. going to the top of the search) or offering the agents and offices (brokers) branding on the site. They also try to capture revenue through display advertising or products similar to Google AdWords.

There are two variations on this model. The first is a two-page model and the second is a three-page model. The two-page model hosts the search and search results pages on the site and then drives traffic to the agent’s site. The second model hosts all three pages — search, search results and property details pages — on the site and only drives e-mail and phone leads to the agents.

The underlying hope is that by having significant content on the site and by applying great search-engine optimization and public relations or by building social networking components on the site (e.g. blogs, forums, etc.) they will be able to attract enough traffic to generate leads for the agents and therefore play off of this lead generation to encourage agents to upgrade.

Most of the U.S sites operate this model (Realtor.com, Trulia.com, Zillow.com), and internationally there are sites such as Globrix.com and Dothomes.co.uk in the United Kingdom, and Properazzi.com, which is focusing globally. The challenge for all of these sites is that none of them, with the exception of Realtor.com, have reached enough scale to be profitable.

Lead-Generation Model

A model that had momentum a few years ago, especially in the United States, was the lead-generation model. This model attracted consumers to a site in order to capture the user details and to sell those details to the agents or mortgage providers. The consumers were attracted by either displaying the multiple listing service property information or through the offer of free valuations or help with the sale of their property.

The challenge with this model is that the quality of the leads is not always great and the agents found themselves paying high prices for converted leads. In many ways this model has been usurped by the free-to-list, pay-to-upgrade model. Sites that still take this approach are Homegain.com and Housevalues.com in the United States.

Pay-Per-Acquisition Model

The final model that exists is the pay-per-acquisition model. This model advertises the listings for free and the operator of the site shares in the commission on the sale of the property. Many of the smaller sites use this model as they are an adjunct to a property sales business — usually a developer business.

This is a hard business to run, as you have to track the sale right through to completion and then you have to capture your share of the commission.

Simon Baker is the creator of Property Portal Watch, and is former CEO and managing director for REA Group.

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