Will real estate agents in Australia go the way of those in China — where the number one portal is competing directly against them?
The experience of agents in China shows what could happen here if one or more of the big local real estate portals decides to compete directly with agents.
The dominant portal for people who want to buy real estate in China, known as Soufun.com, has angered agents first by dramatically raising prices and then by going into competition with them.
(Disclosure: I do public relations for Juwai.com, which is the Chinese portal for people wanting to buy real estate outside of China.)
Agents Rebell
Soufun’s fight against agents got heated in August. Thirteen Chinese real estate agencies, all in the large Shanghai market, came together to boycott the portal.
To put this in Australian terms, imagine 35% of the real estate agents in Melbourne simultaneously pulling all of their advertising and listings from realestate.com.au and/or domain.
Their complaint is that Soufun raised its prices 10 times in just five years, pushing the cost to agents up by a multiple of 10.
The agents said, they “feel like they’re dealing with a monopoly and are ‘held hostage’”’ by soaring advertising rates,” reported the Wall Street Journal. In language that will sound familiar to any reader of this blog, the agents accused Soufun of “unfairly using its market power to raise prices,” they said.
Not everyone took the agents’ side in this battle. Here’s a translation of one social media post that represents the skeptics’ point of view:
“It’s the Internet age and real estate agents who only stick to bricks and mortar will only be dragging out their feeble existence.”
Portals Competing with Agents
Things have gotten considerably more difficult for Chinese real estate agents since that pleasant thought was posted online.
Soufun is still charging high fees, but that’s not all. Now, the portal is also competing directly with real estate agents. This development is being cheered by investors, with Deutsche Bank upgrading SouFun’s stock from “Neutral” to “Buy.”
Soufun intends to become a “one-stop-shop for developers”, to the detriment of the agents’ role in new-development marketing.
SouFun has also invested in three large agency networks, including Century 21 China. In its press release, Soufun says it will now give Century 21 “preferred” services over competing agents.
Economic Journal Insight speculates that Soufun wants to “cut its dependence on property agencies.” If it can work directly with consumers, it will get the whole commission check, and not just a relatively small marketing budget.
Soufun’s plan seems to be succeeding. Even before its investment in Century 21 this week, it already earned about one-third of its revenue from the real estate agents it directly owned.
What Is Your Future?
Soufun’s future plans can only include expanding its beachhead on the territory of real estate agents. If it succeeds, there are three obvious goals that would motivate it:
1. Put competing real estate agents out of business.
2. Deskill and cut the employment costs of the agents it controls.
3. Shift more of the real estate sales process to low-cost online interactions that allow for bigger margins.
Soufun’s closest Australian partner is realestate.com.au, which announced an agreement with the Chinese domestic website earlier this year. To be fair, that doesn’t necessarily mean REA will begin implementing Soufun-style changes in Australia any time soon.
REA’s close relationship with Soufun does, however, make one very curious to know exactly how far their partnership will go. Will realestate.com.au will follow Soufun’s path to “cut its dependence on real estate agents”?
If REA did compete with agents, which side would win?
I don’t have the answer to those questions. I’ll leave it to you to decide for yourself which future you believe in.
26 Comments
Glenn
“””Soufun is still charging high fees, but that’s not all. Now, the portal is also competing directly with real estate agents. This development is being cheered by investors, with Deutsche Bank upgrading SouFun’s stock from “Neutral” to “Buy.””””
If that’s the case REA has no choice as they are bound to do the best by their shareholders.
Not to say it will happen overnight but ……….wait for it……………….
Dave Platter
Interesting perspective, Glenn. So you really think REA will do it – start competing with agents?
Glenn
The market is obviously different here Dave but the lead up scenario looks very familiar, the agents here are upset with fee hikes but the thinking was one day they would band together and punish REA …but from what happened in China it appears that may backfire….I bet no one thought of that before.
Dave Platter
You’re probably right about that! Thanks for the great comments.
Michael
Yep, I am sure you could trust Rupert Murdoch. REA’s greed knows no limits.
Glenn
Well Michael they’ve done pretty well so far, I can see they are now dipping their toe in the water to get closer to the vendors but I don’t follow residential all that closely, I guess when the time’s right they will follow a successful model and if that means the soufun model so be it.
simon strauss
Dave I wonder if you could outline a couple of models.
Could it be possible or probable that we will see buyers and sellers interacting directly via real estate “dating” sites? And if this were to occur then would REA and other incumbents be the top dogs for long or would we see similar challenges to those that are occurring in our taxi industry from more agile lower cost online savvy players?
Dave Platter
Simon, great question. I have always believed that –unless REA makes many and serious mistakes– it would be very hard to knock them out of first place, unless a new player emerges along with a new technology that makes their next generation offering superior. This is what happened with the papers. They remained dominant until REA emerged, taking advantage of the new and superior technology of the internet.
simon strauss
Re a disruptive model: This seems applicable – http://www.aussieautosearch.com.au/
Glenn
I suspect REA are across all possible future threats, this latest news from China indicates that perhaps the agents “content” isn’t as valuable as they once thought if they can be bypassed.
Their big hope was an industry portal and move their content there for control over pricing but they could never get their act together to support once sufficiently……it may be too late now.
Simon as for the taxi industry comparison, not sure if it applies here but I haven’t called a regular cab since Uber arrived on the scene….they are just too good at what they do.
Martin Crampton
Having a friend who did the joint venture between REA & the Melbourne-based tech platform managing online real estate sales earlier this year, I posted this in Business2 in July:
“July 29, 2014 at 2:37 pm
Glenn, do you know it it is true that realestate.com.au already has sales commission sharing in China? If so, what are your thoughts on real estate agents as the frog being slowly boiled? Will they just keep denying it can happen in Australia until it’s too late?
The Zillow/Truilia pact in the US is a bit like Realestate.com.au & Domain combining in Oz, albeit our subscription model being different and our market with the portals as a more established and vital part of agency life. If agents are happy to have the prospects attracted to their listings on the big portals sold to other agents (via “ebrochure” product), why wouldn’t they share commissions if the portal gained the buyer for their listing?
http://pando.com/2014/07/28/can-the-zillow-trulia-merger-finally-disrupt-the-home-buying-process-brokers-should-be-terrified-to-find-out …”
Ps For your history flles, Dave & Glenn, we founded the original national real estate portal, Property.com.au (originally named R.E.View), well before REA became its major competitor (and while SEEK, Carsales & Realtor.com weren’t even a glint in their founder’s eyes). REA eventually purchased it when they were both around a similar size. Property.com.au was jointly owned by us and the REI’s whom we worked tirelessly to convince this was the best model for the industry into the future. REA got a leg-up when some high profile agents (who were good newspaper (commission?) clients but obviously lacking foresight), demanded the REI’s divest themselves of any ownership). (As the well-paid CEO employed after the original heady founding, missonary years, no correspondence will be entered into, Simon Baker 🙂
Dave Platter
Martin, thanks for that history. It’s amazing now -with REA literally worth billions and the newspapers foundering- to think back to when sites like Property.com.au and realestate.com.au had to struggle to get a handful of agents to post their listings. I’d love to do a post sometime soon, if you’re willing, in which you take us back to what it was like for you in those early startup days.
Glenn
Property.com.au was owned by PHP as I remember, then REA, didn’t know the rest of the story.
Fairfax was the only one who could have won over them but we all know the story there.
REA has only made one mistake that I know of, not buying Commercialrealestate.com.au it was, and still is, the perfect match domain name.
Glenn
Well ……not their only mistake of course but the one that stood out for me 🙂
simon strauss
Glenn, Speaking of domains I’ve got realestate-australia.com and australian-realestate.com if anyone would like to play.
Glenn
Simon,
Got enough thanks –
australianrealestate.net.au
australiarealestate.com.au
australiarealestate.net.au
commercialindustrialrealestate.com.au
commercialindustrialrealestate.net.au
commercialrealestatelistings.com.au
commercialrealestatelistings.net.au
commercialrealestatesearch.com.au
commercialrealestatesearch.net.au
commercialrealtor.net.au
employmentclassifieds.com.au
employmentclassifieds.net.au
industrialrealestate.net.au
realestateproperty.com.au
realestaterequirements.com.au
realestaterequirements.net.au
accommodationweb.com.au
accommodationweb.net.au
simon strauss
Ah a kindred spirit… virtual real estate. I’ve got a longstanding .com collection. We are slowly developing them…. We have quite a few geographic portals that are live and a collection of energy and resource sites.
Martin Crampton
There were thousands of agencies signed-up before the monopoly was formed by their aggregation, Dave. (You couldn’t be expected to know, Glenn. You were a babe in arms :)) Apart from our initial big challenge in attempting to align/overcome the competing political interests of the REI’s, EAC, REAWA Multilist etc, (to say nothing of actuallly educating agents to move from manilla folders to computers), once “privatised”, Property.com.au’s sales grunt wasn’t funded as well as REA’s who also had the benefit of operational and financial independence. (Fairfax was always blinded by its newspapers & the Bain and Co. & McKinseys consultants determining their “future” as usual focused on cost savings + no commercial practicality).
Dave Platter
Martin, did you have to scan all their listings photos yourself, to get them online?
Martin Crampton
Fun, Glenn and Simon.
I think I can trump you. I remember pondering whether I should snap-up God.com !! I wondered whether an online cemetary might work 🙂
simon strauss
? gonetogod.com
Martin Crampton
No, Dave. We didn’t use the Craig’s List philosophy and that sort of technology didn’t exist. It was a very large marketing effort based on the most expensive factor of all in the marketing mix, education. We dealt directly with agents gaining their listings directly, beginning with faxes! We introduced real estate talkback to radio (gaining 3 AW’s highest ever Drive ratings!), produced Australia’s 1st-ever home real estate TV show, did the 1st-ever JV with a Uni to educate the public on how to use the Internet etc etc….and what of the JV with News Ltd who printed lines of listings over 8 pages of valuable newspaper print! To make it more interesting/intriguing, we began before the Netscape browser had been launched! That required a little bit of vision! Go figure! (as you Americans would say 🙂 )
Startups today think life is frenetic sitting at a ‘puter syndicating blogs, punching-out Hootsuite tweets, Pinterest tiles and attending Silicon Beach and being interviewed at tech events. I have a different perspective on frenetic Hahaha!! There would have been a book in it once-upon-a-time.
You’ve opened-up a lot of memories I haven’t considered for some time. No more for here. I know there are viewers in here who already only think in terms of mobile and phablets. And to be honest, I’m pretty much that way inclined too. But on a day when a great visionary and certainly entrepreneurial Australian politicina died (Vale Gough Whitlam), I have allowed myself a tad of retrospection.
Dave Platter
Here, here, Martin. Thanks for sharing that.
Dave Platter
This just in: Soufun has bought 16% of another real estate group to better compete with other agents. Here’s the link:
http://seekingalpha.com/pr/11517745-soufun-signed-investment-and-joint-venture-agreements-with-one-of-chinas-top-5-leading-new-home-agency-companies
Glenn
Thanks Dave, very interesting.
I’m sure the majors here are following this very closely.
David King
Interesting article Dave. It would be a hard job to be a real estate agent in the major cities of the world when competing with REA or Soufun or the like . In regional towns not so, local knowledge is sought after and is key for regional renters and investors. Local knowledge of development and current/future services to property make the local real estate agent an important member of a community.