Property portals generate revenue from estate agents regardless of the outcome of the transaction. This relationship has resulted in a fundamental misalignment of interests between listing websites, which are only interested in generating traffic and leads, and estate agencies, which only generate revenue if a property sells.
Of course, portals have played an important role in shaping property marketing and have impacted consumer behaviour. With the advent of widespread internet, it was inevitable that property marketplaces and listings websites would appear in some form or another.
Initially, it was only a selection of peer-to-peer offerings, like Craigslist. Early versions of these sites were less sophisticated and provided customers with a rudimentary selection of property listings.
These initial marketplaces served the very beginnings of property search and discovery, hitting the basic requirements for finding a home but nothing else. They were, however, free to use.
As online businesses evolved to meet the demands of the digital age, so did the property industry. The first property marketplaces with a greater focus on advertising began to materialise, aiming to bridge the gap between home movers and businesses.
This ended up being a one-sided bridge, however, with estate agents paying the portals to list their properties. And it’s at this point that the fundamental misalignment of interests between portals and their agent clients began to form.
To visualise how serious this issue has become, one only needs to compare the graphs of the share price of major portals versus the share price of large, publicly listed estate agency businesses.
For example, since January 2015, Rightmove's share price has increased from 225p to 663p in 2020. Across the same period, Countrywide's share price has dropped from a peak of 597p in May 2015 to a low of 3.6p in June 2019.
Meanwhile, Foxtons’ share price peaked at 285p in May 2015, and has since dropped to around the 81p mark in January 2020.
Quality vs quantity?
The portals provide an advertising platform without an emphasis on actual sales/lets. This means that in their reporting of performance, they prioritise page views over transaction figures and subsequently quantity over quality.
On the other hand, what agents need is the exact opposite. Agents need transactions not views, and real buyers/tenants over pointless eyeballs.
As the major portals have grown, consumers now expect agents to provide online listings when selling a property. As a result, portals have increased their listings costs, meaning agents are now spending more than ever before on the same listing service.
Based on agents’ feedback, some have seen their marketing spend on portals grow to between 15-25% of their monthly operating expense. This is a particularly big problem when margins are squeezed and properties take longer to sell, as there is an even higher marketing cost per property.
The lead figures reported are shown as an average for the country which doesn’t take into account the size of the agency, the monthly fee they pay and the cost of the lead. This means that the agent paying similar fees in different parts of the country might have a completely different cost per lead and as a result cost of per sold/let property.
What is the ultimate solution?
Agents should not be charged for listings full stop. They provide the necessary data to make portals successful in the first place. No portal could exist without property listings, so it is bizarre that agents also have to pay for the data they provide.
Or alternatively, the portals could charge per lead (sales and letting). The fee could vary based on the quality of the lead or the action taken i.e. a person who booked a viewing is more motivated than a person who did a property enquiry.
So, when the business is strong, the agents pay more and when the business is slow, the agents pay proportionally to the economic activity they see. This will help better align portals with estate agents and remove the misalignment between them.
*Babek Ismayil is Founder and CEO of OneDome, which owns free-to-list property search websites onedome.com and nethouseprices.com. OneDome offers agents free listing for 100 years, the only company in the UK to contractually guarantee this.