2004 Analysis Online Real Estate Advertising Comes Of Age
Borrell Associates Inc, September 2004
A superheated home-sales market has masked some subtle shifts in the $11.5 billion Real Estate advertising category. Homes are selling faster than agents can advertise them, and a new, less expensive way of reaching home buyers has emerged in the form of MLS-based Web sites. Meanwhile, an erosion of traditional media advertising -- particularly for newspapers -- has been occurring. In 1997, newspapers received $755 per home sold in advertising revenues; today it's $605. This Borrell Associates report examines the shift and and provides additional insights from surveys with classified advertising, online managers, and MLS executives.
Executive Summary
Chapter 1, The Internet Comes of Age
Chapter 2, Newspapers' Print and Online Focus Chapter 3, Booming Home Sales, Booming Ad Revenue?
Conclusions & Recommendations
List of Graphs and Charts
1. Top 20 Visited Real Estate Web Sites
2. Who Receives MLS Listings
3. MLSs Receiving Payment for Listings
4. 2003-2004 Real Estate Advertising Receipts
5. Change in Gross R.E. Classified Revenue at 56 Newspapers Q1&2 2004
6. Newspaper Online Revenue by Type of Advertising Application
7. Print Competitors in Real Estate for Newspaper
8. Online Competitors in Real Estate for Newspapers
9. Ad Spending per Home Sold, Newspaper vs. Online
10. Distribution of Online Real Estate Advertising by Percentage
11. Description of Major Online Real Estate Companies
Change has always come slowly in the real estate business. But in less than a decade, technology has created a whole new way of marketing properties. The changes are affecting the way agents and brokers spend $11.5 billion in advertising. This year they will spend nearly $1.3 billion –11.2% of their budgets – on Internet media. More Realtors now use personal computers than mobile phones. Their PCs, linked to the Internet, have become a vital connection to that thin but rich slice of prospects – that 2 percent of the adult population that is actively seeking a home at any given time. The Internet is now the No. 2 medium for reaching home buyers – second only to the faithful old yard sign. Until the Internet came along, the massive databases of property listings managed by Multiple Listings Services (MLSs) across the country posed only a latent threat to traditional media. Newspapers and magazines, accustomed to controlling 70% of real estate ad budgets, based their business on payment for listings. Now, through a two-year-old National Association of Realtors policy known as IDX, or Internet Data Exchange, consumers can access MLS databases that are 15 times more comprehensive than listings typically found in the newspaper or a homes magazine. Moreover, the listings are readily available to the public without the agent having to pay. The policy is having a profound affect on how agents and brokers reach consumers. A glance at the most-trafficked real estate Web sites brings the situation into focus: Nine of the Top 20 are operated by traditional brokerage firms and builders. The problem hasn't gone unnoticed by newspaper ad managers. When asked to identify the leading competitor to their print product, virtually all named another newspaper or local homes magazine. But when asked to name their leading competitor on the Internet, half of them identified their own customers:agents and brokers.
On the surface, all seems well for traditional media companies. Most newspaper companies are reporting gross real estate revenue and print linage growing at an average rate of 6 percent this year, fending off any fears that the Internet has eroded the businesses. But strip away inflation and rate hikes, and add the fact that record numbers of homes are being sold, and the picture changes. Seven years ago, agents, brokers and developers spent $755 on newspaper advertising for every home sold. This year it will be $605. Meanwhile, online ad spending per home sold during the same period went from $16 to $148. The pure-play competitors continue to strengthen their offerings and consolidate. They are building revenues in a far different way than traditional media, focusing on lead-generation fees rather than banner advertising or listings fees. While the battle for eyeballs seems split among dozens of companies with small market shares, the fight for $1.3 billion in online real estate advertising boils down to just a few. Two companies dominate nearly one-third of all ad spending in this category. What happens next? A lot depends on supply and demand – whether home sales rise or fall. Growth and contraction in the real estate industry is a complex cycle affected by interest rates, lending policies, unemployment rates and the evolving demographics of the population. However, it's difficult to believe that home sales can continue their record pace much longer. The underpinnings of a dramatic shift in ad spending have already been laid. When the superheated home-sales cycle ends, online media may accelerate significantly as real estate advertisers weed out their less-efficient marketing efforts and focus on the most trackable medium with the best return – the Internet.
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