Digital portals build momentum in US property boom
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When Krishna Aurora, a California-based doctor, decided to buy a home two months ago, he turned to his smartphone. One click of an app enabled him to scroll through property listings, compare home prices and find out about local amenities even before setting a foot out the door.
“I didn’t want to waste time,” says Mr Aurora. “What’s the point of walking through houses I don’t like and spending time having coffee with multiple property agents, just to find out information I could get on my phone?”
Property websites such as Zillow and Trulia have disrupted the residential real estate sector by disseminating what was once tightly controlled proprietary data, from listings to crime rates and school statistics. Information that a decade ago was a property agent’s biggest competitive advantage is now available through websites and free mobile apps.
But unlike industries such as travel and retail, where the rise of the digital market has eliminated the traditional middleman, empowering the homebuyer has not dented the fortunes of US property brokers. In fact a symbiotic relationship has developed where online “aggregators” derive most, if not all, of their rapidly rising revenues from agents rather than individual homebuyers.
“Aggregator business models are built on selling advertising and operational tools to real estate professionals [and in turn] agents will pay to be in front of a large user base, which companies like Zillow have,” says Mark Mahaney, analyst at RBC Capital Markets.
This relationship is more strained in the UK, where six big real estate agents last month joined forces to launch a web portal to challenge Rightmove, the biggest UK property website in terms of visitors.
In the US, however, agents have little choice but to work with the digital start-ups because nine out of 10 homebuyers already rely on the internet as a primary research source, according to a study by the National Association of Realtors and Google.
This co-operation has also been spurred by the US housing recovery. With rapidly rising prices and depleting inventories, desperate homebuyers find the internet indispensable in their search.
“Buying a house can be incredibly time consuming. If you can get a head start by researching the location, price, school district and other basic criteria of a home before you meet an agent, you can create a more efficient homebuying process,” says Mr Aurora.
The result is that property websites have seen sharp increases in revenues and investor interest.
Zillow reported a 47 per cent rise in unique monthly visitors to the website to 46.7m in the first quarter compared with last year, and a 71 per cent rise in revenues to $39m. Trulia, which went public last year, posted a 52 per cent rise in visitors and 97 per cent jump in revenues to $24m. Shares in Zillow and Trulia are up 98 per cent and 80 per cent respectively in the year to date.
Both, however, have sacrificed profitability in search of growth. Zillow – which was founded in 2006 and went public in mid-2011 – posted a net loss of $3.7m in the first quarter, compared with a net profit of $1.7m a year earlier. Trulia’s net loss narrowed to $2m, from $4.2m in the first quarter of 2012.
This is in part because of spending on acquisitions and developing new products to attract new homebuyers.
Trulia announced in May that it had acquired Market Leader, a software company that helps property agents find, manage and market to new contacts, for $355m.
Zillow and Trulia have revamped their arsenal of mobile and web-based property search tools to help consumers ahead of the busy spring and summer buying season. These include financial calculators, improved mobile navigation panes, colour-coded mobile searches, faster-loading pages and home suggestions by email.
Aaron Kessler, analyst at Raymond James, says: “These companies are trying hard to leverage these eyeballs so they can charge as many agents for advertising as possible.”
Analysts say there is still much room for growth, but as with any burgeoning new market, whoever emerges as the winner – by securing the greatest homebuyer traffic – would be likely to capture the lion’s share of profits.
Kerry Rice, analyst at Needham, said there are 500,000 people in the US selling real estate as a full-time job. “These websites collectively receive subscriptions from just over 10 per cent of agents. That’s just a fraction of the market,” he says.
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