New REA Group pricing model facing opposition

Real estate agents have threatened to boycott realestate.com.au if negotiations over new pricing were found to be unsatisfactory

REA Group is ruffling feathers in the real estate industry with its new online marketing pricing model, as it rides the property boom and the ongoing shift to digital services.

The owner of realestate.com.au introduced a new market-based pricing model for advertising property on its website as of 1 July, aligning ad costs with postcodes in what they deem as 'depth products'. This means agents advertising properties in more affluent or popular postcodes will face higher costs, while in postcodes with lower median property values, prices should fall.

This shift to digital advertising has seen impressive returns for shareholders, as Commonwealth Bank’s MyWealth reports that shares in REA Group have risen 700% over the past five years – also as a result of REA’s international expansion into both European and Asian markets.

However, real estate agents have expressed concern for the new model, and some have even threatened to boycott realestate.com.au if negotiations over the new pricing were found to be unsatisfactory.

In response, the REA Group held an investor briefing session during which the interim chief executive Peter Tonagh told agents they are “critical” to the property process and remain core to the company’s strategy. “Empowering agents by providing them with access to the largest audience of property seekers and movers” is part of REA's strategy.

“We saw where the property advertising market was headed and made a deliberate decision to shift our focus from subscriptions to depth products which meet specific market needs,” Ellis said in a February statement.

The controversy goes deeper as REA Group, which is more than 60% owned by News Corporation, has been challenged by rival Domain, which falls within the Fairfax media stable.

Last month, Domain chief executive Antony Catalano released a two-page open letter to agents criticising REA's change in fee structure, claiming that the number of sales in the market bore little resemblance to the size of its audience.

“The fact is that a large number of their unique visitors are not genuine buyers. Notwithstanding, they are charging your vendor for all those visitors,” Catalano said. The letter also accused the company of treating real estate agents with contempt.

“If Australia's real estate industry had any doubts that it is fuelling its own demise it need look no further than the reality behind REA's latest round of price hikes,” Catalano wrote. “Increases of up to 60% are again being thrust upon the industry in what can only be described as an extortionate money grab by an organisation that seems to think that agents individually are powerless to stop them.”

Catalano also raised an unpleasant prospect for agents, suggesting that the next step in REA’s growth is to “encroach on agent commissions through the introduction of paid vendor leads”, meaning agents could be cut out of the process with REA instead going direct to vendors.

Tonagh acknowledged that while there was an indication that agent concern about REA’s pricing and strategy was genuine, some of this had been driven by misinformation, while refuting the idea that REA was trying to cut agents out of the selling process.