How Much Money do Property Portals Make Per Housing Transaction?

When researching an analysis piece on Rightmove's business a couple of weeks ago I was surprised to find out that the portal company's bottom line is not as closely tied to the domestic UK housing market in which it operates as I had assumed. The questions this raised have stuck with me since: just how dependent are property portals on the strength of the market they operate in? How much money do they make from every house sold?

Fortunately, although an apples-to-apples comparison is tough in some cases, between publicly traded portal company numbers and government sources we can make some pretty decent estimations around these questions which lead to more pertinent questions for the online real estate marketplaces industry.

Aussie portals make most per transaction

This is a basic one and relatively easy to find by crossing a portal company's domestic revenue with the number of housing transactions in the market. These portal companies will almost certainly know what they and their national competitors make, but a cross-market comparison is interesting nonetheless.

Australian portal Realestate.com.au generates the most revenue of the major publicly traded portals per housing transaction. Its domestic revenue per house sale in Australia went over US$1,000  in 2019 and was at an estimated US$897 in 2020. The fact that Realestate.com.au's domestic rival Domain is in second place when it comes to revenue generated per transaction is hardly a surprise; the Australian market differs from most mature markets in that the vendor is ultimately responsible for the cost of marketing their house rather than the agent.

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As vendors are the people who ultimately pay the price in Australia, they are perhaps more willing to pay a one-off fee (as opposed to a regular monthly fee that agents pay to portals and which they scrutinise as business costs). Vendors are unlikely to notice if this cost goes up as most people won't be selling their house every year and as the ultimate beneficiaries of the sale they are perhaps more motivated to pay for extras.

Using an advertising business to fund a moonshot

The big trend in the property portal space over the last few years has been to diversify offerings and generate revenue from ancillary parts of the property transaction or indeed from the actual transaction itself. There is no clearer example of this tactic than US market leader Zillow whose CEO Rich Barton has not been afraid to state clearly that he sees his company going down a path towards being a one-stop real estate shop.

We can see this very clearly if we compare Zillow'a revenue per market transaction for its listings business (Premier Agent) and its total revenue per market transaction (which includes all the company's operations including its iBuying division). Since starting iBuying in 2018 Zillow's revenue has shot up and in 2020 the firm generated $520 in revenue for every real estate sale in the US, less than half ($190) of which came from the company's bread and butter portal listings service.

While Zillow's iBuying venture remains unprofitable and that is unlikely to change any time soon, the company can absolutely continue to fund its 'one-stop-real-estate-shop' moonshot thanks not only to the largesse of its public market investors (as is the case with rival Opendoor and will soon be the case with Offerpad) but also because the company still makes around $50 of Adjusted EBITDA for every housing transaction in the country despite iBuying losses.

Zillow may be in second place to Opendoor when it comes to iBuying volumes and profit margins, but the fact that its advertising business is doing so well means it is not as vulnerable to the housing market or stock market fluctuations and may yet make good on its bosses' vision.

Agents pay a premium for market leaders, especially in the UK

Information on how much leading property portals charge agents for listings packages is hard to come by and usually not uniform. We can though make relative comparisons of how much revenue each of them generates per housing transaction in their respective markets:

Looking at the numbers it's easy to see why the investors we talk to put such emphasis on market-leading portals and why the portals themselves put so much effort into maintaining and proclaiming their leadership positions. In the USA and Australia, Zillow and Realestate.com.au are both generating around double the advertising revenue of #2 portals Realtor.com and Domain. In the UK however, the difference between market-leading Rightmove's revenues and that of #3 portal OnTheMarket is stark and goes to show just what a chasm there is for challenger portals in the country to overcome.

Obviously, OnTheMarket is a much younger business than either Realtor or Domain and the UK market (and Rightmove in particular) is something of a special case, but the fact that a market-leading portal in a mature market can charge double or even more than its nearest competitor for essentially providing the same service (only with more users) goes to show how important top spot is and how difficult it is to achieve.

Conclusion: It's an interesting and nuanced industry

Some of the data here show why the real estate marketing industry is so interesting. A market-leading company in Australia which does, for all intents and purposes, the same thing as another similar-sized market leader in Germany can generate more than 3 times the revenue per transaction simply because of some peculiarities in how the two markets work.

That said, the amount of money a portal company can generate on every housing transaction is not just down to the market itself. Being a market leader is clearly a very big deal and really does mean you can charge more. While we could split hairs and compare user experience between Rightmove and OnTheMarket, the reason that the former generated around US$280 per transaction in 2020 while OnTheMarket generated US$22 is purely down to the relative strength of the two brands and their ability to attract users.

One thing that will be interesting in the next few years is to see how the market leaders' revenue generated from their advertising businesses evolves. In particular, Rightmove's business model is dependent on the question of how much agents will be willing and able to pay going forwards? The only other lever for pure advertising businesses such as Rightmove's in this equation is the volume of sales in the market.

Zillow in particular seems to be aware of the fact that it is very much in its interests not to provoke agents any further than it already has in recent times by raising prices. The Californian firm's latest ad campaign and the media narrative that it has meticulously curated around the phrase 'the great reshuffling' seem to be subtle ways to pull the lever of greater transaction volumes in the market rather than going down the route of greater revenue per transaction.