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Winter Is Coming

Winter Is Coming

Ray White Group has thrown its weight behind a group of estate agents called Real Estate Digital Marketing Services (REDMS), to negotiate online ad rates, reported the SMH on Thursday.

So what implications does this have for REA Group Limited’s Realestate.com.au (ASX:REA)? In my opinion, probably not that much (although, I do not intend to offend any of our readers who might be real estate agents).

Back in my hometown of Perth, similar events occurred in the 1970s and ’80s. Prices for listing property in The Western Australian were considered, at the time, to be expensive – and real estate agents tried to boycott the paper. It fell apart as some boycott members began to take advantage of the less competitive landscape, continuing to list in the paper.

Estimates vary (widely), but REA provides roughly 50-90 per cent (REA quotes 85 per cent) of leads nationwide to real estate agents. To a degree, this means that REA is a pre-requisite for running a real estate agency and hence they deliver significant value. If talks stagnate and agents banding with REDMS boycott REA, I would speculate that they may be in for quite a hit to their cash flows.

On the other hand, REA has relationships with about 9,200 agents nationwide. If the group (which is now estimated to have roughly 1,000 agents) were to suddenly leave, it would surely be a hit to REA, but nothing life-threatening.

 

 

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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Comments

  1. The REA group also has the competitive advantage of intellectual property rights and operating in multiple markets. Hard to imagine how a “better product” would displace it in this field?

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