Portal Fees: Rightmove, Zoopla and OTM explain their ...

We recently asked readers for their questions to the portals - the questions they couldn’t really ask their local reps, but the ones they really wanted answers to.

We received many, many responses which we whittled down to seven questions - four on fees, two about new ways of working with agents, and one about technology.

All have been answered by the portals, although with very different degrees of detail. We are reproducing their responses in full - unedited - and agents can make up their own minds as to how well the portals addressed or ducked the issues.

Today, we look at fees and we will look at the other subjects later this week.

This is a long article - the portals have given some very full answers - and we hope you’ll let us know what you think in our comments section below.

Please check later this week for the other responses.

QUESTION 1: There’s a feeling that portals charge some agents more than others, even when other factors are roughly equal. Is this correct? If so, why? Should agents argue and bargain to get a better deal?

Rightmove says: “Agents can choose from three packages, Essential, Enhanced and Optimiser and the cost of the package reflects the amount of exposure an agent gets on Rightmove. Agents are charged per branch, or if they advertise a higher than average number of properties (more than 50% of their available stock) outside a 100,000 property radius around their branch location then they are additionally charged for virtual branches. This is to ensure that agents are charged consistently regardless of their business model.”

Zoopla says: “We have a standard rate card, but what an agent pays is directly proportional to a number of factors, including volume of listings, local property values, use of service, leads performance and so on. An agent in central London has contrary needs and uses to an agent in rural Cumbria, and it’s only fair that this is reflected in what they pay.

“Our pricing model is deliberately tailored to agent need and use, and to offer agents real value for money and a clear return on their investment. Agents know this, which is why 2,000 branches have joined Zoopla this year – led by some of the biggest names in the industry.

“Comments on EAT by agents show our fees are competitive and we know the importance of partnering with agents to work towards shared goals, which enables us to flex our proposition accordingly.”

OnTheMarket says: “Negotiating is at the heart of what agents do for their clients every day. Why would they not try to get the best possible portal deal?

“One of the main reasons for OnTheMarket’s entry into the market in 2015 was precisely to increase competition in the portals market and ultimately strengthen the negotiating hand of agents and get a better deal. Many agents still express strong dissatisfaction and resentment at the pricing power exercised by Rightmove to monetise their own property content. Before the launch of OnTheMarket, almost all agents listed on both Rightmove and Zoopla and there was minimal competition or switching between portals.

“Rightmove has long told analysts and investors about its aim to raise its monthly ARPA to £2,500 (Liberum: 2016) and Zoopla had hoped to close the gap between its fees and Rightmove’s,* however OnTheMarket dampened down Zoopla's pricing when it lost 20-25% of its agents at the time of OnTheMarket’s launch. If Rightmove achieves its objective of £2,500 per month, based on its current ARPA of £1,077, agents could be asked to pay up to £1,423 more every month (Rightmove ARPA £1,077: 2019 H1). Similarly, if Zoopla had succeeded in matching Rightmove, agents could now be paying more than £700 extra per office per month (based on Rightmove ARPA less last published Zoopla ARPA of £359 in 2017 FY).

“Our own paying contracts vary primarily according to term of commitment, agents' size in terms of branch numbers, their location and whether they operate in sales and/or lettings.

“In recognition of difficult market conditions for agents, our pricing pledge – announced in September – means agents who entered the new five-year listing agreement in February 2018 will enjoy a price freeze for their listings fees in 2020 rather than being charged an increase of up to 5% as allowed for within the agreement. By contrast, media coverage has referred to some agents being hit with a 30% price increase from Rightmove.

“A better deal is not only about listing fees. We also continue to attract, and convert trial offer agents on full-tariff, long-term contracts with share issuance. Over 3,000 agent firms operating over 6,000 branches are OnTheMarket shareholders, increasing the strong core membership around which we are building the differentiated OnTheMarket positioning.

“While Rightmove has historically insisted on analyst calls that it ‘doesn’t do discounts’ agents have referred to offers of price reductions to help stem the level of defection. Rightmove lost nearly 5% of its branches YoY (June 2018- June 2019). Meanwhile, evidence suggests that Zoopla takes a pragmatic approach to pricing.”

[*“At its IPO, the Zoopla pitch was that it would close the ARPA gap vs Rightmove....this hasn’t panned out as OnTheMarket has disrupted Zoopla” - Barclays analyst report following ZPG Capital Markets Day, 16 September 2016]

QUESTION 2. Agents must by law be increasingly transparent about their fees to clients. Why can’t the portals be similarly transparent to their agent customers, publishing their fees?

Rightmove says: “We work with agents to create tailored packages for them depending on the needs of their business, and they get a breakdown of all the costs of their core membership and products for the package that they choose.”

Zoopla says: “Transparency is important in any relationship, but it’s important to remember that fees and what agents pay any supplier are matters of commercial sensitivity – to both sides.

“We have a rate card that is available to any agent who requests it, and we have regular and open conversations with our customers about fees. Agents often request nuanced packages in which they dial up some services and dial down others; we are responsive to this as we want to ensure that we can support them as effectively as possible.”

OnTheMarket says: “As part of our commitment to the principle of sustainably fair pricing, OnTheMarket does not put agents in a position where many say they feel ‘forced’ to accept bundled packages of core listing fees plus additional advertising products.

“OnTheMarket has also been transparent about the number of leads it provides for every £100 spent. OnTheMarket’s H1 figures for 2019 showed the portal provided 28 leads for every £100 of monthly fees. In stark contrast, Rightmove generated 16 leads for every £100 of fees across the equivalent time period – a 75% difference (based on a monthly ARPA for Rightmove of £1,077 and £331 for OnTheMarket.)

“In a free society where intervention and fixed pricing are not the norm, agents have the choice not to submit to pricing which they find unreasonable when they evaluate cost and value. As the providers of both the revenue and the core content of portals, they are free to switch and to bring an end to the situation where their monthly Rightmove ARPA can be higher than the cost of renting their office. Property-seekers will find the stock, wherever it is displayed, provided that the portal is well marketed and has an exceptional user experience.

“Many agents believe Rightmove’s profit margin is excessive but can also recognise that they have the opportunity to build their own agent-backed market-leading alternative which is committed to sustainably fair pricing as well as the delivery of long-term operational and shareholder value.”

QUESTION 3. If portals owe their primary commercial duty to shareholders or private owners, is it simply a waste of time for agents to think the portals will ever act primarily in their [agents’] interests?

Rightmove says: “Over the past year there have been 900 changes made to the Rightmove platforms, some big changes like a complete overhaul of the Best Price Guide, through to smaller updates behind the scenes to keep the website fast and easy to use.

“Rightmove’s CEO Peter Brooks-Johnson explains what the teams have been working on for agents and what’s coming up: ‘For Rightmove to be valuable, it has to be a long term viable proposition. It can only be a long term viable proposition if it continues to deliver for its agent customers. We are always trying to balance the needs and demands of both agents and home hunters to make sure we deliver value to both, for now and in the future. Rightmove continually upgrades its underlying technology encompassing advances in technology, and we make the changes gradual to make it easy for all to adapt and change with us. For example, a few years ago we moved our entire search to use a tool called Elastic Search to speed up searches and allow us to add new features such as Keyword Sort.

‘When talking to agents there are three key things they say they want from us: more ways to win more instructions, quality leads, and tools and products that don’t take up too much of their time to use. So that’s what we continue to focus on. As there are so many different local markets with very different challenges, we always look at our products and tools to make sure they work for both over-supply and under-supply markets.

‘We’ve been making improvements to our tools to make them quicker and easier to use like the recent upgrade of the Best Price Guide, and we’ve been creating new products that work without an agent having to manually do anything, like auto featured property. We have a new product launching in January, Sold By Me, that gives agents a prominent place within the search results pages to shout about the properties they’ve sold, which again works automatically. We’ve also created a new tool called Opportunity Manager, which is a way for an agent to prioritise the leads they receive by highlighting to them people who are the most likely to be selling their houses.

‘Our teams work with agents continuously, helping them come up with new ideas for their marketing campaigns on Rightmove, making sure they’re kept up to date with the latest industry news and best practice through hundreds of hours of webinars available on the Rightmove hub, and showing them how best to use our tools to help them grow their business. We will continue to innovate for agents in 2020.’ “

Zoopla says: “As with any business, shareholder success can only ever be a function of customer delight and desire to partner with us.

“I suspect you’ve heard me say this a number of times, but driving value for agents is a key priority for everyone at Zoopla. The agent path to growth is our path to growth. This has been the case since our inception over a decade ago and remains the same to this day.”

OnTheMarket says: “Any business has to balance the interests of its range of stakeholders, whether they are customers, employees, institutional shareholders, private equity owners or individual private investors.

“We certainly believe that Rightmove with its 75%+ profit margin acts primarily to serve its shareholders and it’s difficult to see why agents would expect a private American equity firm such as Silver Lake (the owner of Zoopla) to act first and foremost in their best interests.

“By contrast, OnTheMarket is more than 70% owned by agents, with over 3,000 firms and 6,000 branches invested in the business. We continue to expand the agent ownership group by issuing shares to agents who commit to long-term contracts with OnTheMarket (and fixing their listing fees over the term). As a business which is backed by agents, the agents’ interests are naturally paramount.

“We know that it is perfectly feasible to generate substantial profits and shareholder value whilst charging sustainably fair prices to our agent customers and shareholders. Supportive non-agent investors, including institutional shareholders, can see the potential for a clear alignment of interests.”

QUESTION 4. Will portals ever switch to commission-based pricing or some other payment model, instead of monthly subscriptions?

Rightmove says: “A Rightmove monthly subscription gives agents more than just a listing tool for their properties, it gives them access to insight tools, products and training to help them in their local area, offering more value to an agent when compared with other payment models.”

Zoopla says: “The monthly subscription model is effective and favoured by the majority of agents, offering flexibility by enabling them to subscribe to additional services when the need arises. It also provides cost transparency, giving agents clarity over their outgoings.

“That said, we recognise our charging structures need to evolve as agent business models also evolve, and it is critical that we assess and respond based on agent need.”

OnTheMarket says: “Any pricing model must recognise that it is agents who sell and let property, not portals, which exist to connect buyers, sellers, landlords and tenants with those agents with relevant properties or expertise.

“And it is a unique feature of the business model of OnTheMarket that we are aiming to achieve a realignment of value whereby those agents who list with us under long-term contracts can share in the value of their portal as well as investing with the aim of earning dividends and continuing to pay sustainably fair listing fees which substantially undercut those charged by Rightmove.

“It’s easy to see the appeal of a performance-based model. The simplicity of the monthly subscription model is the predictability of costs from an agent’s perspective and the stability of recurring revenue from a portal’s perspective but there are practical issues, not least the logistical complexities of quantifying fair value and tracking enquiries through to short-term and long-term revenue-generating transactions for agents.

“Any agent who feels they are being over-charged can now vote with their feet, subject to honouring contracts, and operate their freedom to switch between portals to secure the best mix to suit their particular needs and budget. This might mean splitting lettings and sales or adjusting contract term commitment or switching any budget allocated to additional advertising products. But the introduction of OnTheMarket to the portals’ sector has given agents a real choice.”