Most people know what the Internet did to local mom and pop Travel Agents. Most are out of business now or they've radically reshaped their service or value proposition. Why did this happen? Because there was a much better way to research and book travel online. No only that - consumers could save a lot of money.

The formula for the web disrupting an existing business model is well known.

1. lower cost
2. more control in the consumers hand
3. better value proposition

When you combine all three, you have a category killer like we saw with local travel agents.

There's an interesting related story here from the local advertising space where the advertising vehicles of old, like print newspapers, are on a parallel path to that of the local travel agent. More and more, realtors, builders, and rental properties are advertising online. Why? Because they know their customer base is steadily moving there - and it's not a subtle pattern. The customers and advertisers are showing up online in places like Craigslist.org and Googlebase.com and the online versions of their local newspaper.

In June 2006, Borrell Assoicates, a leading consultant in the local advertising space, released some new figures that showed that in the last 5 years the online share of real estate ad revenue had moved from 3.5% to 17.7%.

According to an article titled Real Estate Classifieds Moving Online on eMarketer today, which reported on findings published on Classified Intelligence:

"Additional findings from Classified Intelligence also confirm the changing dynamics of the real estate advertising sector. In a survey of more than 100 real estate agents conducted with RealtyTimes.com, 58% of respondents indicated they are raising their advertising budgets this year, but the majority said they would be spending the bulk of their money online on their own Web sites. Free Web sites such as Craigslist and Googlebase are also attracting an increasing proportion of real estate agents over traditional mediums such as local print."

The web has been eating away at all areas of print classifieds for quite some time now, but the real estate industry, and local realtors in particular, have been able to stay ahead of the game by continuing to monopolize the MLS listings. But that's starting to change. Today, as tools like Craigslist and Googlebase become more popular, the MLS becomes less and less relevant. That's key. The MLS boards and their member Realtors can continue to keep a stranglehold on their last vestiges of 'control' but not for much longer. The old guard that fails to adopt new practices will be left holding an empty bag, wondering where all their clients went.

Maybe it's time to get another kind of license soon?

What do you think? Have your say by taking our online poll.

By Kate Kaye | June 29, 2006

The Web has put the real estate ad industry in constant flux in recent years, and a new Borrell Associates report indicates there are no signs of things settling any time soon. Indeed, online real estate ad spending is expected to grow from $2 billion this year to $3 billion by 2010, rising from a 17.7 percent share of all real estate ad spending to 32.1 percent.

Not only are new Web sites and search tools having an impact, advertisers are also shifting dollars within the print space.

"There's still a lot of room for online spending," observed Borrell Associates VP Pete Conti. The research firm found that while 77 percent of real estate buyers use the Internet for home searches, just 15 percent of the 535 agents surveyed place ad dollars there. Forty-seven percent of agents said they'd spend more online this year than last, and 45 percent said they'd spend the same amount.

The "2006 Update: Online Real Estate Advertising" report puts this in context, noting, "In May we met with the owner of one large brokerage firm who expressed frustration that while potential customers had moved online en masse, his agents hadn't changed their advertising habits correspondingly."

On the whole, newspapers will continue to experience a decline in real estate spending. The report predicts that the 37 percent share attributed to newspapers this year will move down to 30 percent in 2010. These numbers can be deceiving, though; some won't necessarily feel the burn. According to the report, more real estate agents said they plan to raise newspaper ad spending this year -- 42 percent -- compared to 40 percent who said they'd spend the same amount.

Because agents typically aim to target small regional markets rather than large metro areas, they're finding, "They can get a better bang for their buck in a small community paper." While classified ad spending in large metro dailies will dwindle, those dollars will flow towards less-expensive but more targeted suburban and community papers and alternative weeklies, according to the Borrell report. "Agents are running from the metro dailies," said Conti.

Online newspaper sites are gaining online real estate classifieds dollars. Yet even though those Web classifieds are seen by more people than print classifieds, said Conti, the lion's share of those dollars is attributed to the print version of the paper. This "kind of masks the increases," he added.

Real estate advertisers will also spend less on non-newspaper print media and direct mail in the coming years according to the report. Ad buys in magazines and niche publications will drop from 17 percent to almost 13 percent by 2010, while direct mail spends will decline about 3 points from 16 to 13 percent, mainly due to postage costs and increased use of email by agents.

A Borrell Associates report released in March showed that real estate agents did the majority of local search advertising. Search ads for individual local agents rose from 17.5 percent of local search ads in 2004 to 49.6 percent of listings on keyword searches across 10 different cities this year.

The report also found a disparity between long-time agents and those who are relatively new to the industry. It showed that 36 percent of those who have been agents 10 years or longer use online advertising, while 64 percent of those in the business for 10 years or fewer buy online ads. Seventy-one percent of those less-experienced agents will boost their Web ad budgets this year compared to 48 percent of their veteran counterparts.

The agents with longer histories in the industry, opined Conti, "are going to lose out pretty soon" because more and more people entering the market are using the Web to find their next home.

Free listings sites provided by alt weeklies and sites like Craigslist and GoogleBase "will have a big influence over the next 6 months to a year," forecasted Conti. The report mentions Web sites such as social networking site CityCribs.com, New York City housing market blog Curbed, vertical real estate aggregators and search engines like Trulia, Oodle, Yahoo Real Estate and Move.com, as well as real estate value comparison site Zillow.com. Such sites, notes the report, are "aimed at creating a higher level of interaction and a better user experience for home buyers and sellers than ever before….But the real showdown for Web 2.0 real estate advertising dollars online may erupt over how these sites can acquire and display Realtor's [sic] listings."

Online real estate ad spending will reach $1.719 billion this year, accounting for some 15 percent of the projected $11.698 billion in total real estate ad spending, writes MediaPost (via MarketingVOX), citing a new report by Borrell Associates. That proportion is expected to more than double by 2010, reaching 32 percent, with online real estate ad spend totaling $3.068 billion while total real estate ad spend decreases to $9.557 billion.

The Borrell report, "2006 Update: Online Real Estate Advertising," predicts that much of the growth in online real estate ad spending will be the result of a shift from newspapers. Newspaper real estate ads are predicted to total $4.327 billion this year, down almost 8 percent from last year's estimated $4.682 billion.

By 2010, newspapers will account for only 30 percent of real estate ad spend, or $2.9 billion - less than online's share, according to Borrell.

With low interest rates keeping the housing market perking, one of the few bright spots for newspapers lately has been real-estate advertising. At Tribune Co.'s Los Angeles Times, for example, revenue from real-estate ads in print and online editions soared 45% in the second quarter over year-ago levels. At Belo Corp., owner of the Dallas Morning News and other papers, similar ad revenue in the second quarter increased 34%. And at Lee Enterprises Inc., which owns more than 50 daily papers, fiscal third-quarter real-estate ad revenue was up more than 16% from the year-ago period.

But newspapers could be heading for a collision with modern home economics. The strong real-estate market is masking what has been a years-long decline in classified-ad revenue at newspapers. There are signs that the long bull market in housing may be reaching a peak. And, traditional newspapers are fast losing ground to the Internet for real-estate advertising. Last year, 74% of all U.S. home buyers used the Internet in their search, according to the National Association of Realtors, up from 65% in 2003. Only 2% used the Internet 10 years ago.

"I don't want to be down on newspapers, but what they need ... is a wake-up call," says Peter Conti Jr., an analyst for media research and consulting firm Borrell Associates, which counts both newspapers and Web sites as clients.

Real-estate ads accounted for about one-fourth of the $16.6 billion in classified-ad revenue collected by newspapers last year, according to the Newspaper Association of America. That represents a growing share of a shrinking market in general. Total classified-ad revenue was $19.6 billion in 2000, with real-estate ads making up 16%.

But online real-estate sites are steadily gaining a bigger slice of the business. Online sites captured an estimated 11% of the $12 billion real-estate ad market last year, according to the Realtors' association, with big players like Yahoo Inc. and Google Inc. making major moves into the segment. This year's online real-estate ad sales will total about $1.8 billion, or about 15.7% of the total, Borrell estimates. Most of these online ads are placed by real-estate brokers, not individual sellers, the Realtors' group says.

Daily and weekly newspapers still maintain the biggest slice of real-estate ad market -- 42% in 2004. Direct mail, television and other print media make up the rest. But Borrell expects that the Internet's share of the market will surpass that of newspapers by 2009.

The bulk of all home listings already can be viewed at Realtor.com and many other popular Web sites, including those run by chains such as Cendant Corp.'s Coldwell Banker and Century 21. The Justice Department has pressured the Realtors' association into reconsidering a proposed rule that would make it easier for real-estate brokers to restrict online use of home listings. Justice is considering a less-restrictive version offered by Realtors, according to people in the industry.

Online real-estate ads offer several advantages over print -- particularly on price. The Chicago Tribune, for instance, charges $75 for a print ad with three lines of type that appears in the paper for seven days. On Yahoo, an ad costs $49.95 -- and it runs for 21 days and is searchable nationwide. On Craigslist, a popular Web site 25%-owned by eBay Inc., the same ad is free to listers and users, and often includes color photos. And now, Craigslist links to Google's mapping function. This allows prospective home buyers to see maps and satellite photos of individual neighborhoods -- all free.

Many observers worry that Craigslist is forcing newspapers to cut their prices. Last month, McClatchy Co. Chairman and Chief Executive Gary Pruitt acknowledged what he called "the Craigslist effect" in a conference call. Like other newspaper companies, he said, McClatchy has begun allowing individual advertisers to list certain low-cost goods, such as garage sale items, free of charge on newspaper Internet sites.

Newspapers are also fighting back by establishing their own online ad sites. McClatchy's Minneapolis paper, the Star Tribune, for instance, has its own online real-estate site, which charges $99 for a 30-day listing. It, too, offers color photos. Though still relatively small at $4.9 million through July, real-estate advertising online, is the fastest-growing category of interactive revenue at McClatchy. Through the first seven months of this year, revenue from print real-estate ads is up a strong 13%; but revenue from online real-estate ads soared 68%.

Many real-estate agents say they like online ads not just because they are cheaper, but also because they can reach more people, says Harley E. Rouda Jr., CEO and managing partner for Real Living Inc., a real-estate firm based in Columbus, Ohio. His company used to take out weekly full-page ads costing $10,000 to $15,000 apiece in the Columbus Dispatch but stopped advertising in the paper in 1998, he says. Now it focuses on Internet and community newspaper ads, he says. The savings was instrumental in helping his business expand from its base in Ohio to its current 10-state area, Mr. Rouda says.

Home buyers seem to like Internet ads as well. According to the Realtors' association's 2004 Profile of Home Buyers and Sellers, 69% of home buyers found the Internet "very useful." Only 32% said the same about newspaper ads -- even yard signs came in higher at 52%.

A slowing real-estate market may actually be good for newspapers in the short run, says Christian Hendricks, vice president of interactive media at McClatchy. That's because real-estate agents and sellers may feel compelled to take out more ads or bigger ones to reach the smaller pool of prospects. But in the long run, a slowdown will hurt because some sellers will simply take their houses off the market.

Home sales are expected to hit new highs this year and then tail off. Existing-home sales in 2005 are projected to rise 3.0%, to 7.0 million, according to a forecast by NAR. Sales of new homes should climb 4.8%, to 1.3 million, also a record. Next year, NAR expects existing-home sales will slip to 6.7 million and new-home sales to 1.2 million.

The challenge for newspaper companies is to provide online ads that don't simply duplicate basic print ads. "Just taking the listings out of the newspapers isn't enough to have a business," says Dan Shorter, Internet general manager at Cox Newspapers Inc.'s Palm Beach Post. Online ads must offer color photos, maps, information on school districts and video tours of a home's interior, he says. Some papers, like the Palm Beach Post, have these features, but many others don't.

Newspapers also need to learn more about prospective buyers in order to find their target audience. For instance, Mr. Shorter says, his paper's research showed that most Palm Beach home buyers were from the next county -- Broward. Many also frequented shopping malls. So a year ago the Post installed kiosks at shopping malls in Broward County that are linked to the Post's real-estate ads. So far, he says, 12 kiosks in Broward County have produced tens of thousands of searches since last year.

Will such efforts cannibalize a newspaper's print ads? Yes, says Cox President Jay Smith, but "if we don't do it ourselves, somebody else will."

by Wendy Davis, Thursday, May 19, 2005 6:00 AM ET

ONLINE AD SPENDING RELATED TO real estate will surge to an estimated $1.8 billion this year--a 55 percent increase from last year's $1.16 billion, according to a forecast released Wednesday by Borrell Associates. The report also predicts that total ad spending on real estate will increase to just $11.3 billion this year, from $11.2 billion in 2004--which means that the online share of real estate ads will grow to 15.9 percent this year, from 10.3 percent last year. "The sudden growth indicates that agents, brokers, and developers have moved from the experimentation phase, and are beginning to commit sizable portions of their marketing budgets to online media," wrote Borrell Associates in a memo summarizing its research. Borrell predicted that online media will continue to grow its share of realty-related ad dollars--and that by 2009, more ad dollars related to real estate will be spent online than in newspapers. Borrell also reported that brokerage firms and agents advertise heavily on search engines, and that the high-end of prices is around $2 a click. The company said that Yahoo! Search data on Tuesday showed that in some markets, agents pay even more--from around $3 in Portland and North Virginia to more than $6 in San Diego and Palm Springs.

While overall spending on real estate advertising is declining, online advertising is growing feverishly—at the expense of traditional newspaper advertising.

While some newspapers are reporting declining real estate advertising revenues, a recent study found that online advertising is gaining steadily and is expected to comprise 34 percent of all real estate advertising revenue by 2009.

Overall spending on real estate advertising is projected to hit $9 billion that year, down from $11.4 billion in 2005—although, by that same year, online advertising will rise to $3 billion compared with $1.8 billion expected to be spent this year.

The report, produced by Borrell Associates, also predicts a measured leveling off of sales as interest rates rise and demographics shift. The money spent on online advertising will be apportioned among the Web sites of traditional media outlets; search engines; and lead generators and aggregators, which are projected to account for half of the total online spending.

Source: Inman News Features (08/03/05); Mara, Janis

Author: Jaime Gottlieb

Here’s an exciting figure for you: according to a May study of New Estimates of Online Real Estate Advertising by Borrell Associates Inc., online real estate advertising spending is on its way up, from roughly $116 million in 1999 to a projected $3 billion plus in 2009. Good news, right? In a sense, it sure is: more money’s being put in the pot. But interestingly enough, Borrell’s findings also toll the bell for the impending rupture of the real estate bubble: the group’s analysts are predicting that by the same 2009 date at which online real estate ad spending will exceed the $3 billion mark, total real estate ad spending (offline as well as online) will be no greater than it was in 1999 (about $9 billion).

Still, despite the loud pop so many of us in online are used to hearing (that’s the sound of a bubble bursting, remember?), if we believe the stats that pertain to us, the future continues to look bright. After a few conversations with folks in the online real estate game last week at Affiliate Summit, I couldn’t help wondering: what’s been holding back the widespread adoption of online real estate? Why is it that though there are a few players stepping tentatively up to bat, no one has yet succeeded in developing a one-stop portal—Google-style—for all thing real estate on the web?

Clearly, one of the key constraints to the online real estate vertical is the aforementioned lack of portals. Though there are a few up and running—including a handful owned by The National Association of Realtors, like Realtor.com and HomeStore.com; Yahoo! has a deal with Prudential to use their listings—as far as a mega-portal to simplify your search for a house, no such thing yet exists. And Gordon Borrell, CEO and President of Borrell Associates, expressed his wish that someone would take on the task of creating just that. “There is no Google of the real estate industry—that is, someone who has come out there and made it so simple and just has given you one thing to do [to] search for a home,” he said. “I’d hope that it would occur, because from a consumer standpoint it just makes it real easy.”

Borrell also believes that in order for a real estate portal to get the blue ribbon, “it would have to be untied from an industry trade group such as the National Association of Realtors.” Why? He pointed me to AutoTrader.com as a great example of a portal that does things right. “They’re a commercial business and they’re not particularly tied to an industry trade group,” which, one would assume, frees them up from some of the more bureaucratic elements that plague companies with ties to trade groups.

Despite Borrell’s desire to see some kind of super-portal built, when asked if he’d undertake the task himself, he turned skittish—pointing to what may be precisely the element that has kept the doors to any mega-portal closed. “I wouldn’t [invest], personally…because there are too many powerful companies that can bring you down, and they’re all brokerage firms,” he expressed. “HomeStore tried it. They determined the only way they could get big and do it would be to tie themselves to the realtors [and brokers] who control everything.” Yet there are others who believe the next step needs to be taken, whatever the challenges.

According to Michael Stark of For-Sale-By-Owner (FSBO) site, PostYourProperty.com., the online real estate world is caught in the dark ages. “The real estate vertical is a lacking of portals compared to nearly every other industry online since html was invented,” Stark shared. “As of right now there’s no [multiple listing service] for FSBOs. It’s a bunch of private islands. There’s no FSBOMLS.com type of site.

Borrell also believes that in order for a real estate portal to get the blue ribbon, “it would have to be untied from an industry trade group such as the National Association of Realtors.” Why? He pointed me to AutoTrader.com as a great example of a portal that does things right. “They’re a commercial business and they’re not particularly tied to an industry trade group,” which, one would assume, frees them up from some of the more bureaucratic elements that plague companies with ties to trade groups.

Despite Borrell’s desire to see some kind of super-portal built, when asked if he’d undertake the task himself, he turned skittish—pointing to what may be precisely the element that has kept the doors to any mega-portal closed. “I wouldn’t [invest], personally…because there are too many powerful companies that can bring you down, and they’re all brokerage firms,” he expressed. “HomeStore tried it. They determined the only way they could get big and do it would be to tie themselves to the realtors [and brokers] who control everything.” Yet there are others who believe the next step needs to be taken, whatever the challenges.

According to Michael Stark of For-Sale-By-Owner (FSBO) site, PostYourProperty.com., the online real estate world is caught in the dark ages. “The real estate vertical is a lacking of portals compared to nearly every other industry online since html was invented,” Stark shared. “As of right now there’s no [multiple listing service] for FSBOs. It’s a bunch of private islands. There’s no FSBOMLS.com type of site.

By James Temple

CONTRA COSTA TIMES

For Garrett Gitchell, the difference between an online real estate service and a traditional agent is simple: $32,800 in his pocket.

The customary approach, shelling out 3 percent of the sales price to the buyer's agent and another 3 percent to the seller's agent, would run Gitchell more than $52,000.

By listing and marketing his $870,000 Castro Valley home for sale through www.Redfin.com, he expects to pay about $19,400. That includes a 2 percent commission to the buyer's agent and a $2,000 flat fee to the Seattle-based company, which launched its service in the Bay Area in May.

"It's the way the real estate market ought to be -- fee based," said Gitchell, an organizational development consultant who bought a home in Danville last year. "Realtors are just needed ... for the paperwork."

If this sentiment inspires hand wringing among real estate agents, it's apparently triggering a Pavlovian response in venture capitalists and businesses. A flurry of well-funded real estate Web sites have emerged in recent months to capitalize on consumer's desire to search for, list and even buy homes online. The businesses are enticing users with sophisticated search tools, interactive maps, detailed market data, finely tuned appraisals and bargain rates -- all of which threaten to further squeeze the traditional commission structure.

"Customers don't want an agent breathing down their neck when they're locating a home," said Glenn Kelman, CEO of Redfin Corp. "They can do it on their own online."

Agents beg to differ, of course, insisting that most customers need more than virtual hand-holding when making one of the biggest purchases of their lives. The Internet will complement but not supplant traditional services, they say.

"(Buyers are) still going to call on the Realtor to finish the transaction and to consider other aspects that they perhaps didn't," said Vince Malta, president of the California Association of Realtors.

Moreover, to some observers, the dot-com pile-on is all too familiar to the boom and bust of the late 1990s. Given the real estate market's rapid deceleration -- Bay Area sales were down about 20 percent last month year-over-year -- the results could be much the same.

Venture capitalists will "fund many companies in the sector hoping one or two will come through for them," said Tom Foremski, publisher of the Silicon Valley Watcher blog. "They're expecting many to fail."

Chasing the market

It's easy to see why businesses are chasing the market, though.

In 2000, 28 percent of home buyers used the Internet as an "integral part" of the process, according to a survey by the California Association of Realtors (CAR). This year, it's 70 percent.

"It represents a massive opportunity," said Michael Tchong, trend analyst with San Francisco-based Ubercool.

All the more so, he added, since the U.S. Department of Justice last year forced the National Association of Realtors to allow real estate Web sites to access multiple listing services, the databases of homes for sale marketed by its members.

Online services break down into two main categories:

The first, like Redfin and Los Gatos-based Asante Real Estate Group, allow buyers or sellers to initiate and complete transactions online. After a deal closes, each refunds two thirds of the agent's commission to buyers. Both also provide sophisticated search tools, aerial photos and maps.

The second category exclusively provides real estate information, often generating revenue from advertising on the site. That includes the estimated home values and listings offered by www.Zillow.com or www.RealEstateABC.com, the home features highlighted via video and audio podcast by Irvine-based home builder Taylor Woodrow and the school district and crime statistics served up by Walnut Creek-based Reply! Inc.

Reply!, founded in 2001, also plans to introduce a service next month that will allow users to initiate transactions like Redfin and look up home values like Zillow.

The Seattle-based Zillow, founded in February, is the most popular new real estate site. It calculates home values by running size, age, comparable sales in the area and other factors through a complex algorithm.

Some have criticized the tool's accuracy, but between 2 million and 3 million users "zestimate" home values every month, according to Internet research firm ComScore Networks. That makes it the eighth most popular real estate site.

Many employ the service to check their own home value, others to check up on the Joneses.

Software engineer Gary Hong used Zillow to estimate the worth of his Campbell home when he was planning to sell it to a friend without an agent. The deal died when the friend lost his job, but Hong had been confident enough in Zillow's estimate to set the sales price by it.

"It's kind of nice to know what your house is worth without involving an agent," he said.

Online tools are putting pressure on traditional agents in other ways. The CAR survey found that buyers who begin their search online typically only work with an agent for two weeks, versus seven for a non-Internet buyer.

With consumers doing more of the upfront work, Realtors are increasingly forced to bend on commission rates, acknowledged CAR's Malta. The traditional 6 percent commission today rests at around 4.7 percent in California. Now more than ever, Realtors must prove their worth with added service and expertise, he said.

Repeating mistakes

Veteran online real estate site ZipRealty Inc., one of the few industry survivors of the dot-crunch, is a hybrid model. The Emeryville-based company allows users to search multiple listing service data online and then connects them with live but discounted agents to begin a transaction.

Patrick Lashinsky, the company's senior vice president of product strategy, said that many of the new services are pushing innovation in the field and have even inspired changes at ZipRealty. But he believes several are repeating mistakes of the past.

When ZipRealty initially launched, it too featured online agents and refunded a third of the commission after closing. The plan didn't work.

For one thing, the company found that when clients showed up for open houses, the seller's agents would -- in violation of the industry's code of ethics -- try to convert them into their own customers. But that wasn't the big problem.

"We found that just too many consumers were nervous about that process," Lashinsky said. "The home buying experience is not like buying books or clothes online. It's emotional, it's a very expensive purchase and people have to feel good about it."

Many traditional Realtors agree.

Without an on-the-ground agent, buyers won't see all of the homes for sale, understand the dynamics of a particular market or receive the individual attention they need, said Donna Smith, owner of Real Estate Services in Livermore.

Redfin's Kelman disputes this. He said the company's surveys show customers are very confident in picking out a home themselves. They just need help when they're ready to make an offer or list a home for sale. At that point, Redfin provides face-to-face service with local agents.

"We meet them at the office or we go down to the coffee shop," he said. "It's a very intense service from offer to close."