House sellers are being ripped off – and the ACCC is onto it

Real estate listings companies like the Murdoch-controlled property portal REA Group are making off like bandits with claims that advertising rates are rising by 10 per cent or more a year – an amount that house sellers ultimately bear.

In response, the Australian Competition and Consumer Commission has begun sniffing around, using its investigative powers to gather information.

Real estate agents and vendors ultimately pay for what has been described variously as profiteering, or price gouging. And it now appears they have become involved in a concerted effort to push back.

Real estate agents and vendors ultimately pay for what has been described variously as profiteering, or price gouging.Credit: Peter Rae

Using a digital property classified advertising business can now be so expensive that people selling their house have needed to find temporary finance to pay this cost, which they ultimately repay when the home is sold.

There are two large real estate advertising businesses in Australia – REA and Domain. The latter is 60 per cent owned by Nine Entertainment, which also owns this masthead, and is in the process of selling it to US digital real estate listings giant CoStar Group.

But there is a yawning gap between the dominant REA and the much smaller Domain – so much so that the property industry sees REA as a monopoly dressed up in duopoly clothing.

There is a yawning gap between the dominant REA and the much smaller Domain – so much so that the property industry sees REA as a monopoly dressed up in duopoly clothing.

Real estate agents admit that the advertising prices charged by both groups are roughly similar, but the brunt of the pricing anger is directed at REA as the market leader.

The two companies’ respective market shares, levels of profitability and sharemarket values are poles apart. By way of illustration, REA – controlled by Rupert Murdoch’s News Corp – boasts a market capitalisation of more than $32 billion, while Domain is valued at less than one-tenth of that.

And both are a far cry from traditional media company Seven West Media, which is valued at just $246 million.

REA may be unpopular among real estate agents, but its profit-generating machinery is running on turbo. In its most recent quarterly report, the company noted that the number of listings on its platform were flat, but profits were up 12 per cent – which one fund manager noted was due to the resilience of its pricing power.

Whether these yearly rate hikes, which are well above inflation, rise to the level of breaching competition laws remains to be seen.

While price gouging is an emotive term, the practice is legal – even if prices are being set by a monopoly or duopoly.

Indeed, REA would be more vulnerable to anti-competitive claims if it was wildly undercutting its competitor, thereby forcing it out of the market. That could amount to predatory pricing.

REA Group and Domain.

A strange twist in REA’s aggressive pricing strategy is that some vendors and agents can no longer afford to advertise on both property portals, and because REA has a wider market coverage, they have opted to drop Domain.

For Tim McKibbin, chief executive of the Real Estate Institute of New South Wales, the escalating rates on REA “are obviously a concern, [but] of greater concern is the response from the market.

“Agents and vendors cannot afford or are unwilling to advertise across multiple platforms, consequently those platforms no longer enjoy the industry’s support, further eroding competition,” he noted in a statement supportive of the ACCC action.

“Whether REA’s conduct amounts to an abuse of market control is for the ACCC to determine. There are clearly questions to be asked and answered.”

He said there was increasing evidence that agents and vendors were trying to reduce the costs by selling properties “off market”, which he said translated to selling them without advertising them on either one of the real estate portals.

“REINSW will continue to assist the ACCC in its investigation,” McKibbin said. That’s the investigation that the ACCC has not confirmed it is undertaking.

There’ll be a lot of home sellers and agents watching closely for the outcome of this probe.

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