Online market grows for real estate advertising

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Glenn Roberts

Online real estate advertising grew from a $1.2 billion market in 2004 to a $1.7 billion market last year, increasing its share of total real estate ad spending from 10.3 percent to 14.7 percent in that time, according to an annual report produced by a research and consulting company.

By 2010, online real estate ad spending is expected to grow to a $3.1 billion market, representing an estimated 32.1 percent of total real estate ad spending. Meanwhile, newspaper real estate advertising is projected to shrink from a $4.7 billion business in 2005 to $2.9 billion in 2010, and to fall behind online real estate ads in total market share, Portsmouth, Va.-based Borrell Associates reported in "2006 Update: Online Real Estate Advertising."

The report suggests a continuing and rapid migration of real estate ad spending from print media to online media. "The Internet and related technologies have substantially lowered the overall cost of reaching potential home buyers. The same promotional reach simply costs less money today than it did just a few years ago," the report states. "Of all the advertising segments ripe for change, the real estate market might seem so ripe as to be nearly rotten. This is one advertising category where something's got to change."

Total spending on real estate advertising has been mostly stagnant during one of largest real estate booms in history, ranging from $11.2 billion to $11.8 billion for the past five years. The growing share of less costly online real estate ad spending is expected to drop total real estate spending to a level of about $9.6 billion in 2010, Borrell Associates reported.

Online ad spending has lots of room for growth, according to the report, as 61 percent of agents do not advertise on the Internet and 87 percent of agents do not purchase keyword advertising from Google or Yahoo. In a survey of 535 agents, Borrell Associates also found that 36 percent of agents with more than 10 years of experience were likely to advertise online, while 64 percent of agents with less experience were likely to advertise online. "The rest of the findings indicate that an Internet-marketing gap exists between newer and longtime agents," the report states.

Also, about 41 percent of agents in a June 2006 survey said they do not have a Web presence -- "not even a page on their broker's Web site."

In 2005, newspapers had the largest share of real estate ad spending, at 40 percent, followed by other print publications at 17.7 percent, direct mail at 16 percent, online advertising with 14.7 percent, broadcast television with 3.7 percent, and directories with 3.6 percent. Other categories of real estate advertising -- including cable television and radio and telemarketing -- accounted for less than a 2 percent market share apiece. Real estate ad spending is projected to drop 39.6 percent for non-newspaper print publications, 33.5 percent for direct mail and 22.6 percent for directories by 2010.

Major metro-area newspapers will likely see the sharpest declines in real estate ad revenue over the next five years, while smaller-circulation newspapers and newsweeklies "have gained favor among agents who seek more efficiency in their advertising" and "are showing increases in real estate revenue while their metro counterparts continue to decline."

Peter Conti Jr., lead author for the report and vice president at Borrell Associates, said that alternative newsweeklies have seen a surge in advertising, owing largely to the creation of sites such as Backpage.com and Avenews.com that have boosted the volume of online and print listings. "That has helped tremendously," Conti said. "What that shows is that someone had the ability to understand the technology and they were seeing what craigslist was doing to them and stepping out and creating a whole new product independent of the newspapers."

Another notable trend, Conti said, is the emergence of real estate-related Web 2.0 sites. Many sites, he said, "weren't even on the radar -- they weren't even around last year." The report mentions sites like Trulia, edgeio, Oodle and CityCribs, Google Base and Zillow, among others.

Free property-listing sites are starting to nip at the heels of craigslist and present new challenges for newspapers. "Last year we were talking about interactive mapping and rich media videos ... now the sites have networking and blogs," Conti said.

Many of these emerging real estate players rely on display ads and Google AdSense advertising for revenue, though it's unclear whether this revenue model could change with time, he said. The report states, "The real showdown for Web 2.0 real estate advertising dollars online may erupt over how these sites can acquire and display Realtors' listings."

Google Base, which allows real estate professionals and consumers alike to post property information to a searchable database at no cost, may be the "elephant in the room," the report states, noting that Microsoft has a classified entry called Expo that "is gearing up they say to be a community application combining the best of Google and craigslist."

Also, the report states that the online real estate products that are most likely to succeed are those "with significant levels of independence from core-product media interests, freed from cannibalization fears and infused with strong doses of creativity." The market has clearly moved to a free-listings model with paid advertising opportunities, "so charging for basic listings appears doomed."

The Borrell report states that the for-sale-by-owner category is growing "as the Web makes it easy for individual sellers to reach a large audience of potential buyers," and a company survey of about 30 metro markets found that the ratio of FSBO listings to total home listings was about 15 percent.

Newspapers are wising up to online real estate advertising opportunities, the report notes, and "newspapers generated $249 million from their online real estate applications last year, which boosted print real estate revenues." Newspapers' Web sites collected 14 percent of all online real estate ad spending last year, "the largest share of any group with the possible exception of Google," the report also states.

Realtor.com continues to dominate the list of most-visited real estate Web sites, and the report notes that several real estate brokerage companies' Web sites, including sites for RE/MAX, Coldwell Banker, Century 21, Weichert and ZipRealty, account for five of the top-20 most popular real estate sites, according to comScore Media Metrix.

"The significance of the Internet as a publishing platform for Realtors cannot be overstated," the Borrell report states.

In a 2005 National Association of Realtors survey of home buyers and sellers, 84 percent of respondents said their real estate agent used the Internet to help sell their home -- that compares to 53 percent in the 2002 survey. Meanwhile, 50 percent of respondents to the 2005 survey said their agent used a newspaper ad, down from 59 percent in the 2002 survey.

As the real estate market slows in many markets across the country, that could translate to fewer real estate sales and smaller ad budgets for agents, the report states. "In the past, the result of this tension is that Realtors continue to advertise, but do so more frugally." Online advertising can be more affordable and provide more accountability than traditional media, the report notes. "As the market begins to tighten, even slightly, a Realtor's ad budget goes under the microscope and the less efficient media fall out of the mix."

About 47 percent of agents surveyed by Borrell reported that they plan to increase their spending on Internet marketing this year compared to 2005, while 45 percent said they will spend an equal amount and 8 percent said they will spend less. Meanwhile, 42 percent said they plan to spend more this year on newspaper advertising than they did in 2005, while 40 percent said they will spend an equal amount and 18 percent said they will spend less.

About 13 percent of agents participating in the survey said they use paid-search ads in marketing, 24.5 percent said they participate in online lead-generation programs, 38.5 percent said they advertise online and 29 percent said they advertise on a local newspaper's Web site. About 79 percent of respondents say they track their leads to determine the source of the leads, and 58.7 percent said they have a promotional Web page.

In the real estate rental market, online advertising is expected to grow by 56 percent from 2006-2010, Borrell reported. Meanwhile, overall apartment management ad spending on rental advertising is expected to shrink 24 percent from 2006-2010.