The joint venture which saw Korbitec, Property 24 and the Real Estate Agencies of South Africa (REASA) unite to create a joint opportunity for Korbitec and Property 24 to become the leading property portal and for estate agents to list online has been terminated. This has left many estate agents worried about the future and what prices they will be expected to pay now that Korbitec and Property 24 have gained dominance in the industry. What other options are out there?
Online listing portal or pothole?
The few questions one must ask are: Was the joint venture that saw Naspers-owned Korbitec and Property 24 create a joint venture with estate agents, on a success-based-fee (SBF) model, fair? Was the model simply a means to an end or a genuine bid to move property online? The venture undertaking clearly states that the, “business scope of the joint venture will be to build a customer base of estate agencies/groups who subscribe to the SBF model and make use of some or all of the services.” Services that are paid for by the users and paid to the joint venture which then splits them 70% – 30% between Korbitec and the group representative ( estate agency) with an additional 10% reverting back to Korbitec as a collection fee. But only bigger agencies could effectively participate in the profit sharing; the contract states that an agency could only become part of the shareholder scheme above if they had “successfully registered a minimum of 50 property sales per month for at least three of the past six months and that they have earned commission from these sales, which was later reduced to 25.”
Leading industry brands were instrumental in formulating the agreement. However, the independent agencies in South Africa were unaware of the fact that they would effectively be subsidising the bigger brand offices through a percentage of their subscription paid back to the brands as a rebate. It is hard to say whether industry was led to believe that Property 24/Korbitec could effectively have collected the fees due for the revenue model to work. Industry was convinced by the Property 24/Korbitec stable that they had the ability to report on and collect fees due on sales in South Africa. Their reasoning was that they controlled and dominated the software that would allow them to have access to this information. Why then did the model not work? They were clearly not able to successfully collect the fees and agents were unable to meet the minimum requirements and this saw the model terminated.
Success- vs turnover-based model
So why was it so successful? The revenue model proposed that an agency would have access to a software solution and exposure on the property portal, Property 24, for free, paying only a nominal fee per successful sale, this being a turnover-based-fee model. The majority of the estate industry seized the opportunity and gave Property 24 the valuable agency stock they needed. So who benefitted most from this venture? Bigger agencies or smaller agencies? While the pricing was particularly beneficial to the smaller agencies as it was based on their sales and no or few sales meant they paid less for marketing, the smaller agencies were locked out of the rebates offered to their bigger counterparts. The bigger offices were paid rebates back pro rata based on the sales they did as a percentage of their shareholding in the joint venture. Smaller agencies paid less and larger agencies received some of the money they had paid back through the rebate scheme, so both parties benefitted.
Now two years down the line Korbitec has terminated this agreement, due to a clause contained in the original agreement that stated that 40% of the smaller agencies had to succeed. If Property 24/Korbitec were so confident that collection would not be a problem, why then have this clause and why has nobody questioned their ability to deliver on this promise? A very good question, indeed, considering the termination of the agreement and the fact that all agents will now have to pay to list, with a substantial increase in the rates in August. So why did no one question their ability to deliver on this? It would seem that the benefits and the package offered on the joint venture were so good that most agents overlooked any suspicions they had and used this method of online listing.
Ask no questions. Hear no lies.
Another issue that was originally raised and never went further after the deal was first put on the market was that of anti-competitiveness. Could the fact that Naspers owns Multichoice, Korbitec and Property 24 be construed as anti-competitive in the property industry? One could certainly arrive at that opinion if one thinks of preferred advertising rates being provided to Property 24 and Korbitec to grow their market share through aggressive television campaigning on Naspers networks. Also, not charging a ‘fair’ rate for a service compared to competitors, that then prejudices the competition, can be construed as anti-competitive. While the legality of the venture is not in question and legally the venture was not in any way anti-competitive, there are a lot of estate agents that question how fair the media giant’s practice is and how much healthy competition it supports. Korbitec has used the success of the Property 24 site as a lever to ensure that all customers move to their software. This is dangerous because once you are locked into a software, it is very difficult to move away. Having alternative software options in the market is vitally important. If need be, industry must capture to each of the portals independently. A better option is that you use a software solution that has feeds into the portals.
Hard-hitting software dominance
Estate agents should be wary of any technology that, in essence, dominates the market and excludes anyone who doesn’t wish to use it. Instead, estate agents should be looking at developing their own methods of online listing, rather than relying on one method. Jan le Roux, CEO of Leapfrog, says, “Property24 did and are still promoting the exclusive use of Prop Control and is enforcing same by not allowing data feed from, for example, Fusion. One can assume that this was partly due to the importance of the so-called ‘seven sisters’ (property control allowed the agency to list property for sale and to rent and then electronically send the listings to Property 24 as well as their preferred service providers, like attorneys, beetle certificates, electrical compliance, bridging finance and origination. These service providers would then need to pay Korbitec to receive the instructions. This was called the ‘seven sisters’). With all the fears that agents should have about dominance by one portal in the market, to allow dominance by one software package is equally threatening. Fusion is a much more modern package and is not only available to all agents but it also belongs to estate agents. All agents subscribing to Fusion become equal shareholders in the process. I therefore cannot agree more that agents should be aware of this and actually invest in their own future in this regard. This is not only an essential strategic investment but would also give agents access to the best that is available in the market at the moment.”
Trust: another sort of investment
While portals are vital for success you should never be dependent on one single portal for the success of your business; agents must ensure that they trust the portal they deal with. Portals are businesses that fulfil a vital role in the real estate chain and are specialists in their field of expertise. It is fair to assume that the move from print media to online media will bring about reduced costs in marketing. So, good competition from portals and tough negotiations with your trusted portal of choice is vital.
Online listing portal options
With an increase in rates from Property 24 and Korbitec, estate agents need to look at their options and ensure they are utilising all methods effectively. There are other options available, one of which is Private Property and its portal. Each portal has its own merits but this could come down to the price agents are prepared to pay to use their services.
Another option available is the Estate Agent Portal Company, which has purchased 40% of the shares in iolproperty.co.za and is in the process of purchasing a further 10%; these shares will be made available to all practising estate agents on a national basis. The creation of this alternative portal was in a large respect due to the fears of dominance of one portal and what that would mean for estate agents who would have no other option but to pay the new fees. Le Roux says, “With the industry’s support, which was obtained because of the REASA transaction, and with the marketing spent, Property 24 today is a hugely successful portal and is already a market leader in South Africa with all the dangers that it entails. Agents should ensure that they keep building and improving on their own websites but also to support the other property portals that are also very successful. Estate agents have obtained a 40% shareholding in iolproperty.co.za, which bodes well for the future.”
John Roberts of Just Property says, “Unfortunately most of the major players agreed to the proposal and joint venture with Korbitec, which has effectively been instrumental in driving sufficient listings to their portal to elevate it from a poor second to the number one portal from a listings and lead perspective.
All eyes on Property 24
Once Property 24 makes its intentions clear as to what the new pricing module will be, we will have a clearer picture of what industry stand to do. Do we boycott Property 24 and stop feeding listings or negotiate a better deal on behalf of industry? No one knows. Justin Clarke, CEO of Private Property, believes the collapse of the REASA agreement was inevitable. “No portal, regardless of its financial backing, can continue to market as aggressively as Property 24 without a sustainable revenue model. There are some clever guys in the Naspers stable but simple maths will show that the REASA agreement was not viable from day one. The question remains: Was REASA a tactical move to get industry on board, or did someone make a serious error of judgement? We anticipated the collapse of the success-based fee, and refocused our efforts on leading the market in innovation and providing real value to our customers. Competition in the portal space now is especially healthy for industry but there is no doubt Naspers will be looking to get some return on the massive investment that has been made in Korbitec and Property 24.”
JP Farinha, CEO of Property24, replied, saying only: “Despite the many inaccuracies contained in the article, we are grateful for the opportunity to reply and we do take respectful notice of the opinions expressed therein. REASA was a first attempt by Korbitec and Real Estate South Africa to support the industry’s transition into the digital era on an inclusive and arm’s length commercial basis. Korbitec will continue in its endeavours to provide all stakeholders in the real estate industry with world-class products and services that represent a fair exchange of value.”
As an estate agent it is always a good idea to keep your options open and investigate what other portals are available and what best suits your needs, whether you are a one-man show or a large franchised company. With costs in South Africa continuing to rise, there is an urgent need for good competition in portals to ensure that there are competitive options for estate agents of all varieties. And with the current status quo set to change, there is no better time than right now to investigate the other options available, be it Private Property, Fusion, IOL or Property 24.
Text: Colleen May