Sure, I know quite a few agency owners some are smaller offices...

Sure, I know quite a few agency owners some are smaller offices and others are larger ones (some franchised, some not). I have spent a significant amount of time discussing REA/Domain and specifically the contracts they have with the agencies.

At the moment if you look at the REA results you will see that there has been a huge uptake in premier listing depth. This has come about due to REA offering offices a contract that requires all an offices listings to be listed as premier listings in exchange for ~50% discount on the price they pay.



These contracts also allow REA to increase the pricing of the by 10% during the term of the contract which typically is 12 months. They really started to push this strategy a few years ago. However what I observed is that agents that balked at paying the ~$1,500 for all listings ($3,000 without the discount) ended up regretting the decision as their brand perception was affected and all of these principals subsequently took the premier all packages the next time contracts were offered.

So now that REA is starting to hit critical mass with premier listings agents feel that if they don't stick with premier listing that they have now they will ultimately lose market share and profile. The thing is now that REA has essentially created an environment where you really need to have premier to compete I expect that these discounts will start to be rolled back.

As an example say a premier advert cost $3,000 and you were paying $1,500 with a discount. With the 10% annual increase the price of the advert goes to $3,300 and say they drop the discount to 40% in new contracts from 50% then all of a sudden you are paying $1,980 or a 32% increase over the prior price.

From the agent perspective many charge these marketing costs back to the owner as vendor paid advertising so the increases don't directly affect their business bottom line although I have heard some of the offices that offer inclusive packages are starting to feel the pinch however the feedback I have received is that these offices feel that REA is more important than Domain so if they get to the point where they no longer dual list their properties it is going to affect Domain first.

Both Domain and REA do these sizable rate increases each year and it seems for all their talk about each other they have a cozy duopoly going on there. And the web is littered with other portals (e.g. squizz, onthehouse, rent.com, etc) that are virtual graveyards and not competitive.

imo it is only a matter of time before REA feels that it has reached enough the critical point where they can start to wind back the discount a bit and not lose people sticking with the premier all packages.

Again I don't disagree with your opinion that valuation wise I wouldn't be purchasing REA at current prices but to short it is a risky proposition given their market power and ability to increase to drive high revenue growth in the foreseeable future.