The Inman News editorial, “Realtors association should unleash Realtor.com,” presents some interesting ideas. However, the basic premises that Homestore should be allowed to implement a referral-for-a-fee business model and that Realtor.com is an asset too valuable to lose are flawed in several respects.

Realtor.com is good at being a free information source.

The Inman News editorial, “Realtors association should unleash Realtor.com,” presents some interesting ideas. However, the basic premises that Homestore should be allowed to implement a referral-for-a-fee business model and that Realtor.com is an asset too valuable to lose are flawed in several respects.

Realtor.com is good at being a free information source. But how valuable is this free information?

People clicking through a listing database like Realtor.com are of no value to home sellers or Realtors. It matters not how large that database is or how widely distributed it is. The purpose of listings is to sell homes. Ultimately, sellers don’t care how a home is marketed as long as it sells in a manner that meets their objectives.

Realtor.com should prove its worth by answering the hard questions about the results the site produces for Realtors and home sellers. How many homes were sold as a direct result of the listing being on their site? How many clicks on any given listing and how many unique visitors to a given listing does it take to sell a home on Realtor.com? How much more, on average, do homes listed on Realtor.com sell for? How much quicker do homes sell for that are listed on Realtor.com? What percentage of Realtor.com’s unique visitors are lookie-loos and what percentage are ready-to-act buyers who are going to purchase a home within the next few days to the next few months? How many are sellers looking at their own listings? Providing accurate, third party-audited answers to these questions would help sellers and Realtors understand the value of Realtor.com.

If the company is truly adding value to home sellers, many more sellers will insist that Realtors market their home on Realtor.com. Homestore then could justify the fees charged to Realtors. In all likelihood, more Realtors then would subscribe to the company’s specialized services.

Another way that Homestore could create incremental revenue would be to charge home sellers a fee for their home to be shown on Realtor.com. They would gladly pay such a fee if Realtor.com added significant value for them.

And what about advertisers? Aren’t they willing to pay more per ad if the audience matches their target market more closely? If Realtor.com could prove the ads it carries were being seen by a large number of real sellers and buyers, they could sign up more advertisers and charge them more per spot.

A fourth source of revenue could be potential home buyers. If the data on the site was so valuable, wouldn’t prospective buyers pay to access it? Once again, the problem is: How can Realtor.com demonstrate to buyers that they can actually buy the home of their dreams at a good price and find it before hordes of other buyers get there?

These four strategies for making more money are no-brainers. Almost any businessman, marketing expert or business school student would consider these alternatives. So why hasn’t the brain trust at Homestore implemented these ideas? The most logical reason is that they don’t want to know the answers to those questions about their Web site, they want the answers, but haven’t found ways to get them or they have the answers, but choose not to make the data known because it doesn’t support any method of increasing revenues. The bottom line is that Homestore hasn’t proven the validity of its value proposition to its natural target markets, sellers, buyers, Realtors and advertisers.

That’s why Homestore is considering the business of selling leads. Using the listings on Realtor.com to generate leads for Realtors theoretically would increase revenues in the short run. There will always be some real estate agents who will pay for leads because they don’t know how to acquire customers on their own.

But there are major problems with this approach as a viable long-term business for Homestore.

Those listings are the result of hard work, effort, sweat, marketing, salesmanship and time invested by Realtors. Those listings have an intrinsic economic value because of this effort. If they didn’t, the real estate industry would have disappeared decades ago just like buggy whip manufacturers did. Listings are not public domain information. Putting them on an MLS system or on Realtor.com does not change their nature. Listings are the work product of real estate agents.

It has been said that the marketplace abhors a vacuum. It is equally true that our system of commerce abhors public companies like Homestore profiting from other peoples’ work without paying fair value for it. We’ve all heard a lot of stories, but do you know anyone who really got something for nothing?

How long does Homestore think Realtors will let their work product be used to sucker them  into paying for leads? I can see the day when Homestore will have to pay each individual Realtor, each brokerage company and each MLS system for every listing on Realtor.com. This approach would provide great incremental revenue for Realtors, but it would cripple Homestore’s strategy.

Selling leads just doesn’t make sense. The number of listings on Realtor.com would decline dramatically if Homestore pursued this plan. 

There are also regulatory and legal hurdles. State regulators have an inherent interest in protecting their jobs and the revenue that real estate licensing generates. More states will adopt regulations that prohibit selling leads or matching buyers and sellers with real estate agents unless the referring, matching or lead selling company holds a real estate license.

Homestore certainly has the resources to obtain licenses in all 50 states, but how soon would it be before plaintiffs’ lawyers figured out there was a new deep-pocket real estate company they could sue. It would soon become standard legal practice for disgruntled buyers and sellers to sue Homestore for breach of implied fiduciary duty in cases where a lead was sold, referred or matched through Realtor.com. It would not be hard to convince a jury of ordinary folks that Homestore was at fault especially since the company’s publicly known business model would be selling leads for profit. It will be virtually impossible for Homestore to sell the number of leads needed to achieve profitability without lowering the average quality of the agents buying the leads. There is no screening process, set of criteria or due diligence method that would meet the dual goals of mass marketing leads and protecting the company from numerous court actions. How many individual or class action lawsuits would it take to put Homestore down for the count?

The lead selling business model won’t work for Homestore. I’m not sure anything will work.

Realtor.com is a holdover from the Internet commerce mania that started over a decade ago. You remember the mantra: You can sell anything on the ‘Net–small-ticket items, big-ticket items, services, tangible items, intangibles, mass-marketed goods, niche products, you name it,–without salespeople or stores. Banks, car dealerships, travel agencies, airline reservation agents, grocery stores and real estate brokerages would soon go the way of the dinosaurs. Everyone would buy everything on the ‘Net because it was there, more convenient and exciting to use. Profits would soar. We all believed it because we didn’t know any better. The saving grace was that Realtor.com was going to keep real estate agents from complete oblivion.

Well, now we know the truth. Although the Internet has changed the way many industries do business, it is not in and of itself the killer venue for selling most goods and services. The Internet is not a business model. Rather, it is a communication and marketing medium. The Internet is a tool that most industries use to do their work. It is not the Holy Grail of business. It turns out that it is part of a much larger phenomenon called the growth of the global economy.

The Internet commerce boom and bust and the life cycle of Realtor.com have reaffirmed what everyone intuitively knew but forgot. The process of buying or selling a home is so intensely personal and can affect ones financial health and lifestyle quality to such a degree that most people aren’t comfortable buying or selling a home without the help of a real estate agent. It’s just too scary for most people to do on their own. Similarly, the Internet alone cannot sell a home, negotiate the deal, manage the due diligence process or close a transaction. 

Many trends and crosscurrents are at work today in the real estate industry. It seems clear that the marketplace can accommodate and wants a mix of traditional brokerages, discount brokers, online brokers and online listings. Although I would like Realtor.com to develop into a must-have tool for my business, its destiny seems to lie elsewhere.

Realtor.com is a great example of what can be done with a Web-based interactive database. It is cool technology. I’m just not sure it’s a going concern business. The majority of Internet commerce ventures had cool technology too, but proved to be unworkable business models. Homestore may never escape this trap. To date Homestore has not proven its value to home sellers, home buyers or Realtors in ways that generate enough revenue to ensure profitability. Selling leads is a strategy that will result in the demise of the company. Homestore has just about exhausted its options. At some point, the company’s shareholders, venture capital investors, lenders, creditors and customers will pull the plug. Maybe Realtor.com’s true calling is as a not-for-profit free information source.

Richard Galway is a real estate broker at Magna Realty in Woodland Hills, Calif.

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Send tips or a letter to the editor to newsroom@inman.com or call (510) 658-9252, ext. 124.

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