The National Association of Realtors is considering whether to allow Homestore to add a referral-fee-based business model, according to a number of real estate brokers, including Steve Baird of Chicago-based Baird and Warner, who said as much at a real estate conference in Denver last week.

The idea is indeed a good one. NAR should lighten up about The Realtor franchise wouldn’t be threatened if the association let the unprofitable online service out of the tiny little business-model box into which the powerful trade group has squeezed it.

NAR should ease off the onerous restrictions it has placed on because Homestore, the company that operates the service for Realtors, is unlikely to turn a profit with the existing rules in place.

Homestore is the Westlake Village, Calif.-based online real estate company that operates the Web site for the Realtors group. Homestore is a publicly owned corporation that licenses the domain from NAR and aggregates data about 2 million homes listed for sale with real estate brokers into the online database. The corporation has its own shareholders and management. It isn’t a private NAR subsidiary. is the biggest national online database of for-sale homes, and it now populates home search functions on AOL, MSN and other Web sites as well as its own Web site.’s database isn’t perfect, but its huge quantity of listings, vast number of home buyer and seller eyeballs and advantageous promotional opportunities make it a valuable asset for NAR and Realtors.

The diminishment or loss of this asset would be a tragedy not only for real estate, but also for home sellers and buyers who depend on the Web to find for-sale homes and realty services.

NAR restricted’s business model to protect the ways and means of traditional real estate brokers who control the association. That might have been a good idea years ago. But’s competitors, which include the LendingTree service operated by Barry Diller’s InteractiveCorp., among others, haven’t been similarly hamstrung. Their business models are popular and profitable, despite their detractors. Homestore isn’t permitted to follow their lead or try other innovations. Instead, the company is restricted and thus unprofitable.

Homestore lost nearly $50 million last year from continuing operations. That was an improvement over 2002, but it still wasn’t pretty. The company yesterday reported a first-quarter loss of $5 million. Again, that was an improvement, but a loss is still a loss.

Shareholders reacted accordingly. They traded some 5 million shares of HOMS Friday and pushed the closing share price down almost 30 percent from a peak of $5.81 April 19 to $4.10 yesterday.

If Homestore doesn’t become profitable before its cash runs out, some sort of bailout, takeover or strategic relationship will be necessary. That wouldn’t be good for NAR, Realtors or home buyers and sellers, not to mention Homestore’s shareholders. A better outcome would be to lose the onerous restrictions and give the company a chance of success.

Homestore CEO Mike Long should be commended for his aggressive cost cutting and heroic efforts to resolve such legacy burdens as a Securities and Exchange Commission investigation, a massive shareholder lawsuit and a life-threatening contract with AOL.

And President Allan Dalton deserves praise for his effort to focus the company and real estate brokers on marketing, not merely selling, realty services and listings. His concept is well conceived, given NAR’s constraints on the business model, and he’s even put his own face–and by extension his own reputation–on’s marketing materials.

But Long’s and Dalton’s efforts haven’t been enough to make the company profitable. What’s needed is a new approach that’s free from NAR’s restrictions.

Does that mean should collect referral fees, display for-sale-by-owner homes and embrace other realty boogie men? Sure, why not? Those are pieces of the complex real estate quilt. Real estate is a big sprawling market in which good Realtors charging full commissions could still thrive even if were allowed to make money while it exposes home listings to buyers at no cost to most Realtors.

Send your comments or a Letter to the Editor to or call (510) 958-9252, ext. 124.

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