ZipRealty plans to price company shares for its initial public offering between $10 and $12 per share, according to new filings with the Securities and Exchange Commission. The online real estate brokerage has applied to list its common stock on the Nasdaq National Market under the symbol “ZIPR.”

The company set its IPO at 4.55 million shares, which it expects will net proceeds of about $44.5 million, and said it will use money raised from the offering to generate working capital. Zip also said it might use some of the proceeds for potential acquisitions.

Through the first nine months of this year, ZipRealty generated $44.7 million in revenue and had $2.24 million in net operating income, according to the filings. “We returned to profitability in the second and third quarters of 2004, primarily as a result of higher average net transaction revenue and increased transactional volume due to our increased ZipAgent force and seasonal factors,” Zip stated in the filings.

Zip agents earn a compensation package of between 40 and 75 percent of the commissions they generate, as well as an expense allowance of up to $1,500 per month. Zip also provides its agents with health, retirement and other benefits, and pays for certain marketing costs. Zip agents may also be granted equity incentives based on performance.

Some other highlights from the filings include a discussion of business risks that threaten to damage Zip’s business model, and trends in average real estate commissions. The company noted that models like Zip may be contributing to lower commissions overall.

“Over the past several years there has been a slow but steady decline in average commissions charged in the real estate brokerage industry, in part due to companies such as ours exerting downward pressure on prices with a lower commission structure, as well as by what, in our view, appears to be an increase in consumer willingness to negotiate fees with their agents,” the filing states.

Under business risks, Zip’s SEC filing includes a lengthy discussion of the National Association of Realtors’ policy governing the display of online home listings.

NAR’s policy, which was passed in May 2003 and is now the subject of a U.S. Justice Department antitrust division investigation, enables brokers to decide whether their listings can appear on other brokers’ virtual office Web sites, or VOWs for short.

VOWs are password-protected Web sites that enable companies like ZipRealty to show comprehensive MLS home listings data to consumers without their having to visit a real estate agent. NAR-affiliated MLSs will be required to implement VOW policies consistent with the NAR policy by Jan. 1, 2005.

The SEC document further describes the “opt-out” provision of NAR’s policy as a potential risk to Zip’s business. The “opt-out” clause is one of the focuses of the DOJ’s investigation.

“This provision creates a mechanism for individual brokers to prevent their listings data from being displayed on certain competitors’ VOWs,” the filing states. “MLS members and participants, including individual brokers, could exercise a ‘blanket opt-out,’ which would not allow their listings to be displayed on any competing VOW, or a ‘selective opt-out,’ in which they could selectively prevent certain competing VOWs from displaying their listings, while allowing other VOWs to do so.”

Zip currently does not know of any MLS members who have exercised this opt-out right, however the company said, “Should any such right be exercised, it could restrict our ability to display comprehensive MLS home listings data to our consumers, which is a key part of our business model.”

Zip added that demand for its services might decline as a result of such significant restrictions on its ability to display MLS listings information. Zip’s costs for complying with restrictions also might increase.

As of Sept. 30, ZipRealty had more than 400,000 active registered users who had accessed its Web site within the last nine months. Since launching in 1999, the company has closed more than 16,100 real estate transactions with an aggregate transaction value of approximately $5 billion.

ZipRealty currently operates in Atlanta, Baltimore, Washington, D.C., and Northern Virginia, Boston, Chicago, Dallas, Los Angeles, Orange County, Calif., Phoenix and Scottsdale, Ariz., Sacramento, San Diego, the San Francisco Bay Area and Seattle.

Benchmark Capital Partners, Pyramid Technology Ventures, Vanguard Ventures, Venture Strategy Partners, Lamoreaux Partners, Iverson Financial Corp. and Barrington Partners were listed in the SEC filing as major investors.


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