ZipRealty and HouseValues both went public in the last 30 days and have created almost $800 million in investor value. They have the Internet to thank for their success, but also the coveted multiple listing service. Their ability to access the MLS and use the Internet to give consumers entry to real estate data is part of Zip’s and HouseValues’ secret sauce.

While the real estate industry has put up many barriers to unleashing the MLS to the public, the data in fact has been spread around rather freely thanks to the Web. Companies like Zip and HouseValues have figured out how to use the MLS data and are benefiting handsomely from the trend.

While these two business models are Realtor-friendly, industry fears about third-party interlopers could be realized as the Internet combined with multiple listing data is changing the face of real estate, hatching new business models and giving traditional firms less control over the data. With new consumer propositions around listing data emerging every day, restraining the data will now be very difficult. Plus, the success of Zip and HouseValues will generate even more copycats and variations on the theme.

HouseValues is trading at $14 a share today and has a market capitalization of $367 million. The company generated revenues of $25.1 million for 2003, and $33.3 million for the nine months ended Sept. 30, 2004. Net income was $3.8 million for 2003, and $5.6 million for the nine months ended Sept. 30, 2004.

HouseValues generates online leads for real estate agents through its Web site that offers consumers a free comparative home valuation report from an agent. The company also provides products and services for agents to manage and convert leads into closed transactions.

But its fastest growing product is the JustListed product that depends on taking MLS data and delivering it via e-mail to prospective home buyers after they’ve registered on the HouseValues Web site. The company charges agents a subscription fee to access these consumers.

Another piece to HouseValues’ business is Chicago-based Soar Solutions, a small start-up company that delivered listing data via e-mail to consumers on behalf of paying Realtors. HouseValues bought Soar in 2003 and grew the product nationwide.

Success of the Soar solution depends on cooperation from the traditional MLS.

ZipRealty also has mastered making money from MLS data. It uses the complicated rules developed by the National Association of Realtors that permit individual brokers and agents to access the MLS. Zip registers prospective home buyers, establishing an agent relationship, and then provides local listing data to the consumer. The California firm then works with the buyers to find them a home and gets paid a traditional buy-side commission.

Zip has a market capitalization of $310 million and is trading at $16 per share. Through the first nine months of this year, ZipRealty generated $44.7 million in revenue and had $2.24 million in net operating income. Revenue for all of 2003 was $33.8 million, and the company reported a loss of $4.6 million that year.

While Zip and HouseValues are benefiting from the trend of consumer access to MLS data, their models also are vulnerable to industry efforts to keep tighter control of the data. In a filing with the Securities and Exchange Commission, Zip included under its business risks a lengthy discussion of NAR’s 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 office. NAR-affiliated MLSs will be required to implement VOW policies consistent with the NAR policy by July 1, 2005.

If any large brokers were to exercise their opt-out right, it could keep large portions of market inventory out of Zip’s reach, restricting its ability to display a comprehensive database of listings to its consumers–a key part of the online brokerage’s business model. But acceptance of these models by consumers and the Justice Department’s watchful eye is likely to prevent any drastic industry action to reel in listing data in a radical way.


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