The national real estate market is in transition, executives at ZipRealty said during a third-quarter earnings announcement,  and the “classic sellers market” is fading away.

Eric A. Danziger, company president and CEO, said “The average available inventory across our markets spiked dramatically … to a level approximately 40 percent over a year ago,” though sellers are still expecting a rapid rate of price appreciation and “buyers are acting more tentatively,” resulting in somewhat of a standoff. The company also reported slight declines in median sales prices across its markets for the past two months.

Danziger said some markets appear to be “at the tail-end” of this transition period. “We’re not sure how long this transition period will last. It just depends how long sellers take to realize they better take that offer that comes in.”

Next year, “business will likely experience some softness relative to expectations,” Danziger said, with a flattening in agent productivity and a decrease in average revenue per transaction. Six months ago, Danziger noted that it was not uncommon to see 14 offers on a property in the San Francisco Bay Area market, with properties selling for $250,000 over the list price, he said. Nowadays, a similar property in the same area might sit on market for months and receive a single offer, with sellers in some cases taking several weeks to decide whether to accept the offer, he said.

The softening market won’t stop the company’s growth plans, though, he added. “We believe that such trends truly play to our strengths.” The company works mostly with buyers, he said, and officials hope that the company’s rebates to buyers will help attract more business as buyers are drawn to the rising inventory of available properties.

Founded in 1999, ZipRealty operates in 14 major metro areas, most recently expanding into the Las Vegas and Houston markets. Next year, ZipRealty expects to expand into an additional four to six markets. ZipRealty offers rebates to buyers who work with its agents and discounts to sellers, and the company relies heavily on its technology platform to generate new business.

Within five years, Danziger said he expects ZipRealty to be one of the largest real estate brokerage companies in the country, employing 4,000 to 5,000 real estate agents and operating in 40 to 50 cities.

The company announced a net income of $2.9 million for third-quarter 2005, compared to $1.3 million in third-quarter 2004. Net revenues were $28.2 million for third-quarter 2005, a 61 percent increase over the $17.6 million in third-quarter 2004.

At the end of the third quarter, the company employed 1,383 agents, up from 1,235 at the end of the second quarter and up 77 percent from 782 at the end of the third quarter of fiscal 2004. Also, the company reported that the total value of real estate transactions closed by its agents increased about 65 percent to $1.36 billion in third-quarter 2005 from $823 million in third-quarter 2004.

The number of transactions closed in third-quarter 2005 increased 56 percent to 3,689 versus 2,371 in third-quarter 2004, and average net revenue per transaction increased to $7,475 in the third quarter of 2005, compared to $7,215 in the third quarter of 2004. Next year, average net revenue per transaction is expected to fall off to about $7,000, said Gary M. Beasley, executive vice president and chief financial officer at ZipRealty.

ZipRealty agents facilitate an average of one real estate transaction per agent per month, he said.

Revenues between $21 million to $23 million are expected for the fourth-quarter, Beasley said, with an expected net income per diluted share between 2 cents to 4 cents.

For the full year ended Dec. 31, 2006, management expects revenues to be between $130 million and $135 million, with the midpoint of this range representing a nearly 40 percent year-over-year increase. The company also expects pre-tax income per diluted share for fiscal 2006 to be between 40 cents to 45 cents.

Danziger said ZipRealty’s expansion into Las Vegas and Houston real estate markets has been a success, with profitability in the first four months of operations.

***

Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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