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& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | DECEMBER 19, 2000 COMPANY CLOSEUP By Christopher Palmeri Why Homestore.com Isn't Yet Home Free To cement its lead, the online real estate listings service has bought Move.com and started eRealtor.Still, regulators and resurgent rivals could keep it from the winner's circle
But Homestore can't plop down in the living room and put its feet up for long. It's still losing money -- a projected $12 million in 2000 -- and the acquisition of Cendant Corp.'s Move brings both new challenges and controversy. Instead of simply providing listings for real estate brokers and buyers, Homestore hopes to persuade them to complete more of their purchases online by offering products such as mortgages and title insurance. In theory, that would allow the company to earn commissions in addition to the ad revenue and small fees it charges realtors to post their pictures and phone numbers on its sites. "The first few years we helped you find a home," says Homestore Chairman Stuart Wolff. "Today, the focus is buying a home." ANTITRUST THREAT. That's where the Move deal comes in. By buying Cendant's Web sites, Homestore picks up easy access to the 205,000 brokers who work for the company's three national franchises -- Coldwell Banker, Century 21, and ERA. Add the 100,000 brokers Homestore already has relationships with, and its sites reach one-third of the 900,000 agents in the country. And Move.com's sites should complement Homestore's existing lineup, which includes Realtor.com, the largest online listing of houses and condos for sale, HomeBuilder.com, which lists newly built homes, and SprintStreet.com, an apartment site. The industry consolidation, however, appears to have stirred antitrust hawks at the Justice Dept. They were already looking into Homestore's exclusive contracts with local listing services nationwide, and rivals now say Justice put out additional requests for information after Homestore announced the deal with Move. The Justice Dept. wouldn't comment on the investigation. Homestore's Wolff says the merger was vetted by his company's lawyers in Washington. "The consumer will be helped if we can accelerate the move to faster and lower-cost home purchases online," he says. To that end, Homestore plans to offer realtors and buyers something new early next year: It's a site called eRealtor.com, which will allow real estate agents to track customer information, home listings, and home-purchase documents through one common online system. Realtors will be able to enter information about their customers -- the location, price, and type of home they're looking for. When that buyer finds a home, contracts and other critical documents will automatically be filled out with information about the customer, which is to be collected by the broker, and the property, which would be downloaded from multiple listing services. THE $95 BILLION PIE. Buyers and brokers will also be able to check the status of the purchase through a checklist on the site. E-mails will alert both parties, for example, when the buyer needs to send verification of employment to the mortgage broker by a certain date. Brokers will likely pay a fee to use the tools on the site. Ultimately, Homestore.com hopes to charge people like mortgage brokers and title insurers commissions for every piece of business they get through eRealtor.com. "It's a nice product," says John Hollenbeck, an executive with title insurer First American Financial, who has seen the test versions of the site. Homestore figures that the fees associated with home purchases -- points on mortgages, inspections, title insurance, and escrow services -- add up to around $95 billion a year. If the online company can automate the process and save money for everyone along the line, it can share in the fees and eventually turn a profit. Jim Fowler, an analyst at Thomas Weisel Partners, expects Homestore's revenues to more than double to $203 million in 2000, though he projects it will lose $12 million. But it should make about $24 million next year on sales of $290 million, says Fowler. TOO SMART? Homestore began life as the electronic media experiment of the National Association of Realtors, an industry trade group. Wolff put together a group of investors that took control of Realtor.com, now the flagship site, in December of 1996. The Realtors association kept a 15% stake, and Wolff used his relationship with the national association to persuade local realtors to give him their data. Having the most comprehensive real estate listings -- some 1.4 million -- attracted the most online viewers to Homestore sites, which translated into higher ad revenues than rivals'. But many of the exclusive contracts Homestore wrapped up in the early days will run out over the next few years, and Homestore.com will slowly lose its edge, predicts Nick Harris, an online real estate analyst at Gomez Advisors, an online consulting firm. That's why Wolff is focusing so intently on actually closing deals online rather than using exclusive listings to simply attract visitors. Homestore's new strategy is anything but a slam dunk. Rivals are putting together their own industry relationships. And there's no guarantee that real estate agents will embrace the new technology. "Country boys like me, we just get lost," says Irby Rozelle, the 54-year-old president of Coldwell Banker Madeline O'Brien in Houston. Rozelle says he only recently programmed the radio stations on his seven-year-old Mazda. He figures only one-third of the 80 brokers at his firm have their own computers. PAPER CHASE. And paper could be as much of a problem as people. "Every county or village has its own version of how a closing should take place," says Steven Wolinsky, the chairman of ClosingGuard, a company that leases hardware and software for online mortgage transactions. "At some point, you always have to go sign documents." Homestore agrees that universal acceptance of electronic signatures is still a ways off but believes other parts of the purchase can still be conducted online. Jay Leupp, an analyst at Robertson Stephens, figures Homestore will spend upwards of $50 million on eRealtor over the next two years and that it will take four years before the company sees any significant revenues from the service. Homestore may be the leader in the online property race so far, but the next leg could be tougher than the first.  Christopher Palmeri covers finance and real estate for Business Week in Los Angeles  | | |
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