Under its former abusive management, Homestore and Realtor.com have weathered many storms, but none as "Isabel-strength" as what is facing current management. Homestore and Realtor.com's new management has to tell previous partners and customers the bad news -- that old deals aren't workable any longer.

First the company informed its Realtor customers that it could no longer provide exposure and personal marketing services for the fees it had previously charged. While some Realtors costs went down (according to the new exposure model based on market location and number of listings,) other Realtors' costs went up considerably, particularly in high traffic markets.

Realtor.com also had to inform MLSs that it would no longer pay for listing feeds, a risky move considering that Realtor.com's dominance in aggregated listings is one of the factors that helped it trounce its competition during the heady late 1990s before scandal brought the company low.

Now, Realtor.com has lost its exclusivity advantage. Listing-sharing among Realtors, facilitated by Internet Data Display and VOW publication policies, has rendered Realtor.com's exclusive rights to publish obsolete, along with its need to pay its "Gold Alliance" MLS partners as much as $3 per listing to keep competitors from getting MLS-aggregated listings.

As brokers gleefully share MLS listings with Realtor.com's competitors in exchange for exclusive gateway positioning or shots at referrals, competition against Realtor.com is heating up again. Online referral fee services such as LendingTree and HomeGain have obtained full MLS access through agreements with individual brokers in many markets. They don't pay for the listings, so why should Realtor.com have to?

And there is the home team advantage to consider. Realtor.com promotes the Realtor brand. But, so does LendingTree, despite requests by the NAR, according to counsel, that they not use the word Realtor in their advertising. However, the company prominently displays "Find a Realtor" buttons on the front pages of their Websites. Why? The company extracts referral fees ranging up to 35 percent of agents' commissions to provide them with leads, something Realtor.com is forbidden to do in its operating contract with the NAR. Realtor.com can't even sell advertising to companies like LendingTree without an outcry from NAR membership, which resulted in a lucrative ad being removed from Realtor.com's Website. HomeGain tells Realty Times that it is in compliance with NAR's guidance over its front page use of the Realtor brand.

Talk about being unappreciated. Yet Realtor.com management is soldiering on, hoping that MLSs as well as individual Realtors will support the portal as the last bastion of referral-fee-free personal marketing on the Web.

Realtor.com sees itself as a favorable alternative to business models that extract significant portions of the Realtor's commission as well as pit Realtors against each other to lower their prices on service. All brokers and their listings are featured on the site free of charge, a benefit of NAR's operating agreement with Homestore. Brokers and agents pay only for "enhancements" to draw consumer attention to their listings. When brokers and agents get leads, they pay nothing further -- no referral fees.

Yet these benefits aren't enough to entice loyalty.

Many of these same brokers and agents are building up Realtor.com's competitors, and taking Realtor.com's free exposure for granted. They are ignoring the company that helps them build and promote their personal brand, stays out of their commissions, and pays millions a year to bring them more traffic, many in favor of kissing off a third of their commissions, lowering their commissions in price-based competitions to "win" the consumer, and losing their brand identity to a lender. (LendingTree is a licensed real estate broker, able to charge Realtors what Realtors cannot do by law to lenders -- charge referral fees.)

Mona Beckham, vice president of MLS relationships, hopes MLSs will decide that Realtor.com, as the true purveyor of the Realtor brand, should continue to be supported as the number one consumer destination for real estate in the nation. The challenge lays in convincing them that supporting the cause is not only noble, but that it will pay off.

"What we have done is contact our data content providers as the contracts expire," says Beckham. "We are honoring all data contracts in place, and some don't expire until 2005. We are automatically renewing with new terms -- that we will license the data, but not pay royalties to MLSs."

In lieu of how things have changed, MLSs couldn't be surprised that Realtor.com would one day refuse to pay royalties any longer. In fact, says Beckham, they were invited into the transition process.

"We began to meet with influential large associations in February," explains Beckham, "and they helped us put together a task force to review the issues and advise us how to proceed. We met three times, and we put together the communications plan. We had small group meetings with 35 executive MLS officers with the largest number of listings or highest royalty payments, in Washington, D.C. at the mid-year. It was interesting, the reaction was -- we never budgeted this money anyway, and most said they knew it was a matter of time."

How have the ones who weren't at the meetings responded?

"The world has changed," says Beckham, "when we first set up our Gold Alliance and Royalty program, a big portion was based on exclusivity, and that is not possible any longer with IDX and other vehicles. The industry also gave us feedback that they are concerned about referral models and their impact, and one thing was the importance of Realtor.com to be offense for the industry. We needed to make the business decision to spend small sums of money on royalties or reinvest it in traffic and functionality on Realtor.com, so Realtors won't go to referral networks."

How much "breakage" does Realtor.com anticipate from MLSs which prefer royalties to team spirit?

"We haven't had any yet," replies Beckham, "but we expect some MLSs may decide to take a different approach. There have only been three that we had previous relationships with that don't provide us with data, and we have 873 MLSs who have the ability to send us data. There are some who don't have staff or technology, and we add new ones all the time as MLSs merge and get new systems, probably two or three a month. The three that haven't provided data, we are beginning to revisit a datafeed from all three of those. If the MLS doesn't feed the data, then brokers don't get the leads, and the sellers want to know why their listings aren't on Realtor.com."

That's good leverage. How do you tell sellers their listings aren't on Realtor.com? These are all reasons why it is unlikely that many MLSs will stop the feeds to Realtor.com, but that doesn't mean that Realtor.com isn't sensitive to the loss of revenues that the MLSs may experience. That's why Realtor.com is working on revenue-sharing programs in which MLSs facilitate sales of Homestore and Realtor.com products to Realtors, including Top Producer and Welcome Wagon.

"Going forward, there is no compensation for use of the data directly to the MLS," says Beckham, "unless they participate in a marketing program to match real value with revenues earned. An example of that is that we are testing the market with two MLSs with Welcome Wagon that allows the MLS to be a facilitator of data-gathering and marketing to agents. With Welcome Wagon, every new homeowner gets a complimentary address book with coupons from their Realtor. The Realtor gets it for free, and it goes to the homeowners. We are creating other ways to better integrate our products and services with the MLSs.

"We are working on another program called 'Kick Start,' one that will let MLSs promote and market to new Realtors and the MLS will earn commissions," says Beckham. "They are in test right now, we are in contract negotiations in a couple of markets for Welcome Wagon and one market for Top Producer, and by the end of year we'll have a pilot program for the Kick Start program. We are being careful to create replacements for the royalty revenues. All programs won't fit in all markets, but we want to encourage our MLS customers to work more closely with us."

According to Beckham, the Kick Start program could be significant. Approximately 10,000 new licensees have joined the National Association of Realtors monthly over the last several months, she says.

"Our company is dependent on relationships with MLSs," explains Beckham. "We have to work smarter and more closely together and one thing we have to work hard on doing is leveraging the touch point that the MLSs have to promote Realtor.com to brand-new agents. That is where we build support for the agent early in their career."

New agents can also build support for Realtor.com in a way that existing agents haven't. New agents are more likely to be tech-savvy, inclined to use the Internet, or willing to train to use the Internet. There's no history, no taints to overcome. They don't know one dot-com from another. And as new members of the NAR, they may be a little more trusting that the products and services their association puts in front of them are created by partners with their best interests at heart. Further, brokers will encourage new agents toward Realtor.com also.

"Brokers are grasping the concept of the Internet and reallocating advertising dollars from traditional media to new media, because it is shown to be more effective and less expensive," says Beckham, "and they are excited about building new budgets around the free display of listings on the Internet, and the exposure and level of support from brokers is huge. That's why we have support."