When it rains, it pours and the bad news just keeps coming for Homestore. From its plummeting stock prices to the looming completion of broker reciprocity solutions which threaten to make the need for a national Realtor site or its lead generation tools obsolete, the company can find no shelter.

It's hard to say when Homestore's luck began to turn for the worse, but the progression is hard to miss, especially as seen through the record of previous Agent News and Realty Times stories.

It was 18 months ago, coinciding with the Department of Justice anti-trust investigation of Homestore and its relationship with the NAR, and its MLS subsidiaries, that it became apparent that the bloom was off the rose in the relationship between the NAR and its favorite technology partner.

The NAR suddenly went from encouraging MLS organizations and brokers to affiliate with the Gold Alliance program, an incentive-based program which allowed Homestore's subsidiary Realtor.com exclusive rights to publish MLS databases of listings, to the announcement of a new Internet Data Display policy. IDD or IDX, if you prefer, allows brokers to publish the same public listings that Realtor.com gets from MLSs on their own personal Web sites, effectively blunting the need for a national Realtor's site or its lead generation solutions. MLS organizations across the country were told to have their technologies in compliance by January 2002.

While the NAR and Homestore were dependent on the patriotism of members to buy lead generation tools from Realtor.com, resentment was building from end users toward Homestore. Realtor.com subscribers began to complain of lead diversion, and many claimed that they were not getting any leads for their money. Others complained that they were paying over market value for template Web sites and second-level domain names. Complaints began to build that Homestore was more concerned about its stockholders than its customers.

By April 2001, things had come to a head, and they've only gone downhill for Homestore since.

It began with Homestore's purchase of move.com, the unprofitable competitor owned by Cendant, a company engaged in a lawsuit against Homestore. Through a large stock trade, the suit miraculously went away, and Homestore had a new customer base of Cendant franchisor's agents. To kick the subscriptions off, Cendant purchased a large block of lead generation tools which raised Homestore's subscription renewal potential by more than one third. But many independents and competing franchisors felt that Homestore had gone too far in bringing their largest competitor on to Homestore's board.

Editor's note: Cendant maintains that the settlement of the lawsuit between Cendant and Homestore was reached in October 1999, months before the sale of move.com was initiated. "Further, the circumstance that prompted legal action taken by Cendant was entirely unrelated to the move.com transaction," writes Kevin M. Meyer, director of communications and public affairs.

Homestore later signed an agreement with Bank of America to put Realtor.com listings on their new home site, homesolutions.com. When the site debuted, in the middle of NAR's fight to keep banks out of real estate, the Realtor.com listings were suddenly pulled. Spokespersons for both camps said that brokers requested the listings be pulled, but the speed with which the story unfolded suggests a bigger foot on Homestore's neck.

As a result, the NAR publicly distanced itself from Homestore, and stepped up its own promotion of Realtor.com.

By summer of 2001, Wall Street analysts were beginning to have questions about Homestore's pro forma numbers, and its prospects to renew subscriptions, partially based on the rising enmity of its subscribers. A series of negative reports by a Merrill Lynch analyst prompted the first in a series of plunges.

Homestore's stock is taking a great deal of punishment in the race to capitulation, but it is hard to determine whether the stock is taking a beating, below $10 a share at press time, because of panic on the Street, or because it has yet to make a profit, according to generally accepted accounting principles (GAAP.)

While Homestore projects $.16 a share in pro forma earnings for the quarter, with a large lift from its acquisition of iPlace, a leading credit and neighborhood information service, Homestore's luster as a sector leader was already beginning to fade. Reports of heavy insider selling, pro forma earnings that allow questionable exclusions, GAAP earnings that show it losing over $2 a share, and a growing disillusionment among analysts that Homestore subscribers would renew in large enough numbers to sustain its valuations are all putting pressure on the stock.

Homestore would not comment on the state of its stock or speculate on the reasons why it is slumping.

Adding insult to injury is the announcement of a new homes site, put together by 54 of the nation's largest builders. Newhomesource is bound to put a dent into Homebuilder.com, Homestore's site that it operates by agreement with the National Association of Homebuilders.

Quotes by the group reported by the Wall Street Journal said that the builders were worried about "being at the wrong end of the food chain," and that "they know how to sell homes better than a third-party site." These sentiments were ominously similar to complaints by real estate brokers over their NAR-sponsored site Realtor.com, controlled by Homestore.

Over the summer, at least two groups of real estate broker-led organizations are starting agent productivity and marketing sites which will undoubtedly compete directly with Homestore and Realtor.com. The Realty Alliance has secured positions on Homeseekers board with the intention of helping to control the development and production of tools for brokers and agents. Wheretolive.com is a group which is designing Web sites for broker members, and is being launched with great secrecy through investments by brokers who are known to favor centralized, not national listings.

The potential significance of centralized listings is huge. While neither organization would comment on whether it plans to withdraw its member listings from Realtor.com, or encourage subscribers not to place listings on Realtor.com, Realty Alliance president Charles McKee, told Agent News, "Our members are free to do what they want."

The operating agreement between Homestore and NAR is a lifetime bond, but it can be broken under a few circumstances, one of which is if Realtor.com's listings drop below 500,000. While it would take a large and dedicated network to bring Realtor.com's listings down to that level, the seeds of such a network are clearly in the ground. If the NAR and Homestore end their relationship, the NAR would take over operation of Realtor.com.

A possible salvation for a Homestore-run Realtor.com is to get MLS contracts to provide broker reciprocity solutions to MLS organizations, but it is getting a late start to do so, with the compliance deadline less than five months away.

In an earlier interview with Realtor.com president, Steve Ozonian, Agent News learned that Realtor.com was planning the late launch of an IDX, or broker reciprocity solution, for MLSs. In the interview, Ozonian expressed the wish that the NAR would relax its compliance target date of January 2002.

A NAR spokesperson told Agent News recently that it has no plans to change the date.

Published: September 20, 2001

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.