As the marketplace digests the news of the Homestore-Cendant settlement, some questions are surfacing as to what really happened and what the relationship will be between the two realty giants moving forward.

According to financial news sources, a dispute arose between the two companies when Homestore purchased Cendant's real estate portal Move.com in an all-stock deal in 2001 valued at approximately $761 million (based on Homestore's share price at the time of about $29 per share.)

The deal eliminated Move.com as a potential competitor to Homestore and immediately doubled Homestore's subscriber base, causing its stock prices to shoot up. Cendant was restricted in selling its shares by the deal and had to watch the run-up from the sidelines.

But the good times didn't last. At the time of the Move.com acquisition, Homestore was operating under management that allowed the company to make false statements regarding its revenues, which resulted in its shares being grossly overvalued by the market. When Homestore announced that it must restate its earnings for 2001, share prices plummeted, and Cendant saw its stock options, which had been valued in the millions, drop to pennies on the dollar. Cendant is Homestore's largest shareholder with 18.3 million shares.

On February 6, 2002, Cendant wrote off its "carrying value" investment in Homestore to zero, due to the stunning decline in Homestore shares. Accordingly, the company said it would no longer reflect the earnings or losses of Homestore in its financial results.

The original agreement gave Homestore exclusive access to Cendant brand listings for 40 years, and in a separate transaction, Cendant's Real Estate Technology Trust agreed to purchase certain Homestore subscription products for 190,000 Cendant brand agents.

The Trust did not renew its agreement with Homestore in 2002, and was dissolved, having served its purpose to encourage Cendant agents to try Internet marketing at a favorable price. Homestore lost an undisclosed number of Cendant brand subscribers, and was able to renew an undisclosed number, leaving the marketplace to wonder how much impact the bulk Cendant purchase had on Homestore revenues going forward.

Cendant agreed not to sue Homestore over its stock losses, and in exchange, Homestore will register Cendant's 18.3 million shares so they are no longer restricted and eliminate other restrictions regarding Cendant's use of the stock. Homestore no longer has exclusive rights to Cendant brands' listing data, but that data wasn't posted to Realtor.com anyway. Homestore gets its listings directly from MLSs, and uses a number of technologies to do so that may make it an even more attractive partner to Cendant in the future.

"The headline benefit for this is less about who will or won't sue," says Homestore executive vice president, corporate development group, Allan Merrill, "but removing an overhanging issue that impacted our ability to do business with Cendant affiliates. The issue of the dispute acted as a deterrent and the benefit is that is removed. The only way to increase shareholder value is to increase the number and happiness of customers."

Explains Richard Smith, CEO of Cendant's Real Estate Division, "We had no desire to sue Homestore, and any lawsuit would have been based on their misrepresenting their financials. The stock was worthless, so because of that misrepresentation we were not fulfilled in our consideration, so the basis for the transaction was flawed. We settled the claim and we still reserve certain rights and can still seek recourse."

Once those 18.3 million shares are registered, they can be sold on the open market or to institutions. Homestore received options to buy back as many as 7.3 million shares. Smith says Cendant has no intention of selling its remaining shares.

"We have no desire to do that," says Smith. There's an advantage to holding on to the shares, he says.

"Homestore is an important marketing vehicle that is Realtor-friendly, and it might be worth something someday," says Smith.

While the new agreement makes it very much appear that Homestore must dance to Cendant's tune, Smith points out that the two companies' goals are very compatible.

"Our relationship is very good," explains Smith. "if there weren't a good relationship, we would have filed the lawsuit. Homestore is a strategic asset to the industry that doesn't represent any conflicts of interest. It is a great provider of leading edge technology. If you look at the marketplace at what is industry-friendly and what is not, Homestore represents the greatest single opportunity for the industry. The industry is going to recognize that the attempt to make it online is only window dressing. There is more than black and white classified ads online. The consumer wants more than that, and realizes that the online listings should not be anything but robust, healthy and jazzed up. Homestore is perfect for that.

"It's fair to say," continues Smith, "that represents a significant upside. They can be the premier online marketing venue. The industry is more than happy to trade dollars to the Internet because print media is difficult to quantify. If you can track your success online and measure your return on investment, you will realize that online marketing is far more efficient than standard print media. Homestore is positioned to capitalize on that shift."

So is a new deal in the works? "The Trust has fulfilled its obligation and spent its funding," says Smith. "It's purpose was to buy marketing that the agents couldn't afford to buy on their own and the purpose was to tempt them to use it. You would have to look at Homestore to see if it seeded more business for them, but we are no longer encumbered by previous marketing agreements. As we see new online marketing that is appealing, we are in the position to encourage use of that through the franchise system, and if Homestore is the beneficiary, that's fine. It makes sense for us that Realtor.com should succeed."

So it is incumbent on Homestore to bring the right product and opportunity to Cendant's table?

"They recognize it," says Smith. "Previous management pales in comparison to this site in becoming a premier provider. They are still providing technology. We are looking at enhanced marketing opportunities and they are aware of it, and if they create values, our NRT buyers and franchises would be interested. Data feed is an issue. Homestore's unique advantage in interfacing meaningfully with every MLs in the country is important. If we can minimize redundancies to populate multiple datafeeds, that is something interesting to us and the industry as well since we have so many agents. Homestore could be a single point of entry for our 250,000 agents."

Could Homestore be the VOW (virtual office Website) provider for Cendant agents? "I don't know what they are attempting, but I do know that they won't charge a referral fee."

Could Homestore and Cendant be allies in creating marketing vehicles for agents that compete favorably against the referral fee models?

"Homestore and we haven't had those conversations," says Smith, "We view referral sites as blips on the screen. They aren't sustainable. As you know, Homestore is supported and sponsored by NAR, and NAR has more influence than third parties that will be here today and gone tomorrow."

There are other incentives for an ongoing positive relationship between Cendant and Homestore. Cendant is Homestore's largest single customer and has branded customer relationship management software for Cendant brands, according to the agreement. Under the terms of the new software agreement, Cendant receives a license to have a branded version of Homestore's Top Producer(R) Online(TM) software products. Cendant may use the source code to maintain, modify, and upgrade the customized Top Producer Online software products previously licensed to Cendant. Additionally, Homestore will, for a fee, provide maintenance support to Cendant for Top Producer Online software products, says the company. While it isn't clear if Homestore derived any revenues from this part of the agreement, the crm could segue into other sales.

Homestore also owns Wyldfyre, which aggregates and manages listing data for numerous MLSs, putting the company in the ideal position to integrate listings with online marketing, as pointed out by Smith.

"We have the technology, and now we have the opportunity to talk to customers and help them with their business," says Merrill, "and when they are agreed, we will talk about what we are going to do for them."

"From Top Producer, we have customer relationship management solutions with Cendant, and they will provide the platform to their affiliates," explains Merrill, "and our ability to aggregate listing information and traffic is a skill we've developed, and it results in our building and hosting Websites including a lot of big companies. We face live testing in a significant way every day and that is valuable to customers."

Has Cendant come to Homestore with a wishlist or product idea, perhaps one that combines online referral-free marketing with online customer relationship management and listings marketing?

"It isn't about a particular product idea," says Merrill, "it is being able to better serve them. We are "off probation" and if we can serve individual affiliates or franchises, Cendant would second the point that they are free to use us to improve their business. We have maintained a high level of business throughout the dispute - imagine what the opportunity is when this dispute is resolved."

"The notion exists that there are differences in media and technology propositions," he continues. "Cendant can buy great technology but we are also media solutions. Cendant can buy some of that, but the vast majority of that is controlled by individuals who make those decisions. They feel their individual agents make those marketing decisions. And now we are in a position to do business with those people. The Internet forces the conversion of technology and media, and it has elements of both. Cendant is raising questions and asking us about additional opportunities to work together and we are optimistic about ways to do this."

Published: August 11, 2003

Use of this article without permission is a violation of federal copyright laws.

Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. 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. To contact Blanche, email her at . For more articles by Blanche, click here.