Quick Reaction: Why Would CoStar Spend $156M on Homes.com?

Earlier today, we all got the news that CoStar is buying Homes.com from Dominion for $156 million cash:

WASHINGTON–(BUSINESS WIRE)– CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, announced today that it has reached a definitive agreement to acquire Homes.com, a division of Dominion Enterprises, for $156 million in cash.

Homes.com is a well-recognized residential property listing and marketing portal that supports over 500,000 residential agents and brokers in the home sale process. Approximately 5 million people visit the Homes.com website each month to search nearly 1.8 million residential property listings. Homes.com provides advertising and marketing services to residential brokers and agents based on listing feeds that cover more than 90% of all Multiple Listing Services (MLS) subscribers in the United States. The company is headquartered in Norfolk, Virginia.

My immediate reaction was, “Sure, of course that makes sense.”

My second reaction was, “Why is Andy Florance playing small ball?”

My third reaction is, “Hmm… what does this acquisition imply?”

Seeing as how I spent a good amount of time and energy really digging into CoStar and its foray into residential real estate, then wrote a 100-page report on it, I thought I’d spend a few minutes thinking out loud with you all.

Playing Small Ball

In the report, and in previous posts, I theorized that the acquisition that makes the most sense for CoStar was to acquire Realtor.com from Move:

Which means… we get to think about things. Who makes sense for CoStar to acquire next?

The obvious answer is Realtor.com. If CoStar’s goal is to displace Zillow as the go-to portal for consumers, then buying the #2 portal seems like a necessary step. I mean, whatever Realtor.com would cost to acquire from News Corp is likely a fraction of what it would cost to do enough consumer marketing to overtake Zillow’s lead in traffic.

Furthermore, Florance said some very complimentary things about REA Group as CoStar entered residential real estate. Guess who is a co-owner of Realtor.com with News Corp? That’s right, REA Group, the company Florance so admires and whose business model and profit margins he would like to bring to the industry.

But instead, CoStar buys a distant has-been fourth-place property in Homes.com, with a mere 5 million monthly visitors.


I have no idea, obviously, but seems to me that one or more of the following must be true:

  • News Corp had no interest in selling Realtor.com, because they’re making bank off of Realtor.com;
  • NAR just refused to play ball with CoStar;
  • CoStar looked at how NAR is a magnet for lawsuits and DOJ interest and decided it didn’t want to deal with whatever is coming down the pike for anything REALTOR-related, including a dotcom;
  • CoStar knows from its experience with Apartments.com that Americans are literal-minded people, and would flock to a generic Homes.com URL over Realtor.com. (I mean, if Americans are literal-minded people, then you go to Realtor.com to find a REALTOR, not to find a home, right?)

Now, this is not to say that a future CoStar acquisition of Realtor.com is off the table completely, but it is to say that if a deal that makes all the sense in the world doesn’t happen, then there must be some nonsense involved.

Big Picture

So my mind turns to the big picture of the acquisition. Yes, it’s $156 million and all in cash, but CoStar can afford that without blinking an eye. Maybe there’s no reason whatsoever to think there are any big picture considerations here. Maybe this is kinda like Andy Florance going, “Should we upgrade the corporate jet, or buy this little website?”

But if there are any big picture considerations to be had here, it would come from this passage from the press release:

“Unfortunately,” continued Florance, “current residential listing sites do not serve the interests of homeowners or their agents as they focus on selling advertisements on top of agent listings and increasingly offer competing brokerage services. These sites generate a portion of their revenue from directing potential homebuyers away from the listing agents to unrelated buyer agents that are advertising on top of listing agent listings. This is a practice we plan to no longer continue. Our plan in bringing Homesnap and Homes.com together is to help agents market their listings in support of the ‘your listing, your lead’ philosophy – which stands in contrast to most players in the industry.”

Okay, so… maybe this is a strategic investment after all.

Going forward then, the combined Homesnap + Homes.com business plan will definitely not include any kind of lead generation/referral business. No buyer agent will be able to purchase leads from either of those: “This is a practice we plan to no longer continue.”

Fine. Which leaves the CoStar/Loopnet/RealEstate.co.au business model of, “Your listing, your lead, and you pay.” That is, the listing agent will pay Homes.com to advertise the property, then capture all of the leads that come off of that advertisement.

Sure, okay, that works… if…

Ah yes, that wonderful word, “if.” Indeed, if what? What is the necessary precondition for that business model to work?

Traffic is one. Nobody wants to advertise on a website or publication or TV show that has no audience. I mean, I don’t see brokers and agents rushing to advertise their listings on this blog, for example, since I don’t have much in the way of buyer traffic.

So presumably, Homes.com would have to get a lot more than 5 million monthly visitors.

Exclusivity would have to be the other precondition, no?

Thinking About Media

Maybe “exclusivity” is the wrong word. Maybe “universal pay to play” is the correct phrase here. Let me see if I can explain by way of analogy.

Say you’re a tech vendor that sells widgets to real estate agents.

I call you up and ask if you want to advertise your company, your widget, to my audience. You’d think about a lot of things, consider a lot of factors, but surely one of the biggest considerations will be “What would it cost to advertise on this small blog versus advertising on Inman.com?”

If Inman.com wants to charge you $10K a month, and I only want to charge you $100 a month, then there’s a conversation to be had.

If, on the other hand, Inman is entirely free and I want to charge you $100 a month, then there is no conversation to be had. You’d laugh me out of the Zoom meeting.

In other words, if other advertising channels — especially ones that are many, many times larger with exponentially more traffic — are free, charging for advertising is going to be a difficult row to hoe. Which means, you have to figure out how to make other people charge for advertising.

In the unique space that is residential real estate, how do you do that?

The particular difficulty is in what Andy Florance said: directing potential homebuyers away from listing agents to unrelated buyer agents is verboten under CoStar’s philosophy. Okay… that means at a minimum, you have to eliminate IDX.

The existence of IDX, combined with the fact that two of the three largest portals in real estate (Zillow and Redfin) are using IDX to power their websites, means that there is no value whatsoever to the listing agent to pay to advertise their listings on Homes.com. Even the “your listings, your lead” thing doesn’t really make that big an impact if everybody else is already using “your listings” to generate their own leads off of their own websites, off of Zillow, and off of Redfin Partner Programs. If nobody else can use your listings to generate their leads, then yes, Homes.com has more value.

So I can’t see how the Homesnap + Homes.com strategy works as long as IDX is a thing. Which means one has to assume that CoStar’s strategy includes some way of eliminating or at least dealing with IDX. What might that be? Your imagination is as good as mine.

Not to Mention…

Some of you reading will remember when Zillow introduced Flex as a beta test back in 2018. That was in September. Do you remember what happened in August of 2018? Realtor.com acquired OpCity, which was one of the pioneers of the referral-based lead generation model.

I remember conversation and chatter back then that Zillow was now free to launch Flex because NAR was blessing referral-based lead generation by blessing Realtor.com to acquire OpCity. That gave Zillow political air cover.

Wouldn’t the same thing happen here?

CoStar launches a “pay to advertise” model with Homesnap and Homes.com. All of the brokers bless the effort, are thrilled to be part of it, and heap abuse and scorn on companies like Zillow who “direct potential homebuyers” to unrelated buyer agents. The brokers and agents gladly pony up money to enhance their listings, advertise their properties, etc.

But Homes.com has 5 million monthly visitors; Zillow has 200 million. Seems to me that it would be the simplest change in the world for Zillow to say, “We heard you, dear advertisers! Going forward, we too will charge you to advertise your listings on the world’s largest real estate portal.” Political air cover in place, thanks to CoStar’s efforts, that’s an easy pivot.

Final Thought

Let me leave you all with this, because it’s something I have been finding myself saying more and more of late.

Brokers and agents complain bitterly about giving away their data only to have tech companies make billions off of their listings.

If you don’t like that, just wait until you can’t give away your data to tech companies. Wait until you have to pay to advertise your listings on media platforms.

I know this is speculation, but hey, that’s kind of our specialty around here. reading the signs, putting two and two together, and seeing where the puck is headed. It’s headed to interesting showdowns. We don’t yet know what comes this way, but whatever comes, just be ready fi dem.





5 thoughts on “Quick Reaction: Why Would CoStar Spend $156M on Homes.com?”

  1. “If you don’t like that, just wait until you can’t give away your data to tech companies. Wait until you have to pay to advertise your listings on media platforms” True that!

  2. What if they don’t plan on having agents advertise? Perhaps a completely different model. They create their own Brokerage, have the listings fed, push their own agents and attract more agents with the buffet of business. Instead of the typical brokerage website of abcrealty.com, they have homes.com. For a brokerage website, 5 million visitors is huge.

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