Top Internet Real Estate Site Faces Antitrust Probe

The Justice Department has formally opened an investigation into possible anti-competitive business practices by the Internet’s largest real estate Web site, Homestore.com.

Antitrust lawyers have asked the Thousand Oaks-based firm to provide details about its business strategy, which includes exclusive contracts the company holds with many of the country’s largest residential property listing services.

The probe strikes at the long-standing real estate industry practice that keeps agents in tight control of residential sales listings. Although the practice has never been successfully challenged, the industry’s attempt to continue that control on the Internet has prompted new legal scrutiny.

“We are conducting an investigation into potentially anti-competitive conduct involving the online realty listings industry,” said Jennifer Rose, a Justice Department spokeswoman.

Homestore officials denied that the firm has engaged in anti-competitive practices. But investors reacted strongly to news of the probe, driving Homestore’s shares down by $2.25 to $19.50 on Nasdaq, a new all-time low.

Homestore has secured 95% of the nation’s home listings, about 1.3 million entries, largely through its relationship with the industry’s largest trade group, the National Assn. of Realtors.

These listings are available on the Realtor.com Web site, in which NAR owns a minority stake. The 4-year-old Realtor.com site has become the Internet’s most popular real estate site largely because of its extensive database of homes for sale.

The Homestore inquiry is the latest in a series of investigations by federal officials into the business practices of leading Web sites. Earlier this year, the Justice Department opened a probe into possible anti-competitive behavior by EBay, the Internet’s largest auction site.

The Federal Trade Commission and New York state authorities announced in February that they are investigating how online advertising firm DoubleClick uses personal data provided by its customers.

At issue in the Homestore inquiry is the company’s hold on a majority of the nation’s home listings, which are compiled and closely controlled by local realty boards.

In its quest to corner the market for these listings on the Internet, Homestore last year offered local realty boards warrants to buy stock as part of the company’s initial public offering if they agreed to provide their listings exclusively to the site. The company later extended this offer to individual brokers.

The Internet has revolutionized the draconian real estate industry by making listings of homes available on a national basis to the general public. Before the Net, consumers could access this information only by visiting a local real estate agent. The agent would tap into the area’s multiple listing service--a nonpublic computer network--to pull up a list of homes available for sale.

Traditionally, these services have been closely guarded by local realty boards. Critics allege that these boards, and the NAR, are still interested in keeping these listings somewhat exclusive in an effort to protect member Realtors’ 6% commissions.

The financial arrangement drew sharp criticism from industry watchers and Homestore’s competitors--including, ironically, court-decreed monopolist Microsoft Corp.

Even though there seems to be some benefit to home buyers by finally having at least one source for the listings, critics say that sellers are harmed by these exclusive deals because their homes are not being advertised on multiple Web sites. That limits the exposure of homes for sale.

“I think the government is recognizing here that the consumer is being harmed by these exclusive relationships,” said John Giaimo, president and chief operating officer at HomeSeekers.com, one of Homestore’s competitors.

But Homestore isn’t the only site that offers monetary incentives to local realty boards for their listings. Its competitors also pay these boards for access to their databases.

Many of the nation’s largest multiple listing services agreed to participate in the Homestore deal. Others, such as the Southern California Multiple Listing Service, said they never considered giving their listings exclusively to Homestore.

“Why would we want to disenfranchise the millions of Internet visitors who won’t access Realtor.com?” said Russ Bergeron, general manager of the Southern California Multiple Listing Service. “Our whole philosophy is that we want to gain as much exposure for our members as possible.”

But even before the warrant offer, Homestore had already become the front-runner in the race to assemble a complete online database of residential real estate listings. Homestore’s competitors are still trying to catch up.

Homestore said the Justice Department has not alleged that the company violated the law, adding that antitrust officials requested information as part of a broader investigation about how the online real estate market works.

“We have big competitors like Microsoft, Cendant and Yahoo,” said John Giesecke, executive vice president and chief financial officer at Homestore.com. “It’s not like we’re the 800-pound gorilla.”

Homestore owns a family of six Web sites that provide listings for new and existing homes and apartments, remodeling, financial and relocation information.

Critics say that Homestore’s listings haven’t necessarily given consumers an accurate picture of the range of homes to choose from. It’s extremely difficult to compile home listings in a central database, given that there are about 730 multiple listing services in the country, said Nick Karris, an Internet real estate analyst at Gomez Advisors, a market research firm based in Lincoln, Mass.

But consumers say that residential listings are the No. 1 reason they visit real estate sites, giving online real estate firms an incentive to compile proprietary databases of such listings.

“We surveyed 17,000 consumers in February and they told us loud and clear that access to listings is the most important information that they seek when they come to the Internet,” Karris said.

The question is whether or not having this information all in one place on the Internet harms the consumer. Homestore says it doesn’t because most consumers have access to the Internet and because the company provides the listings to consumers free of charge.

Homestore says its exclusive deals apply only to listings on a national scale and do not preclude other Web sites from going to a broker or individual agent to get the listings locally. Some experts say that up to half of Homestore’s listings aren’t exclusive and are available on other sites.

Indeed, in an effort to build up their databases, some of Homestore’s competitors have started going door to door to collect listings.

For example, the San Fernando Valley realty board’s listings are provided exclusively to Realtor.com. But officials at HomeSeekers.com try to “entice” brokers to participate in their listing service by visiting them on an individual basis.

In many cases brokers aren’t aware that their local realty board has made a deal to provide their listings exclusively by Homestore, Giaimo said.