Real estate experts weigh in on the future of Homes.com

Since launching a campaign to make Homes.com the most visited home search portal, Andy Florance, CEO of CoStar Group, has talked a lot about the portal’s potential. But how long can he keep this up?

That’s the question that recently emerged after a disgruntled CoStar investor questioned the value of the company’s investment in the residential real estate sector. That investor, Third Point founder Daniel Loeb, published a public letter calling CoStar’s heavy investments in residential real estate a “fiasco” and calling for a new list of directors on the company’s board of directors who would consider leaving Homes.com.

CoStar said in a public response that exiting Homes.com now would be premature and ultimately harmful to shareholders.

“One thing we know for sure is that exiting Homes.com as it winds down its investment phase would be a surefire way to destroy long-term value for shareholders,” the company said in a statement.

This was followed by a second CoStar investor – DE Shaw & Co. – with another public letter denouncing the board’s “reckless” spending on Homes.com, while also questioning CEO Andy Florance’s generous cash and stock incentives.

CoStar again responded to the criticism, saying that abandoning the portal would cause “irreparable damage” to the company, as well as “value destruction.” CoStar also said that the attacks from investors “[smack] of activism malpractice.” The company also noted that Homes.com’s investment phase has come to an end, which will result in $30 million in cuts to the portal this year, and more than $100 million annually through 2030.

Still, it’s now clear that CoStar is feeling some heat. But how much heat exactly? What major threat does CoStar face?

When Inman reached out to real estate industry executives and experts, they said CoStar would be wise to heed such strong concerns raised by investors — but noted that the jury was still out on Homes.com.

“I think it’s small potatoes compared to Zillow,” Bess Freedman, CEO of Brown Harris Stevens, told Inman. “If you just look at how much time people spend on which websites and study that, and the unique visitors, Zillow has everyone beat.”

“If you asked nine out of 10 of your friends where they are looking or looking to buy a house, they will tell you they go to Zillow,” she added in a conversation on the eve of Inman Connect New York.

But Freedman also said that given the speed at which things are changing in the industry, Homes.com may still have time to make a bigger impact and become more competitive.

“But today it’s just that Zillow is so far ahead of everyone else,” Freedman said. “It seems like a difficult one.”

Ryan Serhant | SERHANT. Studios

Meanwhile, Ryan Serhant, founder and CEO of SERHANT., suggested that any company hoping to succeed in an industry where there is already a clear frontrunner must differentiate itself through a new kind of value.

“You really have to have some other significant value that you provide in that area to compete with them,” Serhant. said. “I think in any business you have to ask the question: What problem are we actually solving? How quickly are we solving it? And with better quality than the competitors with the most incredible experience. If you can’t answer the questions about problem solving, speed, quality and experience, then you’re going to burn money because there’s no point.”

However, the luxury CEO added that he was not familiar with the details of the investor’s feud with CoStar, so he could not speak specifically about the situation.

Michele Harrington | First team

Meanwhile, FirstTeam Real Estate CEO Michele Harrington reminded Inman that while Homes.com has existed in various iterations over the years, it wasn’t until 2021 that it was acquired by CoStar. Zillow, meanwhile, was founded in 2005 and took about seven years to become profitable.

“So it’s definitely going to be tough to compete,” Harrington said. “I think it’s difficult when you break away from your core business model, like CoStar which is commercial real estate, and try to delve into something that’s outside of your core.”

Russ Cofano of Alloy Advisors told Inman that while Homes.com has made progress in increasing market share, “their overall revenue from their model pales in comparison to Zillow’s, especially when you look at the amount of spending they’ve made in that regard.”

And as for Florance’s position at Homes.com, Freedman said he might want to think twice about what investors say because it could become a threat to him down the line.

Russian Cofano

“I love being persistent and trying to create something,” Freedman said. “Whether that is successful or not, of course [Homes.com is] still not there, but [Florance] still believes in it…I think he’s saying he can’t give it up.’

‘I think anyone who invests their money in something wants to know that that person is [using that money] is being careful, making progress – even if there are setbacks or nothing is done, whatever it is. But has progress been made and what is the path to progress? How do you get there? I think that’s the question.”

Cofano noted that activist shareholders have increasingly become the impetus for the departure of public CEOs in recent years. The resignation of former Opendoor CEO Carrie Wheeler last summer after criticism from investors serves as a striking example.

But Florance’s deep ties to the CoStar foundation would make such a move less likely in his case, Cofano added.

“The activist has no right to fire Florance, and the typical strategy is to take control of the board and thus engineer an exit,” Cofano told Inman in an email. “That can be messy and disruptive. Founder CEOs like Florance also tend to be a more challenging target, especially if they have been successful in the past and grown the company like he has. It will be very interesting to see this drama play out, the impact it could have on the overall portal wars and the potential for Homes.com to become a takeover target.”

Email Lillian Dickerson