CoStar is preparing to increase the cost of becoming a member in response to what the company’s leaders say is a strong return on investment for agents who pay for the service.
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CEO Andy Florance said during a call with investors on Tuesday that the company had studied the first 11,400 Homes.com members and their commission earnings before and after joining.
“The findings are striking,” Florance said. “On average, a Homes.com subscriber earned $36,400 more in commissions in their first year as a member. Against an average annual subscription cost of just $3,400, that’s an 11 times return on their investment.”
As a result, CoStar is raising subscription fees for new customers starting this Friday, Florance said. It will evaluate “measured potential renewal increases,” as well.
The company didn’t immediately provide details about the impending price increase for new members.
The increase comes as Florance has been defending CoStar’s past heavy investment in trying to establish a fourth major real estate search and lead generation platform.
CoStar’s stock is down about 60 percent in the five years since it bought Homes.com and began making a push beyond its commercial real estate core and into the residential real estate market.
That stock performance led a pair of investment firms to attempt a shakeup of the CoStar board of directors to move the company away from its focus on Homes.com and back into its core commercial products.
Florance pushed back strongly against the move, and one of the firms, Third Point, abandoned its campaign earlier this month and sold all of its CoStar stock.
CoStar touts Homes.com success
CoStar pulled in $897 million during the first three months of this year, up 23 percent from the same time a year earlier.
It continued adding Homes.com members, reaching 35,175 paid members in the quarter. That figure is up more than 200 percent from a year earlier.
The company struck a deal with eXp Realty last month where agents at the brokerage can display pre-marketed listings on Homes.com. EXp also reached an agreement with Realtor.com and ComeHome.com.
The partnership came as Zillow, Redfin and Realtor.com were moving to line up similar agreements with brokerages, amid a major shift in how listings come to market.
Homes.com revenue grew by 58 percent year-over-year, Florance said on Tuesday, to $26 million in the quarter.
That revenue came in part from members paying to promote 260,000 active listings in the quarter, which Florance noted represented 8.7 percent of the 3 million homes for sale in the U.S. at the time. The success happened despite Homes.com having what Florance described as “a very rookie sales force.”
“I mean, it’s unprecedented to have that many salespeople with that little tenure, given the fact that we really just launched that group a year or so ago,” he said. “I am spending, myself, a bit of time, more time, now that I’ve got a little more free time on my hands, with our sales force.”
“It feels good to be back in there working on sales force productivity,” he said.
Florance said the company’s addition of AI search earlier this year quickly led to consumers spending more time on the site. He said that consumers using AI spent roughly four times longer on the platform than non-AI users.
Activist investor impact on Homes.com
Florance did address what he called the “elephant in the room.”
He said the campaign did “weigh heavily” on Homes.com sales and potential partnerships due to “a steady drumbeat of negative coverage.”
“With that distraction now behind us, we can now apply even more focused energy to accelerating Homes.com revenue and the revenue in every other business in the portfolio,” he said.
One investor on the call asked whether Florance should wait a year before raising the price of a new Homes.com membership.
“We can grow the user base and capture more of the value,” Florance said. “There is room to recognize more value, and at the same time, continue to keep the same growth and possibly accelerate the growth in the number of members.”
“In the biggest bulk of cohorts of agents, we’re leaving too much on the table,” he added. “We’re providing a lot of value, and I think we can push pricing and keep headcount growing, keep member count growing.”
