Is CoStar moving into Residential RE with the acquisition of HomeSnap?

Joshua Fraser Dec 18th, 2020 / Real Estate, Industry Insights

Costar has announced they have acquired HomeSnap for 250M dollars. This a significant deal as CoStar dominates and controls the commercial real estate market.

HomeSnap is one of the largest residential real estate service providers in the US. It works with nearly 90% of the realtors and transactions in the residential space. This acquisition has many implications that we will continue to investigate and research in the upcoming months.

Let's start with a quick overview of each company.

CoStar Group is a provider of information, analytics and marketing services to the commercial property industry in the United States, Canada, the United Kingdom, France, Germany, and Spain. Founded in 1987 by Andrew C. Florance, the company has grown to include online database CoStar and many online marketplaces, including Apartments.com, LoopNet, Lands of America, and BizBuySell. They are listed on the NASDAQ: CSGP with a market capitalization of $35B. They are widely considered the MLS of commercial real estate and have a strong-hold on the industry. They have a history of demolishing competition and being ruthless in the courtrooms with a powerful legal team. If you are a commercial realtor, we'd love to know if you love or hate the CoStar products suite.

Homesnap is an online mobile platform that provides real estate services to agents, brokers, and consumers. Homesnap is a mobile real estate app powered by a specialized homes database that combines MLS data, property tax records, census data, geographic boundaries, and more. Homesnap is also the Broker Public Portal's public-facing brand, a collaborative venture between real estate brokerages and MLSs to create a national consumer home search experience defined by simplicity, integrity, and usability. The portal aims to provide consumers with direct access to the most comprehensive, timely, and complete property information while adhering to fair display guidelines. It was founded in 2008 and had raised $32M over the years. The deal is projected at 6X the $40M revenue forecasted in 2020 by HomeSnap. Congrats to the founders, as this seems like a very strategic partner.

Now that you know a little more about each company, why is this important?

CoStar is known for having a win at all costs attitude, and now they are entering residential real estate to compete with portals such as Zillow, Realtor, and Redfin. The search portals have not evolved much over the years, and I do not believe that CoStar will be the group to reinvent home search, but they will build something with the intent to dominate. Now with 1.1M realtors on the platform and 90% of transactions being recorded by HomeSnap, they just bought a substantial presence in the residential market. HomeSnap has existing relationships with ~240 MLS's out of the ~600 nationwide. What is exciting and why this article will continue to develop is that CoStar is also eyeing up nationwide MLS provider CoreLogic. We will be diving into this next, but wanted to give you a heads up that this is a mega acquisition for the residential real estate market.

Our strategy is to provide industry professionals and consumers of commercial real estate and apartments with critical knowledge to explore and complete transactions by offering the most comprehensive, timely and standardized information on commercial real estate and apartments and the right tools to be able to effectively utilize that information. Over time, we have expanded, and we continue to expand, our services for commercial real estate information, analytics and online marketplaces in an effort to continue to meet the needs of the industry as it grows and evolves.

Our standardized platform includes the most comprehensive proprietary database in the industry; the largest research department in the industry; proprietary data collection, information management and quality control systems; a large in-house product development team; a broad suite of web-based information, analytics and online marketplace services; a large team of analysts and economists; and a large, diverse base of clients. [Emphasis added]

Nonetheless, other than the unilateral offer of cooperation and compensation, CoStar provides everything else that an MLS might provides: critical knowledge to explore and complete transactions by offering the most comprehensive, timely and standardized information on commercial real estate and apartments and the right tools to be able to effectively utilize that information.

Well, here is, I think, the logic of CoStar’s move into residential real estate:

  • Residential is the obvious adjacent market given CoStar’s core competency;
  • CoStar now has a good deal of experience with the residential rentals space;
  • CoStar has beaten and is beating the scariest contender in rentals: Zillow;
  • Zillow has pivoted away from being a portal and towards being a market maker;
  • The door is now wide open for CoStar to get into the residential portal business.

“The acquisition of Homesnap will enable us to enter a new space and expand the total addressable markets in which we can compete,” said CoStar Group founder and CEO, Andy Florance. “The estimated value of commercial real estate assets in the U.S. is $16 trillion. With the new addition of clients and information covering 90% of the estimated $27 trillion dollar U.S. residential real estate market we are almost tripling the size of our addressable markets. Over the past thirty years, CoStar has become the leading real estate technology platform by working in partnership with commercial real estate brokers to serve their needs for data, analytics and advertising exposure for their property listings. Similarly, Homesnap works in very close partnership with residential agents to serve their needs for data, analytics and advertising exposure for their property listings. We will continue to differentiate our residential real estate portal and solutions by working solely to help agents market their listings and their brands, which is in sharp contrast to other portals that increasingly advertise on top of agent listings and offer brokerage services directly.”

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