The Internet is growing increasingly powerful as a marketing tool for both buyers and sellers of real estate - news that bodes badly for newspapers that don't embrace online technology. On the other hand, a crisis at the largest national on-line real estate company offers hope to newspapers.

"For such a new medium, the Internet is already approaching equal preference to newspapers as a listing venue," says a privately commissioned study completed by Murray Consulting and Harris Interactive Market Research.

The Murray/Harris study was commissioned by a "small group of biggish Realtors" who want to better understand how to market residential and commercial real estate.

According to the study, "Thirty-seven percent of sellers thought newspapers were the most important place for listing a home, followed closely by the Internet (34 percent). With its continued growth, and with more up-to-date home information, we expect the Internet to surpass newspapers as the primary media for both buyers and sellers.

"Already, 41 percent of recent sellers and 37 percent of recent buyers agree that it (the Internet) is a more effective use of their time than newspapers," the study said.

In the recommendation section of the study, Murray Consulting and Harris Interactive wrote: "There are some segments of consumers and areas of the country where newspapers are more or less effective as tools and the Internet. While we would not suggest eliminating newspapers, the investment should be carefully scrutinized…"

Said one of the brokers who help fund the research: "Newspapers have been too greedy for too long, and not sympathetic to the lower profit margins real estate companies have to operate in."

The broker added: "A couple of my pals (at major real estate agencies) have quit advertising with newspapers altogether. Realistically, I don't expect to ever drop newspaper advertising, but I like to shift dollars from print to Internet and lessen my investment" in newspaper advertising.

The broker, who asked to be quoted anonymously, said newspapers have steadily raised advertising rates, while delivering an ever-dwindling audience and physically smaller products. "I know newsprint prices have declined in the last year, that papers are printing fewer copies and smaller pages — yet my rates keep going up … It's becoming increasingly easier and less expensive to advertise on the Web," the broker said.

While print advertising is at risk, there are opportunities for newspapers. Most papers have Internet sites that are the most visited Web sites in the trade area (although few newspapers promote this fact).

The combined marketing power of the print and online newspapers could entice real estate agents to buy combined web-print advertising with local newspapers.

Newspapers embracing such a philosophy could become virtual MLS in their trade areas, says Pulse Interactive President John Marling, who has worked many years helping newspapers aggregate real estate listings in his Homeseller product.

The opportunity may be especially good now because of the huge financial and accounting problems facing Homestore.com, the company that operates Realtor.com for the National Association of Realtors.

According to a Jan. 28 New York Times article, "Homestore, which until late summer was hailed as an online powerhouse in the making, is now a ghost of its former self…"

On Oct. 3, the company laid off 700 employees — about 20 percent of its workforce. The company's third quarter net revenue almost doubled, from $62.2 million in 2000 to $116 in 2001, but its net loss for the period climbed to $106.6 million, compared with $27.1 million in the third quarter of 2000.

On Dec. 21, Homestore's stock trading was suspended on the NASDAQ market after the company announced an internal audit. The stock traded as high as $138 per share in January 2000, and fell to $1.62 in January, wiping out more than $190 million in stockholder value.

On Jan. 2, Homestore said it might have to lower stated advertising revenue for the first nine months of 2001 by as much as $95 million, out of $121 million it had reported.

The Times reported that Homestore is "facing more than a dozen shareholder suits contending that executives sought to prop up the stock by painting a rosy, and misleading, picture of company finances."

On April 3, Homestore restated financial results for the first three quarters of 2001, reporting slashed revenues and an increased net loss.

Homestore announced its 2001 results following the completion of the company's own investigation into its accounting practices.

The internal inquiry found certain company transactions were improperly recognized as revenue.

As a result, reported revenues for the first nine months of 2001 were cut from $350.9 million to $227.9 million. This meant net loss for the same period ballooned from $245.8 million to $359 million, Newsbytes reported.

Homestore's total net loss for fiscal year 2001 was $1.47 billion, or $13.64 per share. The huge loss was on revenues of $325.1 million, but included almost $1 billion in charges related to acquisitions and restructuring.

(The stock has ranged from a high of $37.16 to a low of 53 cents a share in the year April 2, 2001 to April 4, 2002. Homestore traded a $2.24 a share on April 4.)

Homestore has said it has more than 90 percent of the nation's real estate listings on Realtor.com, thanks to partnerships with regional Multiple Listing Services and such major real estate firms such as Century 21, Caldwell Banker and ERA.

The Securities and Exchange Commission reports that Homestore and marketing partner AOL Time Warner have gone to arbitration in a complex case that could end up costing Homestore as much as $90 million in cash.

The controversy and chaos at Homestore has caused unhappiness among some of the 369,000 real estate professionals who subscribe to Realtor.com, the Times reported.

"Many agents, meanwhile, report getting few leads from Realtor.com, and a sizable number may not renew, analysts and others in the real estate industry say," the Times reported. Subscriptions range from $430 to $1,100 annually.

"MLS and brokers can no longer block the public or newspapers from accessing listings," Marling said. "Newspapers that aggregate listings, have good print and online products and promote heavily in print and online can become the dominant real estate marketplace."

Marling, president of Pulse Research, said he's sometime frustrated because newspapers don't see — and don't grasp — the opportunity to control the real estate marketplace in their trade areas."

Many newspapers and media companies have concentrated on salvaging employment and recruitment advertising, which has been significantly hurt by online competitors such as Monster.com.

Real estate advertising may be even more at risk because brokers are figuring out how to build their own sites, bypassing newspaper print advertising.

The Murray/Harris report said recent sellers preferred real estate Internet sites in this order: Realtor.com (70 percent), local real estate company web sites (43 percent), national real estate sites (39 percent) and local newspaper sites (26 percent). Marling noted that these results are linked to the ease of use and, most importantly, the number of listings aggregated. He suggested the newspaper real estate site rated low because many newspapers aren't competing - they don't even have aggregated real estate listings in a data base format.

"If newspapers don't even try to compete online, they might as well kiss the bulk of their real estate advertising goodbye," Marling added.

(Marc Wilson is general manager of TownNews.com, a company that helps more than 600 newspapers publish online editions. He's reachable at marcus@townnews.com or 309-743-0816.)