Can eBay Sell Real Estate?

N E W  Y O R K, Jan. 29 -- By the time auction site eBay was five years old, in 2000, it was already fighting off accusations that it was a "mature" company that had seen its best days. The solution? Move into high-price markets including autos, real estate, electronics, and sports equipment.

The strategy seems to have worked: The company reported an $11.6 million (diluted) net income during its second quarter 2000. Two years later, by July 2002, the company's (diluted) net income was $54.3 million, which to some extent, was attributable to sales of higher ticket items.

The bright spot in eBay's high-end auctions has been auto sales. In 2002, eBay Motors generated $3 billion in sales. By contrast, it's not clear that eBay's real estate sales are growing quite as well. The company doesn't break down its real estate revenue (the first hint that the company may not have anything to brag about), and it doesn't disclose how many real estate transactions occur as a result of eBay's auctions.

But even if property sales are sluggish, the scrappy company essentially built a bustling real estate portal from scratch, which has proven an invaluable (and cheap) place for real estate sellers to advertise. There were 144,000 real estate listings on eBay in 2002, and an average of 1,000 people see each listing.

A Complicated Business

There is a good reason why eBay's real estate sales are dragging behind auto sales, and it's largely due to the nature of real estate sales in general. Real estate sales are inherently complicated transactions, and in many states it is illegal for property titles to be transferred through an online auction.

As an additional complication, if eBay were to charge a large final value fee (a percentage of the final sale price) as it does in most auctions, many states would legally consider the fee a commission, thus requiring eBay to operate as a licensed brokerage firm.

Instead of getting mixed up in actual property sales, a large percentage of eBay's property listings are just advertisements. It's not a bad business, though. Considering it only costs $150 for a 30-day listing, or $300 for a 90-day listing, eBay offers sellers remarkable marketing value at a very low cost. If a property is auctioned off in a binding agreement, the seller is only required to pay a $3 "final value" fee, and the listing (or "Insertion") fee.