NetOffer, Inc.
(A Texas corporation)
Spring 2006 Interim Financing
Private Placement Memorandum
February 5, 2006
1738 N. Greenville Ave.
Richardson, TX75081
Phone: 972-470-5888
Fax: 972-470-5814
Offering Summary:- Maximum of 500,000 Shares Common Stock at a price of $0.06 per Share
- No Minimum Shares Sold required to accept funds invested.
- Minimum Investment Amount: $600
- Minimum Incremental Additional Investment: $600
- Maximum Capital Raised if all Shares Subscribed: $30,000
- If Fully Subscribed the Total Shares Outstanding after this Offering will be 8,139,840 Shares
- Post-Offering Valuation of the Company will be $488,390 based on Full Subscription
TABLE OF CONTENTS
THE BUSINESS OF THE COMPANY
Phase One: Discount Real Estate Services
Flat Fee MLS Listing Services
Buyer’s “Commission Rebate” Program
Phase Two: Technology Licensing
Phase Three: Sub-Licensing of Technology in Local Markets
Marketing STRATEGY
CLIENTS
Flat Fee MLS Listing Service
Advertising Services – Vendor Database Search Engine Listings
Affiliates – Technology Licensing in Major Markets
Hosted Accounts – Brokers and Agents within an Affiliate’s Market Area
MARKET POTENTIAL
Potential for Flat Fee Listings in the Dallas Fort Worth Area
Potential Affiliates for Technology Licensing
Potential Hosted Accounts in the DFW area
Competition
Competitive Strategy
Build a Barrier to Entry
Increase Value of NetOffer.com Website
Low Cost Efficient Operations
Establish Market Dominance in DFW Market
Expand to other states during 2006 and 2007
Expand Local Realtor Network during 2006 and 2007
Risk Factors
DESCRIPTION OF SECURITIES AND THE OFFERING PRICE
USE OF PROCEEDS
OFFICERS AND DIRECTORS
Officers of the Company
Directors of the Company
EXECUTIVE COMPENSATION
CASH FLOW PROJECTON ASSUMPTIONS
Discussion
Detailed Explanation
2005 FINANCIAL STATEMENTS
Balance Sheet (attached)
Income Statement (attached)
SUBSCRIPTION DOCUMENTS
Subscription Agreement (attached)
Shareholder Agreement (attached)
THE BUSINESS OF THE COMPANY
NetOffer is a Real Estate Brokerage that provides discount real estate MLS services, and traditionally priced real estate brokerage services, to the general public. The discount real estate services will be based on Flat Fee MLS Listings and on Buyer’s Rebate programs. During 2005 NetOffer listed approximately 700 homes on the MLS. To manage this high volume of listing activity NetOffer has created a very advanced web based interactive database technology that allows NetOffer to manage the flow of information between our clients and the MLS system with the maximum level of efficiency. Establishing a dominant position as the premier (best recognized) brand for Flat Fee MLS Listing Services in the DFW market has been the main goal of “Phase One” of the growth of the company. This goal has been accomplished and will be further solidified during 2006.
NetOffer licenses this advanced web based interactive database technology to other brokers and agents who want to have access to technologies that can give them a competitive advantage in the market. The licensing of this advanced technology to a national network of Affiliates is “Phase Two” of the growth of the company. During the remainder of 2006 and during 2006 this phase of the growth of the company will be a primary focus of management.
The future growth of NetOffer will encompass expanding the ‘penetration’ of the local market by NetOffer and its Affiliates through providing ‘sub-licensing’ of our advanced technology to local Brokers and Agents. This third phase of our growth will be researched and developed during 2006 and will be expanded during 2007 and beyond.
Phase One: Discount Real Estate Services
Flat Fee MLS Listing Services
Over the last 30-40 years the National Association of REALTORS (“NAR”), and local associations of REALTORS, have effectively positioned the Multiple Listing Service (“MLS”) system as the single most efficient means of marketing residential property ever conceived of. With the advent of the Internet in the late 1990s, the MLS evolved from a printed book format to an electronic format with the information contained in the MLS available on the Internet for public consumption through the websites of the various member organizations, mostly local Broker offices.
The information displayed through these member Broker websites is a limited subset of the full MLS information, however, it is sufficient for the public to use as a primary research tool during their search for a new residence. Typically, the homebuyer will search for potentially suitable properties on the Internet then contact a local agent that can show the homes that the buyer finds of interest. This has dramatically changed the nature of the home selling process, but, there is a disconnect between reality and market practices.
Surveys by the NAR indicate that between 80% and 95% of buyers routinely use the Internet to perform searches for a new residence, depending on the community surveyed. The very success of the MLS and the Internet has changed the dynamics of selling residential property. It is no longer necessary for the Listing Agent to do much other than list the residence on the MLS to effectively market the property.
Because the majority of buyers routinely use the Internet to search the MLS it is no longer necessary to do much other than list the residence on the MLS to reach in excess of 85% of potential buyers for the average property. Placing advertisements in the local newspaper classified section for real estate sales will increase the coverage of potential buyers to near 100%. While most Listing Agents will, for the standard 6% commission, handle the placement and cost of newspaper classified advertising, savvy home owners have come to realize that they can easily manage the advertising of their own homes and that the benefit of having a traditional real estate agency relationship at a cost of 3% is no longer justified.
Real estate agents and brokers have been very resistant to adjusting their marketing strategy to the changing reality and have not been very forthcoming in offering reduced cost listing services. This presents an opportunity for low cost providers to step in and fill a niche that is rapidly expanding.
Providing listing services for a low cost can be done with a wide variety of pricing and service strategies. The majority of low cost listing agents attempt to charge between $495 and $1000 for their services, usually with some sort of overriding commission for the sale of the property when and if it sales. The challenge is that any real estate agent can provide low cost listing services. The essential challenge for a company trying to build a national branded company providing discount MLS listing services is how to effectively compete in a market where there are very few barriers to entry.
The solution is to build a brand based on market awareness and website traffic such that any competitor must address the issue of additional competitive advantage. Since a listing on the MLS is a commodity, and therefore essentially equivalent regardless of whom provides the service, the differentiation must come from some related value added benefit. The simplest value added benefit is to add to the MLS listing service the ability to increase the likelihood of connecting the seller to a buyer without the seller having to pay a commission. This can be done through an ancillary marketing website.
NetOffer has developed a website that is focused on marketing real estate directly to the buyer and connecting the buyer directly with the seller. By enhancing the market awareness of NetOffer.com and building a critical mass threshold of traffic and brand awareness NetOffer.com can effectively create a ‘market’ for residential real estate similar to the ‘market’ that has been built by eBay. Once this critical mass is achieved, it will become extremely difficult for other competitors to provide the same value that NetOffer.com offers, even at a dramatically reduced price level.
The essential opportunity, therefore, is to create a marketing system that allows for the efficient provision of services to large masses of sellers and to establish brand awareness on a sufficient scale to restrict or prohibit the development of competitors in each market area where NetOffer.com operates. Once a critical mass threshold is achieved, it will be possible for NetOffer.com to increase rates to take advantage of the increase value offered by being the established, recognized marketplace for residential real estate.
As a recognized marketplace for residential real estate, there will be many offshoot opportunities for revenue generation, including but not limited to the following:
- Non-MLS FSBO property marketing on the NetOffer.com website
- Rental property marketing – both apartment and individual
- Volume Listing (Builders, etc.) relationships
- Advertising revenues (title companies, mortgage companies, etc.)
Buyer’s “Commission Rebate” Program
Just as the changing marketplace has created an opportunity to provide Flat Fee MLS Listing Services in volume there is an opportunity to provide similar, volume based, discount services to Buyers. The ability to build a large scale, high volume business in this service category is predicated on having a high volume of traffic to the website so that the marketing message is presented to a large number of prospective Buyers.
Many Buyers use the Internet to research the market and perform much of the legwork that has been traditionally been done by Agents. With the proliferation of Internet based real estate listing services it is very common for Buyers to contact an Agent and have a very focused search due to their prior research on the Internet. In past years, the Agent was integral to the search process since the MLS was not available to the public via an efficient media such as the Internet.
When a Buyer can come to an Agent and utilize the Agent’s time efficiently and proceed directly to the presentation of an offer on a property without having to spend a lot of time viewing multiple potential properties the Agent can provide a discounted commission and still achieve a high return for time invested in the Buyer as their Client. A fee structure that fundamentally rewards the Buyer for not wasting the Agent’s time is a win-win for both the Buyer and the Agent. NetOffer will provide a fee structure based on the Buyer entering into a contract with the Agent that stipulates that they Buyer will pay the Agent an hourly rate for the Agent’s time, or, a commission of 1.5% of the Sale Price, whichever is greater. The contract will be structured to allow the Agent to be paid weekly if the Buyer does not proceed directly to a contract on a property.
While this concept is very revolutionary, it will be of high interest to many Buyers who have already performed much of the research that they need to find a suitable property. It will encourage Buyers to spend their time in advance of contacting NetOffer to obtain the services of a Buyers Representation Agent. I fact, there may be some instances of Buyers using the services of other Agents to preview homes, then contacting NetOffer to handle the contracting and closing.
Once NetOffer has established a high market visibility and brand presence with the Flat Fee MLS Listing Service, it should be very easy to leverage that visibility into a high volume Discount Commission Buyers Agent Service business. It should be relatively easy to attract Agents to handle this business since we can provide those Agents with a high guaranteed income and a volume business. The Discount Commission Buyers Agent compliments the Flat Fee MLS Listing Service business.
Phase Two: Technology Licensing
During 2005 NetOffer listed approximately 700 homes on the MLS in Texas. Listing properties involves handling a large amount of data, specific to each property, that must be accurately collected and transferred between the client and the MLS system. Additionally, changes to information, such as price and description, are required periodically on many listings and keeping track of these changes pose a daunting task.
NetOffer has developed and deployed a very sophisticated, second generation, interactive database technology that was designed from scratch based on experience with a first generation system that evolved from a business model that was not specific to real estate. This second generation system has been designed specifically with the needs of a high volume flat fee brokerage business model in mind and has become integral to the operation and the competitive position of NetOffer.
Due to the highly efficient level of information flow management that the system enables us to engage in NetOffer has begun a program of licensing the technology to Affiliates in other locations. As of January 31, 2006 NetOffer has a total of six (6) Affiliates. Each Affiliate Agreement is custom negotiated and the Affiliate licensing process has not yet achieved a level of standardization that would lend itself to ‘franchising’, however, as we learn more about what it takes to identify prospective Affiliates, along with how to help them become immediately successful, we may very well choose to broaden our program through a ‘franchise’ form of organization.
Features and Benefits to Affiliates
Phase Three: Sub-Licensing of Technology in Local Markets
During 2006 the Company will begin to expand the software capability to allow the Company to provide two new levels of industry client relationships. These are classified as Super Agents and Mini Brokers. Currently the NetOffer software allows the following ‘levels’ of access:
- Super Admin – highest level of access with complete control of the system.
- Broker – highest level of access with complete ‘operational’ control of system.
- Agent – allows control of Owner Listings and information but no control over Activation and Accounting functions.
- Owner – allows the Owner to add listings and manage limited information related to the listing of one or more property.
Within the next couple of weeks NetOffer will deploy a new technical service that we are calling Hosted Broker and Hosted Agent Accounts. These employ elements of traditional hosting services coupled with use of our advanced technology to manage client information. The general concept behind these Hosted Accounts is that the Broker/Agent client will use the Hosted Account as their primary website and will enjoy the benefits of the highly automated, sophisticated look and feel, of our website template and back office technology to increase their competitive advantage in the local market.
Hosted Accounts will allow full customization of the basic template with a very minimal ‘Powered by NetOffer’ moniker at the bottom of the pages. Otherwise, the template will be presented as if it were the Broker or Agent’s own website complete with domain name and email server. Hosted Accounts will require a nominal interaction with NetOffer to customize but will generally be very easy to customize.
Hosted Broker Accounts will have the ability to collect MLS Input Data directly from prospective clients (sellers) from the main page. Hosted Agent Accounts will not allow the client (seller) to input MLS Data directly into the system. Hosted Broker Accounts will allow Brokers/Agents to compete directly with NetOffer in offering Flat Fee MLS Listing services to the public in a fully automated fashion. Hosted Agent Accounts will permit the Agent to input the MLS Data for their client, but, the client will not be able to input the data. This difference between the two accounts will cause the Broker accounts to be more valuable due to the ability to shift the burden of data entry to the client.
Both types of accounts will have their listing data included in the NetOffer database. Inclusion in the NetOffer database is a significant advantage to the Broker or Agent since the NetOffer database has a high volume of internet searches and traffic and can help to find a buyer for the property listed there.
The Hosted Accounts should fill a needed niche in the market for Brokers and Agents that want inexpensive access to advanced technology. Additionally, NetOffer has many referral opportunities where we could send Buyer leads to Agents and Brokers when those leads are outside of the reasonable service area for those Agents who have their license directly with NetOffer. Referral commissions can be a significant source of ancillary income.
Marketing STRATEGY
Since any real estate agent can provide flat fee MLS listing services there is a very significant competitive threat from a multitude of individuals who could compete with NetOffer due to a low barrier to entry. As part of the general marketing strategy, it is important for NetOffer to establish a barrier to entry that makes it difficult or impossible for competitors to compete.
It will be the goal of NetOffer to emulate the eBay marketing model as a barrier to entry.
eBay has become the only significant provider of general consumer online auction services and enjoys a Net Income Margin that is the envy of U.S. businesses. This has been accomplished primarily because eBay has established a unique marketplace where buyers and sellers come together and create a synergy that is not possible to duplicate. Anyone wanting to sell a product will naturally want to sell in a marketplace that commands the highest number of prospective buyers for that product. Even if an alternative marketplace offers services for free, while eBay offers services as a high fee, the Sellers will want to market their products on eBay since the savings in eBay fees will be more than offset by the increased prices generated due to the high density of buyers willing to bid the price of their product to the highest market value.