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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number: 000-51002

ZIPREALTY, INC.

(Exact name of registrant as specified in its charter)



|                         |  |                                     
|------------------------ |  | ------------------------------------
|DELAWARE                 |  | 94-3319956                          
|(State of incorporation) |  | (IRS employer identification number)



|                                             |  |           
|-------------------------------------------- |  | ----------
|2000 POWELL STREET, SUITE 300
EMERYVILLE, CA |  | 94608     
|(Address of principal executive offices)     |  | (Zip Code)

(510)
735-2600

(Registrants telephone number)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                          |  |                     |  |                                                                       |  |                            
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------
|Large accelerated filer  ̈ |  | Accelerated filer  ̈ |  | Non-accelerated filer  ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

We had 20,556,902 shares of common stock outstanding at April 27, 2011.









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TABLE OF CONTENTS





|                               |  |                                                                                                              |    |      |    | 
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                               |  |                                                                                                              |    | Page |   
|                               | 
|PART I  FINANCIAL INFORMATION |  |                                                                                                              |    |     
|                               |  |                                                                                                             
|Item 1.                        |  | Unaudited Condensed Consolidated Financial Statements                                                        |    |      | 4  | 
|                               |  |                                                                                                             
|                               |  | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010                   |    |      | 4  | 
|                               |  |                                                                                                             
|                               |  | Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 |    |      | 5  | 
|                               |  |                                                                                                             
|                               |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 |    |      | 6  | 
|                               |  |                                                                                                             
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                               |    |      | 7  | 
|                               |  |                                                                                                             
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |    |      | 13 | 
|                               |  |                                                                                                             
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |    |      | 24 | 
|                               |  |                                                                                                             
|Item 4.                        |  | Controls and Procedures                                                                                      |    |      | 24 | 
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                                              |    |     
|                               |  |                                                                                                             
|Item 1.                        |  | Legal Proceedings                                                                                            |    |      | 25 | 
|                               |  |                                                                                                             
|Item 1A.                       |  | Risk Factors                                                                                                 |    |      | 25 | 
|                               |  |                                                                                                             
|Item 5.                        |  | Other Information                                                                                            |    |      | 25 | 
|                               |  |                                                                                                             
|Item 6.                        |  | Exhibits                                                                                                     |    |      | 25 | 
|                               | 
|SIGNATURE                      |  |                                                                                                              | 26 |     
|                               | 
|EXHIBIT INDEX                  |  |                                                                                                              | 27 |     



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Statement regarding forward-looking statements

This report includes forward-looking statements. Forward-looking statements provide current expectations of future events based on certain
assumptions and include any statement that does not directly relate to any historical or current fact. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position,
business strategy and operations, and plans and objectives of management are forward-looking statements. The words believe, may, will likely, should, could, estimate,
continue, anticipate, intend, aim, expect, plan, potential, predict, project, designed, provides,
facilitates, assists, helps and similar expressions, as they relate to us, are intended to identify forward-looking statements. Forward-looking statements contained in this report include, but are not limited to,
statements relating to:



| |  |  | trends in the residential real estate market, the market for mortgages, and the general economy;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | our future financial results;
| | - |  | -----------------------------



| |  |  | our future growth;
| | - |  | ------------------



| |  |  | our future advertising and marketing activities; and
| | - |  | ----------------------------------------------------



| |  |  | our future investment in technology.
| | - |  | ------------------------------------

We have based these forward-looking statements principally on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results
of operations, business strategy and financial needs. No forward-looking statement is a guarantee of future performance and you should not place undue reliance on any forward-looking statement.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Risk
Factors in Item 1A of Part I of our annual report on Form 10-K for our fiscal year ended December 31, 2010, as such disclosure may be revised under Risk Factors in Item 1A of Part II of this report. Readers
should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements
are not exclusive and are in addition to other factors discussed elsewhere in this report or in materials incorporated herein by reference.

In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements. Except as otherwise required by law, we do not intend to update or revise any forward-looking statement contained in this report.

Trademarks

ZipRealty and Your home
is where our heart is are some of our registered trademarks in the United States. We also own the rights to the domain name www.Real-Estate.com. REALTOR and REALTORS are registered trademarks of the National
Association of REALTORS®. All other trademarks, trade names and service marks appearing in this report are the
property of their respective owners.

Internet site

Our Internet address is www.ziprealty.com. We make publicly available free of charge on our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission. Information contained on our website is not a part of this report.

Where you can find additional
information

You may review a copy of this report, including exhibits and any schedule filed therewith, and obtain copies
of such materials at prescribed rates, at the Securities and Exchange Commissions Public Reference at Room 100 F Street NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants,
such as ZipRealty, that file electronically with the Securities and Exchange Commission.



3



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PART I  FINANCIAL INFORMATION



|Item 1. | Unaudited Condensed Consolidated Financial Statements:
|------- | ------------------------------------------------------

ZIPREALTY, INC.

UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                  |  | March 31,2011 |          |   | December 31,2010 |  
|Assets                                                                                                                                            |  |               |          |   |                  |   |          |  
|Current assets                                                                                                                                    |  |               |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                         |  | $             | 15,203   |   |                  | $ | 13,393   |  
|Short-term investments                                                                                                                            |  |               | 11,448   |   |                  |   | 18,948   |  
|Accounts receivable, net of allowance of $101 and $103, respectively                                                                              |  |               | 1,771    |   |                  |   | 1,959    |  
|Prepaid expenses and other current assets                                                                                                         |  |               | 2,074    |   |                  |   | 2,123    |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                                              |  |               | 30,496   |   |                  |   | 36,423   |  
|Restricted cash                                                                                                                                   |  |               | 390      |   |                  |   | 390      |  
|Property and equipment, net                                                                                                                       |  |               | 2,614    |   |                  |   | 2,712    |  
|Intangible assets, net                                                                                                                            |  |               | 21       |   |                  |   | 28       |  
|Other assets                                                                                                                                      |  |               | 251      |   |                  |   | 252      |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Total assets                                                                                                                                      |  | $             | 33,772   |   |                  | $ | 39,805   |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Liabilities and Stockholders Equity                                                                                                              |  |               |          |   |                  |   |          |  
|Current liabilities                                                                                                                               |  |               |          |   |                  |   |          |  
|Accounts payable                                                                                                                                  |  | $             | 2,209    |   |                  | $ | 2,275    |  
|Accrued expenses and other current liabilities                                                                                                    |  |               | 6,001    |   |                  |   | 7,450    |  
|Accrued restructuring charges                                                                                                                     |  |               | 1,043    |   |                  |   |         |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                                                         |  |               | 9,253    |   |                  |   | 9,725    |  
|Other long-term liabilities                                                                                                                       |  |               | 126      |   |                  |   | 179      |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Total liabilities                                                                                                                                 |  |               | 9,379    |   |                  |   | 9,904    |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Commitments and contingencies (Note 7)                                                                                                            |  |               |          |   |                  |   |          |  
|Stockholders equity                                                                                                                              |  |               |          |   |                  |   |          |  
|Common stock: $0.001 par value; 100,000 shares authorized; 24,138 and 24,136 shares issued and 20,543 and 20,541 shares
outstanding, respectively |  |               | 24       |   |                  |   | 24       |  
|Additional paid-in capital                                                                                                                        |  |               | 156,794  |   |                  |   | 156,384  |  
|Accumulated other comprehensive income                                                                                                            |  |               | 6        |   |                  |   | 13       |  
|Accumulated deficit                                                                                                                               |  |               | (114,836 | ) |                  |   | (108,925 | )
|Treasury stock at cost: 3,595 and 3,595 shares, respectively                                                                                      |  |               | (17,595  | ) |                  |   | (17,595  | )
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Total stockholders equity                                                                                                                        |  |               | 24,393   |   |                  |   | 29,901   |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                                        |  | $             | 33,772   |   |                  | $ | 39,805   |  
|                                                                                                                                                  |  |               |          |   |                  |   |          |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



4



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ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                            |  |                             |        |   |      |   |        |  
|------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                            |  | Three Months EndedMarch 31, |       
|                                            |  | 2011                        |        |   | 2010 |  
|Net transaction revenues                    |  | $                           | 18,392 |   |      | $ | 24,841 |  
|Marketing and other revenues                |  |                             | 1,353  |   |      |   | 947    |  
|                                            |  |                             |        |   |      |   |        |  
|Net revenues                                |  |                             | 19,745 |   |      |   | 25,788 |  
|                                            |  |                             |        |   |      |   |        |  
|Operating expenses:                         |  |                             |        |   |      |   |        |  
|Cost of revenues                            |  |                             | 10,959 |   |      |   | 15,306 |  
|Product development                         |  |                             | 1,949  |   |      |   | 2,415  |  
|Sales and marketing                         |  |                             | 8,155  |   |      |   | 10,766 |  
|General and administrative                  |  |                             | 2,357  |   |      |   | 3,609  |  
|Restructuring charges, net                  |  |                             | 2,264  |   |      |   |       |  
|                                            |  |                             |        |   |      |   |        |  
|Total operating expenses                    |  |                             | 25,684 |   |      |   | 32,096 |  
|                                            |  |                             |        |   |      |   |        |  
|Loss from operations                        |  |                             | (5,939 | ) |      |   | (6,308 | )
|Interest income                             |  |                             | 28     |   |      |   | 89     |  
|                                            |  |                             |        |   |      |   |        |  
|Loss before income taxes                    |  |                             | (5,911 | ) |      |   | (6,219 | )
|Provision for (benefit from) income taxes   |  |                             |       |   |      |   |       |  
|                                            |  |                             |        |   |      |   |        |  
|Net loss                                    |  | $                           | (5,911 | ) |      | $ | (6,219 | )
|                                            |  |                             |        |   |      |   |        |  
|Net loss per share:                         |  |                             |        |   |      |   |        |  
|Basic and diluted                           |  | $                           | (0.29  | ) |      | $ | (0.31  | )
|Weighted average common shares outstanding: |  |                             |        |   |      |   |        |  
|Basic and diluted                           |  |                             | 20,494 |   |      |   | 20,342 |  

The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.



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ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                           |  |                             |        |   |      |   |        |  
|-------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                           |  | Three Months EndedMarch 31, |       
|                                                                           |  | 2011                        |        |   | 2010 |  
|Cash flows from operating activities                                       |  |                             |        |   |      |   |        |  
|Net loss                                                                   |  | $                           | (5,911 | ) |      | $ | (6,219 | )
|Adjustments to reconcile net loss to net cash used in operating activities |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                              |  |                             | 482    |   |      |   | 596    |  
|Amortization of intangible assets                                          |  |                             | 7      |   |      |   | 7      |  
|Stock-based compensation expense                                           |  |                             | 388    |   |      |   | 695    |  
|Non-cash restructuring charges                                             |  |                             | 54     |   |      |   |       |  
|Provision for doubtful accounts                                            |  |                             | (2     | ) |      |   | 31     |  
|Amortization of short-term investment premium (discount)                   |  |                             | 93     |   |      |   | 154    |  
|Changes in operating assets and liabilities                                |  |                             |        |   |      |   |        |  
|Accounts receivable                                                        |  |                             | 190    |   |      |   | (454   | )
|Prepaid expenses and other current assets                                  |  |                             | 49     |   |      |   | 152    |  
|Other assets                                                               |  |                             | 1      |   |      |   | 54     |  
|Accounts payable                                                           |  |                             | (66    | ) |      |   | 656    |  
|Accrued expenses and other current liabilities                             |  |                             | (1,449 | ) |      |   | (850   | )
|Accrued restructuring charges                                              |  |                             | 1,043  |   |      |   |       |  
|Other long-term liabilities                                                |  |                             | (53    | ) |      |   | (50    | )
|                                                                           |  |                             |        |   |      |   |        |  
|Net cash used in operating activities                                      |  |                             | (5,174 | ) |      |   | (5,228 | )
|                                                                           |  |                             |        |   |      |   |        |  
|Cash flows from investing activities                                       |  |                             |        |   |      |   |        |  
|Proceeds from sale and maturity of short-term investments                  |  |                             | 7,400  |   |      |   | 943    |  
|Purchases of property and equipment                                        |  |                             | (421   | ) |      |   | (559   | )
|                                                                           |  |                             |        |   |      |   |        |  
|Net cash provided by investing activities                                  |  |                             | 6,979  |   |      |   | 384    |  
|                                                                           |  |                             |        |   |      |   |        |  
|Cash flows from financing activities                                       |  |                             |        |   |      |   |        |  
|Proceeds from stock option exercises                                       |  |                             | 5      |   |      |   | 45     |  
|Acquisition of treasury stock                                              |  |                             |       |   |      |   | (169   | )
|                                                                           |  |                             |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                        |  |                             | 5      |   |      |   | (124   | )
|                                                                           |  |                             |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                       |  |                             | 1,810  |   |      |   | (4,968 | )
|                                                                           |  |                             |        |   |      |   |        |  
|Cash and cash equivalents at beginning of period                           |  |                             | 13,393 |   |      |   | 23,737 |  
|                                                                           |  |                             |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                 |  | $                           | 15,203 |   |      | $ | 18,769 |  
|                                                                           |  |                             |        |   |      |   |        |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



6



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements as of March 31, 2011 and 2010 and for the three months then ended have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information
and footnotes required by Generally Accepted Accounting Principles (GAAP) for annual financial statements. In the opinion of the Companys management, the unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Companys financial position for the periods presented. The
results for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011, or any other period. The unaudited condensed consolidated balance sheet at
December 31, 2010 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for
complete financial statements. These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the Companys annual report on Form 10-K for the year ended December 31,
2010.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and reflect the elimination of intercompany accounts and transactions.

Seasonality

The
Companys net transaction revenues and income (loss) from operations have historically varied from quarter to quarter. Such variations are principally attributable to variations in home sales activity over the course of the calendar year. The
Company has historically experienced lower net transaction revenues during the first quarter because holidays and adverse weather conditions in certain regions typically reduce the level of sales activity and listings inventories between the
Thanksgiving and Presidents Day holidays. Net transaction revenues during the three months ended March 31, 2010 and 2009 accounted for approximately 21.9% and 17.7% of annual net transaction revenues in 2010 and 2009, respectively.

Significant accounting policies

Revenue recognition

In October 2009, the Financial Accounting
Standards Board (FASB) amended the accounting standard for multiple deliverable revenue arrangements, which provided updated guidance on whether multiple deliverables exist, how deliverables in an arrangement should be separated, and how
consideration should be allocated. This standard eliminates the use of the residual method and will require arrangement consideration to be allocated based on the relative selling price for each deliverable. The selling price for each arrangement
deliverable can be established based on vendor specific objective evidence (VSOE) or third-party evidence (TPE) if VSOE is not available. The new standard provides additional flexibility to utilize best estimate of selling
price (BESP) if neither VSOE nor TPE is available. BESP is generally based on the selling prices of the various elements when they are sold to customers of a similar nature and geography on a stand-alone basis or an estimated stand-alone
pricing when the element has not previously been sold stand-alone. These estimates are generally based on pricing strategies, market factors and strategic objectives.

The Company adopted this accounting standard on January 1, 2011 on a prospective basis for applicable transactions originating or materially modified after December 31, 2010. The adoption of
this standard did not have a significant impact on the Companys revenue recognition for multiple deliverable arrangements. The adoption of this standard did not have a material impact on its consolidated financial position, results of
operations and cash flows for the three months ended March 31, 2011.

The Company derives the majority of its revenue
from commissions earned as agents to buyers and sellers on purchase or sale transactions. Commission revenue is recognized upon closing of a transaction, net of any rebate or commission discount or transaction fee adjustment, as evidenced when the
escrow or similar account has closed and funds have been disbursed to all appropriate parties. These transactions typically do not have multiple deliverables.

Non-commission revenues are derived primarily from marketing agreements with residential mortgage service providers, the sale of online advertising, lead referral fees and other revenues. The Company
classifies these revenues as marketing and other revenues. Marketing service revenues are recognized over the term of the agreements as the contracted services are delivered. Advertising revenues on contracts are recognized as impressions are
delivered or as clicks are provided to advertisers. Advertising and marketing contracts may consist of multiple deliverables which generally include a blend of various impressions or clicks as well as other marketing deliverables. Revenues related
to revenue sharing arrangements are recognized based on revenue reports received from our partners, provided that collectability is reasonably assured.



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Revenue is recognized only when the price is fixed or determinable, persuasive evidence an
arrangement exists, the service has been delivered and collectability of the resulting receivable is reasonably assured.

2. SHORT-TERM
INVESTMENTS AND FAIR VALUE MEASUREMENTS

At March 31, 2011 and December 31, 2010, short-term investments were
classified as available-for-sale securities and were reported at fair value as follows:



|                                     |  |                    |        |  |                      |   |   |                       |  |   |                     |  |  |                    |        |  |                      |   |        |                       |  |   |                     |  |  |   |    |   |  |   |        | 
|------------------------------------ |  | ------------------ | ------ |  | -------------------- | - | - | --------------------- |  | - | ------------------- |  |  | ------------------ | ------ |  | -------------------- | - | ------ | --------------------- |  | - | ------------------- |  |  | - | -- | - |  | - | ------ | 
|                                     |  | March 31, 2011     |        |  | December 31, 2010    |  
|                                     |  | GrossAmortizedCost |        |  | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |  |   | EstimatedFair Value |  |  | GrossAmortizedCost |        |  | GrossUnrealizedGains |   |        | GrossUnrealizedLosses |  |   | EstimatedFair Value | 
|                                     |  | (In thousands)     |        |  | (In thousands)       |  
|Money market funds                   |  | $                  | 13,991 |  |                      | $ | 1 |                       |  | $ |                    |  |  | $                  | 13,992 |  |                      | $ | 11,659 |                       |  | $ | 1                   |  |  | $ |   |   |  | $ | 11,660 | 
|Corporate obligations                |  |                    | 3,544  |  |                      |   | 1 |                       |  |   |                    |  |  |                    | 3,545  |  |                      |   | 5,238  |                       |  |   | 8                   |  |  |   | (1 | ) |  |   | 5,245  | 
|US Government and agency obligations |  |                    | 4,033  |  |                      |   | 4 |                       |  |   |                    |  |  |                    | 4,037  |  |                      |   | 9,086  |                       |  |   | 6                   |  |  |   | (1 | ) |  |   | 9,091  | 
|                                     |  |                    |        |  |                      |   |   |                       |  |   |                     |  |  |                    |        |  |                      |   |        |                       |  |   |                     |  |  |   |    |   |  |   |        | 
|Total                                |  | $                  | 21,568 |  |                      | $ | 6 |                       |  | $ |                    |  |  | $                  | 21,574 |  |                      | $ | 25,983 |                       |  | $ | 15                  |  |  | $ | (2 | ) |  | $ | 25,996 | 
|                                     |  |                    |        |  |                      |   |   |                       |  |   |                     |  |  |                    |        |  |                      |   |        |                       |  |   |                     |  |  |   |    |   |  |   |        | 



|                       |  |                |        |  |                  |   |        | 
|---------------------- |  | -------------- | ------ |  | ---------------- | - | ------ | 
|                       |  | March 31,2011  |        |  | December 31,2010 |  
|                       |  | (In thousands) |        |  | (In thousands)   |  
|Recorded as:           |  |                |        |  |                  |   |        | 
|Cash equivalents       |  | $              | 10,126 |  |                  | $ | 7,048  | 
|Short-term investments |  |                | 11,448 |  |                  |   | 18,948 | 
|                       |  |                |        |  |                  |   |        | 
|Total                  |  | $              | 21,574 |  |                  | $ | 25,996 | 
|                       |  |                |        |  |                  |   |        | 

At March 31, 2011 and December 31, 2010, the Company did not have any investments with a
significant unrealized loss position.

The estimated fair value of short-term investments at March 31, 2011 was $21.6
million and due within one year or less.

Fair Value Measurements

The Company follows the accounting standards establishing a fair value hierarchy to prioritize the inputs used in valuation techniques.
There are three broad levels to the fair value hierarchy of inputs to fair value; Level 1 is the highest priority and Level 3 is the lowest priority. The three levels of the fair value hierarchy and are as follows:



| |  |  | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or
liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs reflecting the Companys own assumptions incorporated in valuation techniques used to determine fair value. These
assumptions are required to be consistent with market participant assumptions that are reasonably available.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company measures and reports certain financial assets at fair value on a recurring basis, including available-for-sale investments.
At March 31, 2011 there were no liabilities reported at fair value on a recurring basis.



8



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##### Table of Contents

At March 31, 2011 and December 31, 2010, our available-for-sale investments,
measured at fair value on a recurring basis, by level within the fair value hierarchy were as follows:



|                                     |  |                |        |  |                   |   |       |         |  |   |       |  |  |         |        |  |         |   |        |         |  |   |        |  |  |   |   |  |  |   |        | 
|------------------------------------ |  | -------------- | ------ |  | ----------------- | - | ----- | ------- |  | - | ----- |  |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ------ |  |  | - | - |  |  | - | ------ | 
|                                     |  | March 31, 2011 |        |  | December 31, 2010 |  
|                                     |  | Level 1        |        |  | Level 2           |   |       | Level 3 |  |   | Total |  |  | Level 1 |        |  | Level 2 |   |        | Level 3 |  |   | Total  | 
|                                     |  | (In thousands) |        |  | (In thousands)    |  
|Money market funds                   |  | $              | 13,992 |  |                   | $ |      |         |  | $ |      |  |  | $       | 13,992 |  |         | $ | 11,660 |         |  | $ |       |  |  | $ |  |  |  | $ | 11,660 | 
|Corporate obligations                |  |                |       |  |                   |   | 3,545 |         |  |   |      |  |  |         | 3,545  |  |         |   |       |         |  |   | 5,245  |  |  |   |  |  |  |   | 5,245  | 
|US Government and agency obligations |  |                |       |  |                   |   | 4,037 |         |  |   |      |  |  |         | 4,037  |  |         |   |       |         |  |   | 9,091  |  |  |   |  |  |  |   | 9,091  | 
|                                     |  |                |        |  |                   |   |       |         |  |   |       |  |  |         |        |  |         |   |        |         |  |   |        |  |  |   |   |  |  |   |        | 
|Total                                |  | $              | 13,992 |  |                   | $ | 7,582 |         |  | $ |      |  |  | $       | 21,574 |  |         | $ | 11,660 |         |  | $ | 14,336 |  |  | $ |  |  |  | $ | 25,996 | 
|                                     |  |                |        |  |                   |   |       |         |  |   |       |  |  |         |        |  |         |   |        |         |  |   |        |  |  |   |   |  |  |   |        | 

The fair value of the Companys investments in money market funds, included within money market
securities, approximates their face value and has been included in cash and cash equivalents.

3. NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and dilutive net income (loss) per share for the periods
indicated:



|                                              |  |                                          |        |   |      |   |        |  
|--------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------ | -
|                                              |  | Three Months Ended March 31,             |       
|                                              |  | 2011                                     |        |   | 2010 |  
|                                              |  | (In thousands, except per share amounts) |       
|Numerator:                                    |  |                                          |        |   |      |   |        |  
|Net loss                                      |  | $                                        | (5,911 | ) |      | $ | (6,219 | )
|                                              |  |                                         
|Denominator:                                  |  |                                          |        |   |      |   |        |  
|Shares used to compute EPS basic and diluted: |  |                                          | 20,494 |   |      |   | 20,342 |  
|Net loss per share basic and diluted:         |  | $                                        | (0.29  | ) |      | $ | (0.31  | )

The following
weighted-average outstanding options, warrants and non-vested common shares were excluded in the computation of diluted net loss per share for the periods presented because including them would be anti-dilutive:



|                                  |  |                             |       |  |      |  |       | 
|--------------------------------- |  | --------------------------- | ----- |  | ---- |  | ----- | 
|                                  |  | Three Months EndedMarch 31, |      
|                                  |  | 2011                        |       |  | 2010 | 
|                                  |  | (In thousands)              |      
|Options to purchase common stock  |  |                             | 4,293 |  |      |  | 4,025 | 
|Warrants to purchase common stock |  |                             |      |  |      |  | 3     | 
|Nonvested common stock            |  |                             | 49    |  |      |  | 186   | 
|                                  |  |                             |       |  |      |  |       | 
|                                  |  |                             | 4,342 |  |      |  | 4,214 | 
|                                  |  |                             |       |  |      |  |       | 

4. STOCK-BASED COMPENSATION EXPENSE

Valuation assumptions and stock-based compensation expense

The Company
estimates the fair value of stock options on the day of grant using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the
historical volatility of the Companys common stock and consideration of other relevant factors such as the volatility of guideline companies. The expected life of options granted during the three months ended March 31, 2011 and 2010 was
estimated by taking the average of the vesting term and the contractual term of the option. The risk-free interest rate estimate is based upon U.S. Treasury bond rates appropriate for the expected life of the options.



9



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##### Table of Contents

The assumptions used and the resulting estimates of weighted average fair value per share of
options granted were as follows:



|                                                                 |  |                             |  |      
|---------------------------------------------------------------- |  | --------------------------- |  | -----
|                                                                 |  | Three Months EndedMarch 31,
|                                                                 |  | 2011                        |  | 2010 
|Expected volatility                                              |  | 47%                         |  | 46%  
|Risk-free interest rate                                          |  | 2.5% - 2.7%                 |  | 2.7% 
|Expected life (years)                                            |  | 6.1                         |  | 6.1  
|Expected dividend yield                                          |  | 0%                          |  | 0%   
|Weighted-average fair value of options granted during the period |  | $1.39                       |  | $2.33

Stock-based
compensation expense was as follows:



|                                       |  |                             |     |  |      |   |     | 
|-------------------------------------- |  | --------------------------- | --- |  | ---- | - | --- | 
|                                       |  | Three Months EndedMarch 31, |    
|                                       |  | 2011                        |     |  | 2010 |  
|                                       |  | (In thousands)              |    
|Cost of revenues                       |  | $                           | 60  |  |      | $ | 63  | 
|Product development                    |  |                             | 85  |  |      |   | 99  | 
|Sales and marketing                    |  |                             | 74  |  |      |   | 152 | 
|General and administrative             |  |                             | 169 |  |      |   | 381 | 
|                                       |  |                             |     |  |      |   |     | 
|Total stock-based compensation expense |  |                             | 388 |  |      |   | 695 | 
|Tax effect on stock-based compensation |  |                             |    |  |      |   |    | 
|                                       |  |                             |     |  |      |   |     | 
|Net effect on net income               |  | $                           | 388 |  |      | $ | 695 | 
|                                       |  |                             |     |  |      |   |     | 

The accounting standards require forfeitures to be estimated at the time of grant and revised, if necessary
in subsequent periods if actual forfeitures differ from those estimates. The Company estimated expected forfeitures based on various factors including employee class and historical experience. The amount of stock-based compensation expense has been
reduced for estimated forfeitures. As of March 31, 2011, there was $4.4 million of unrecorded stock-based compensation, after estimated forfeitures, related to unvested stock options. That cost is expected to be recognized over a weighted
average remaining recognition period of 2.7 years. As of March 31, 2011, there was $57,000 of unrecorded stock-based compensation related to unvested restricted stock. That cost is expected to be recognized over a weighted average
remaining recognition period of 0.5 years.

Stock option activity

A summary of the Companys stock option activity for the period indicated was as follows:



|                                    |  |                 |       |   |                              |   |      |                                                 |  |  |                          |  |  |   |     | 
|----------------------------------- |  | --------------- | ----- | - | ---------------------------- | - | ---- | ----------------------------------------------- |  |  | ------------------------ |  |  | - | --- | 
|                                    |  | Number ofShares |       |   | WeightedAverageExercisePrice |   |      | WeightedAverageRemainingContractualLife (Years) |  |  | AggregateIntrinsic Value | 
|                                    |  | (In thousands)  |       |   |                              |   |      |                                                 |  |  | (In thousands)           | 
|Outstanding at December 31, 2010    |  |                 | 4,197 |   |                              | $ | 4.08 |                                                 |  |  | 6.60                     |  |  | $ | 383 | 
|Options granted                     |  |                 | 609   |   |                              |   | 2.90 |                                                 |  |  |                          |  |  |   |     | 
|Options exercised                   |  |                 | (2    | ) |                              |   | 2.42 |                                                 |  |  |                          |  |  |   |     | 
|Options forfeited/cancelled/expired |  |                 | (186  | ) |                              |   | 3.96 |                                                 |  |  |                          |  |  |   |     | 
|                                    |  |                 |       |   |                              |   |      |                                                 |  |  |                          |  |  |   |     | 
|Outstanding at March 31, 2011       |  |                 | 4,618 |   |                              | $ | 3.93 |                                                 |  |  | 6.62                     |  |  | $ | 590 | 
|                                    |  |                 |       |   |                              |   |      |                                                 |  |  |                          |  |  |   |     | 
|Exercisable at March 31, 2011       |  |                 | 2,383 |   |                              | $ | 4.44 |                                                 |  |  | 4.89                     |  |  | $ | 513 | 
|                                    |  |                 |       |   |                              |   |      |                                                 |  |  |                          |  |  |   |     | 

Options generally vest over a four-year period with one-fourth (1/4) of the shares vesting
one year after the vesting commencement date, and an additional one-forty eighth (1/48) of the shares vesting on the first day of each calendar month thereafter until all such shares are exercisable. Options generally expire after ten years.
Options issued pursuant to the Companys voluntary stock option exchange program, completed in July 2009, vest ratably over a 36 month period and expire after seven years.

Aggregate intrinsic value represents the difference between the Companys closing stock price on the last trading day of the fiscal
period, which was $2.90 on March 31, 2011, and the exercise price for the options that were in-the-money at March 31, 2011. The total number of in-the-money options exercisable as of March 31, 2011 was 463,000. Total intrinsic value
of options exercised was $1,000 and $57,000 for the three months ended March 31, 2011 and 2010, respectively. The Company settles employee stock option exercises with newly issued common shares.



10



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Restricted Stock

The Company expenses the cost of restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restriction lapse.
Stock-based compensation expense related to restricted stock for the three months ended March 31, 2011 and 2010 was $42,000 and $184,000, respectively.

A summary of the Companys nonvested restricted stock for the period indicated was as follows:



|                               |  |                 |    |  |                                               |   |      | 
|------------------------------ |  | --------------- | -- |  | --------------------------------------------- | - | ---- | 
|                               |  | Number ofShares |    |  | WeightedAverage GrantDate Fair ValuePer Share |  
|                               |  | (In thousands)  |    |  |                                               |  
|Nonvested at December 31, 2010 |  |                 | 49 |  |                                               | $ | 4.90 | 
|Shares granted                 |  |                 |   |  |                                               |   |      | 
|Shares vested                  |  |                 |   |  |                                               |   |      | 
|Shares forfeited               |  |                 |   |  |                                               |   |      | 
|                               |  |                 |    |  |                                               |   |      | 
|Nonvested at March 31, 2011    |  |                 | 49 |  |                                               | $ | 4.90 | 
|                               |  |                 |    |  |                                               |   |      | 

5. INCOME TAXES

At the end of each interim period, the Company calculates an effective tax rate based on the Companys best estimate of the tax provision (benefit) that will be provided for the full year, stated as
a percentage of estimated annual pre-tax income (loss). The tax provision (benefit) for the interim period is determined using this estimated annual effective tax rate.

The Company maintains that a full valuation allowance should be accounted for against its net deferred tax assets at March 31, 2011. The Company considers its ongoing performance, recent historical
losses and expectations for the foreseeable future, among other things, in determining the need for a valuation allowance.

Based on the full valuation allowance and the loss for the three months ended March 31, 2011, the Company has not recorded a tax
provision or benefit.

6. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) and unrealized gains (losses) on investments. Comprehensive income (loss) for the periods indicated is comprised of the following:



|                                                                                          |  |                             |        |   |      |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                          |  | Three Months EndedMarch 31, |       
|                                                                                          |  | 2011                        |        |   | 2010 |  
|                                                                                          |  | (In thousands)              |       
|Net loss                                                                                  |  | $                           | (5,911 | ) |      | $ | (6,219 | )
|Other comprehensive income (loss):                                                        |  |                             |        |   |      |   |        |  
|Change in accumulated unrealized gain (loss) on available-for-sale securities, net of tax |  |                             | (7     | ) |      |   | 74     |  
|                                                                                          |  |                             |        |   |      |   |        |  
|Comprehensive loss                                                                        |  | $                           | (5,918 | ) |      | $ | (6,145 | )
|                                                                                          |  |                             |        |   |      |   |        |  

7. COMMITMENTS AND CONTINGENCIES

The Company leases office space under non-cancelable operating leases with various expiration dates through August 2016. Future gross and net lease commitments under non-cancelable operating leases at
March 31, 2011 were as follows, in thousands:



|                             |  |                                |       |  |                |   |      |                              |  |   |       | 
|---------------------------- |  | ------------------------------ | ----- |  | -------------- | - | ---- | ---------------------------- |  | - | ----- | 
|                             |  | GrossOperatingLeaseCommitments |       |  | SubleaseIncome |   |      | NetOperatingLeaseCommitments | 
|Remainder of 2011            |  | $                              | 1,979 |  |                | $ | (61  | )                            |  | $ | 1,918 | 
|2012                         |  |                                | 1,511 |  |                |   | (71  | )                            |  |   | 1,440 | 
|2013                         |  |                                | 788   |  |                |   | (3   | )                            |  |   | 785   | 
|2014                         |  |                                | 420   |  |                |   |     |                              |  |   | 420   | 
|2015                         |  |                                | 157   |  |                |   |     |                              |  |   | 157   | 
|Thereafter                   |  |                                | 35    |  |                |   |     |                              |  |   | 35    | 
|                             |  |                                |       |  |                |   |      |                              |  |   |       | 
|Total minimum lease payments |  | $                              | 4,890 |  |                | $ | (135 | )                            |  | $ | 4,755 | 
|                             |  |                                |       |  |                |   |      |                              |  |   |       | 



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Legal proceedings

On March 26, 2010, the Company was named as one of fourteen defendants in a lawsuit filed in United States District Court for the District of Delaware, Smarter Agent LLC v. Boopsie, Inc., et
al., by plaintiff, Smarter Agent LLC. The complaint alleges that the defendants have each infringed on patents owned by Smarter Agent relating to mobile device application technology and seeks unspecified damages and injunctive relief. After
completing its initial investigation of this matter, the Company does not currently believe that it has infringed on any patent, or that it has any liability for the claims alleged and it intends to vigorously defend against this lawsuit.

The Company is not currently subject to any other material legal proceedings. From time to time, the Company has been, and it
currently is, a party to litigation and subject to claims incidental to the ordinary course of the business. The amounts in dispute in these matters are not material to the Company, and management believes that the resolution of these proceedings
will not have a material adverse effect on the Companys business, consolidated financial position, results of operations or cash flows.

Indemnifications

The
Company has entered into various indemnification agreements in the ordinary course of our business. Pursuant to these agreements, the Company has agreed to indemnify, hold harmless and reimburse the indemnified parties, which include certain of our
service providers as well as others, in connection with certain occurrences. In addition, the corporate charter documents require the Company to provide indemnification rights to the Companys directors and officers to the fullest extent
permitted by the Delaware General Corporation Law, and permit the Company to provide indemnification rights to our other employees and agents, for certain events that occur while these persons are serving in these capacities. The Companys
charter documents also protect each of its directors, to the fullest extent permitted by the Delaware General Corporation Law, from personal liability to the Company and its stockholders from monetary damages for a breach of fiduciary duty as a
director. The Company has also entered into indemnification agreements with the Companys directors and each of our officers with a title of Vice President or higher.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unspecified. The Company is not aware of any material indemnification
liabilities for actions, events or occurrences that have occurred to date. The Company maintains insurance on some of the liabilities the Company has agreed to indemnify, including liabilities incurred by the Companys directors and officers
while acting in these capacities, subject to certain exclusions and limitations of coverage.

8. RESTRUCTURING CHARGES, NET

During the three months ended March 31, 2011, the Company implemented a cost reduction initiative, including closing brokerage
operations in twelve underperforming markets and a workforce reduction in sales support and administration functions. The associated restructuring charges include employee severance pay and related expenses, non-cancelable lease obligations and
other exit costs. For the three months ended March 31, 2011, restructuring charges were comprised of the following (in thousands):



|                                        |  |   |       | 
|--------------------------------------- |  | - | ----- | 
|Employee severance and related expenses |  | $ | 1,405 | 
|Lease obligations and other exit costs  |  |   | 805   | 
|Non-cash charges                        |  |   | 54    | 
|                                        |  |   |       | 
|Total restructuring charges, net        |  | $ | 2,264 | 
|                                        |  |   |       | 

The activity in accrued restructuring charges for the three months ended March 31, 2011 follows (in
thousands):



|                                                   |  |                                      |        |   |                                      |   |     |       |  |   |        |  
|-------------------------------------------------- |  | ------------------------------------ | ------ | - | ------------------------------------ | - | --- | ----- |  | - | ------ | -
|                                                   |  | EmployeeSeverance andRelated Expense |        |   | Lease Obligationsand Other ExitCosts |   |     | Total | 
|Accrued restructuring charges at December 31, 2010 |  | $                                    |       |   |                                      | $ |    |       |  | $ |       |  
|Charges                                            |  |                                      | 1,405  |   |                                      |   | 859 |       |  |   | 2,264  |  
|Payments                                           |  |                                      | (1,157 | ) |                                      |   | (10 | )     |  |   | (1,167 | )
|Non-cash adjustments                               |  |                                      |       |   |                                      |   | (54 | )     |  |   | (54    | )
|Adjustments                                        |  |                                      |       |   |                                      |   |    |       |  |   |       |  
|                                                   |  |                                      |        |   |                                      |   |     |       |  |   |        |  
|Accrued restructuring charges at March 31, 2011    |  | $                                    | 248    |   |                                      | $ | 795 |       |  | $ | 1,043  |  
|                                                   |  |                                      |        |   |                                      |   |     |       |  |   |        |  



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Of the $1,043,000 accrued restructuring charge as of March 31, 2011, $248,000 relates
to employee severance and related expenses which the Company expects to substantially pay out by the end of the second quarter 2011, and $795,000 relates to non-cancelable lease obligations which the Company expects to pay over the remaining terms
of the obligations, which extend to the third quarter of 2016.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations:
|------- | --------------------------------------------------------------------------------------

The following discussion should be read together with our financial statements and related notes appearing elsewhere in this report.
This discussion contains forward-looking statements based upon current expectations that involve numerous risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements for
many reasons, including but not limited to those described under Risk Factors in Item 1A of Part I of our annual report on Form 10-K for our fiscal year ended December 31, 2010. Those reasons include, without limitation, those
described at the beginning of this report under Statement regarding forward-looking statements, as well as those that may be set forth elsewhere in this report. Except as otherwise required by law, we do not intend to update any
information contained in these forward-looking statements.

OVERVIEW

General

We are a leading full-service residential real estate brokerage focused on finding better, faster ways to connect clients with the information, tools and professional services they value to complete their
residential real estate transactions. We serve our clients through our combination of a leading online presence, robust proprietary technology and knowledgeable local real estate professionals in the field. Our award-winning, user-friendly website
and mobile applications give our clients on-the-go access to comprehensive local Multiple Listing Services home listings data, as well as other relevant market and neighborhood information and tools. Our proprietary technology, including our agent
productivity platform, helps increase the efficiency of real estate agents while reducing customer acquisition and management costs, allowing us to invest in making our value proposition differentiated and more attractive to both clients and agents.

In 2010, our website received more traffic than any other residential real estate brokerage website in the nation, according
to Hitwise, an information services company. As of April 25, 2011, we had approximately 2.4 million active registered users who had accessed our website within the last year. We have wholly owned operations in 23 major markets, serviced by
our team of over 2,400 local, licensed sales agents, all of whom are independent contractors. We also have referral arrangements with third-party brokerages in two markets where we do not conduct our own brokerage operations

Until 2010, our agents were typically employees. In February 2010, we began transitioning our agents to an independent contractor model
in some of our markets, and we completed that transition in the remainder of our markets by January 2011. Through that modified business model, we hope both to empower our local offices and agents to make decisions that are better tailored to the
dynamics of their particular markets, thereby increasing productivity and customer service levels, and to minimize management oversight of day-to-day agent activities, thereby reducing costs for field sales support, corporate sales support and
corporate administration. As we convert a greater portion of our cost structure from fixed to variable, we should have greater leverage to attract and retain agents and to incentivize productivity.

In January 2011, we announced plans to heighten our focus on our core strengths in technology, online marketing and our most attractive
local real estate markets, where our financial performance, productivity and market presence have been strongest and where local population, economic and housing trends appear most favorable long-term. To that end, we closed twelve offices in the
first quarter of 2011, including Tucson, AZ, and Atlanta, GA. In the Atlanta and Tucson markets that we exited, we entered into our first local referral agreements, under which we provide tools enhancing the online sales channel to deliver customers
leads to leading local brokerages in those markets, and we have transitioned our local operations to the same brokerages.

Our
net revenues are composed primarily of commissions earned as agents for buyers and sellers in residential real estate transactions, and we operate in one reportable segment. For clients who are buying homes, we typically share 20% of our commissions
with them in the form of a cash rebate. We have begun testing in select markets alternatives to rebates that are designed to highlight and enhance the professionalism and high quality service of our agents. In markets where the payment of cash
rebates is not currently permitted by law, we have adjusted our home buyer value proposition by offering an enhanced client satisfaction guarantee. For our clients who are selling homes, we typically represent them at commissions that are
competitive in our markets. Our seller clients typically pay a total brokerage fee of 4.5% to 5.0% of the transaction value, of which 2.5% to 3.0% is paid to agents representing buyers.

We record commission revenues net of any rebate, commission discount or transaction fee adjustment. Our net revenues are principally
driven by the number of transactions we close and the average net revenue per transaction. Average net revenue per transaction is a function of the home sales price and percentage commission we receive on each transaction and varies significantly by
market. We also receive revenues from certain marketing arrangements, such as with mortgage lenders to whom we provide access



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through the mortgage center on our website, who pay us a flat marketing fee that is established on a periodic basis, as well as from relationships with advertisers. Generally, non-commission
revenues represent less than 5% of our net revenues during any period, although they topped 5% in the fourth quarter of 2010 and the first quarter of 2011 given relatively weak real estate sales in the quarter. We routinely explore options for
entering into additional marketing and other business arrangements for offering services related to the purchase, sale and ownership of a home.

We believe that customer acquisition is one of our core competencies, and although the difficulty of acquiring a sufficient number of leads online could increase over time, we expect that we can mitigate
some of that impact with repeat and referral business, as well as by increasing our visibility and credibility to potential clients over time. Because our aggregate transaction volume market share in our markets has averaged less than 1%
historically, we believe that there is an opportunity to increase our market share and grow our business over the long term, even if the overall level of sales do not grow due to macroeconomic conditions.

Market conditions and trends in our business

Macroeconomic forces. For the past few years, the residential real estate market has been negatively impacted by macroeconomic conditions. We perceive that conditions such as tight lending
criteria, high numbers of distressed properties, and high unemployment continue to exert negative pressure on the residential real estate market, and may continue to do so for some time. Although the housing market was bolstered in 2010 by low
mortgage rates, which reached a record low in October 2010 for a 30-year, conventional, fixed-rate mortgage, rates have fluctuated and will likely continue to do so. For 2011, we currently believe that the health of the residential housing market
will continue to be significantly affected by the availability of credit, shadow inventory levels, and interest rates, as well as any significant change in unemployment levels. We cannot predict any changes in those macroeconomic forces, nor can we
predict the combined impact of those changes on the residential real estate market.

The federal government, state governments
and related agencies have acted repeatedly to address the decline in the residential real estate market and the availability of home mortgage credit. Some of those efforts, such as the federal first-time home buyer tax credit, which is discussed
below under Fluctuations in quarterly profitability, temporarily boosted home sales in earlier periods, but often by accelerating home purchase decisions from later periods, not by creating new housing demand. When such programs ended,
the residential real estate market was left once again to suffer the pressures of poor macroeconomic conditions. To the extent that governments and related agencies take future actions to address the residential real estate market, there can be no
assurance that those activities will have a positive, meaningful and lasting impact, or that they will not result in unintended consequences.

In late 2010, given the large volume of distressed properties being handled by banks, concern grew that mortgage lenders may not be fulfilling all the legal requirements for valid foreclosure proceedings.
Consequently, many large lenders temporarily halted foreclosure proceedings either nationwide or in the 23 states where the foreclosure process must be approved by a judge. Most of those lenders have since lifted the freezes, but we perceive that
banks are nonetheless processing foreclosures slowly and with caution. We cannot assess what impact, if any, this situation will have on the residential real estate market.

Current residential real estate market conditions. Recent indicators of national residential real estate market conditions include the following:



| |  |  | Volume: According to the National Association of REALTORS®, or NAR, existing home sales nationwide in March 2011 were down 6.3% year-over-year, with declines in all major regions of the country. Those declines were due in
large part to the positive impact in the first quarter of 2010 of the federal first-time home buyer tax credit, which is discussed below under Fluctuations in quarterly profitability, and the market continues to be impacted by the
lingering economic pressures discussed above.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Price: According to NAR, in March 2011, the national median existing home sales price decreased 5.9% year-over-year, with declines in all major
regions of the country. We perceive that overall prices continue to be negatively impacted by the tight lending criteria for non-conforming jumbo loans and the resulting constriction of the market for higher-priced homes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inventory: According to NAR, in March 2011, inventory levels remained relatively flat year-over-year, decreasing by just 0.8%. We are unable at
the present time to tell what impact, if any, the foreclosure processing delays instituted by many major mortgage lenders will have on future inventory levels.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Distressed Properties: Currently, a significant percentage of our sales transaction volume is composed of distressed properties. Distressed
properties are homes that are in foreclosure, are bank owned (or REO), or are short sales, meaning a sale where the sale price is less than the loans or debt secured by the home listed for sale. In the first quarter of 2011, the
percentage of our sales transactions composed of distressed properties was approximately 45%, which was higher than the 38% realized in the previous quarter and the 37% realized in the first quarter of 2010 but less than the peak of 53% realized in
the first quarter of 2009. Distressed properties not only tend to sell at reduced prices, but they also tend to put downward pressure on the values of other homes for sale in the same and nearby neighborhoods. We expect distressed properties to
continue to represent a significant portion of the residential real estate market and of our business for the foreseeable future.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Shadow Inventory: Shadow inventory refers to distressed and other properties that have not yet been listed for sale, as well as
properties that homeowners wish to sell, but will not sell at current market prices. Shadow inventory can occur when lenders put REO properties (properties that have been foreclosed or forfeited to lenders) on the market gradually, rather than all
at once, or delay the foreclosure process. They may choose to do so because of regulations and foreclosure moratoriums, because of the additional costs and resources required to process and sell foreclosed properties, or because they want to avoid
depressing housing prices further by putting many distressed properties up for sale at the same time. It is difficult to assess the current volume of shadow inventory and its future impact on the residential real estate market, particularly given
the uncertainty surrounding the foreclosure processing delays instituted by many major mortgage lenders, discussed above.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fluctuations in quarterly profitability. We have experienced fluctuations in profitability from period to period. Our profitability has been impacted by various factors, including ongoing
market challenges, government intervention, seasonality, and, in previous years, new market expansion and legal settlements.

For example, in 2009, the federal government introduced a program to provide a tax credit of up to $8,000 to first-time home buyers,
meaning buyers who had not owned a home in the preceding three years, and a tax credit of up to $6,500 to repeat home buyers, meaning buyers who had lived in their current homes for five consecutive years in the past eight years. To take advantage
of the program, buyers must have entered into a home purchase contract by April 30, 2010, and must have completed the purchase by September 30, 2010. We believe that this program had a positive effect on home sales volume in 2009 and the
first half of 2010, particularly in the second quarter of 2010. However, we also believe that the program accelerated the decision to purchase a home for some buyers, which resulted in fewer sales in the second half of 2010, and possibly later.
Also, during the first quarter of 2011, the year-over-year comparisons in financial results were distorted because of the positive impact of the federal tax credit program during the first half of 2010, and we anticipate that a similar distortion
will also occur in the second quarter of 2011.

Industry seasonality and cyclicality. The residential real estate
brokerage market is influenced both by seasonal factors and by overall economic cycles. While individual markets vary, transaction volume nationally tends to increase progressively from January through the summer months, then to slow gradually over
the last three to four months of the calendar year. Revenues in each quarter are significantly affected by activity during the prior quarter, given the typical 30- to 45-day time lag between contract execution and closing for traditional home
purchases. For non-traditional sales, the time lag from contract execution to closing can be longer. We have been, and believe we will continue to be, influenced by overall market activity and seasonal forces. We generally experience the most
significant impact in the first and fourth quarters of each year, when our revenues are typically lower relative to the second and third quarters as a result of traditionally slower home sales activity and reduced listings inventory between
Thanksgiving and Presidents Day.

The impact of seasonality can be masked by the general health of the residential real
estate market at any given point in time, whether affected by macroeconomic events (such as the federal tax credit program discussed above), periodic business cycles or other factors. Generally, when economic conditions are fair or good, the housing
market tends to perform well. If the economy is weak, if interest rates dramatically increase, if mortgage lending standards tighten, or if there are disturbances such as terrorist attacks or threats, the outbreak of war or geopolitical
uncertainties, the housing market likely would be negatively impacted.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and
assumptions. Accordingly, our actual results may differ from these estimates under different assumptions or conditions.

Our
significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements contained in our Form 10-K for the year ended December 31, 2010, and of those policies, we believe that the following accounting
policies are the most critical to understand and evaluate our financial condition and results of operations.

Revenue recognition

We derive the majority of our revenue from commissions earned as agents to buyers and sellers in residential real
estate transactions. Commission revenue is recognized upon closing of a transaction, net of any rebate or commission discount or transaction fee adjustment, as evidenced when the escrow or similar account has closed and funds have been disbursed to
all appropriate parties. These transactions typically do not have multiple deliverable arrangements.

Non-commission revenues
are derived primarily from marketing agreements with residential mortgage service providers, the sale of online advertising, lead referral fees and other revenues. We classify these revenues as marketing and other revenues. Marketing service
revenues are recognized over the term of the agreements as the contracted services are delivered. Advertising revenues on contracts are recognized as impressions are delivered or as clicks are provided to advertisers. Advertising and marketing



15



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##### Table of Contents

contracts may consist of multiple deliverables which generally include a blend of various impressions or clicks as well as other marketing deliverables. Revenues related to revenue sharing
arrangements are recognized based on revenue reports received from our partners, provided that collectability is reasonably assured.

Revenue is recognized only when the price is fixed or determinable, persuasive evidence an arrangement exists, the service has been delivered and collectability of the resulting receivable is reasonably
assured.

Internal-use software and website development costs

We account for internal-use software and website development costs, including the development of our ZipRealty Agent Platform
(ZAP) in accordance with the guidance set forth in the related accounting standards. We capitalize internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use
software, as well as any external direct costs. We amortize these costs over their estimated useful lives, which typically range between 15 to 24 months. Our judgment is required in determining the point at which various projects enter the
stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on managements judgment as to the
product life cycle.

Stock-based compensation

We follow the provisions of accounting standards for share-based payments, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees,
consultants and directors, including employee stock options and employee stock purchases, based on estimated fair values. Under the fair value recognition provisions of the accounting standards, stock-based compensation cost is estimated at the
grant date based on the fair value of the awards expected to vest and recognized as expense using the straight-line method over the requisite service period of the award.

We estimate the fair value of stock options using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected
volatility is based on the historical volatility of our common stock and consideration of other relevant factors such as the volatility of guideline companies. The expected life of options is estimated by taking the average of the vesting term and
the contractual term of the option. We estimate expected forfeitures based on various factors including employee class and historical experience. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates are revised.

Income taxes

Deferred tax assets and liabilities arise from the
differences between the tax basis of an asset or liability and its reported amount in the financial statements as well as from net operating loss and tax credit carry forwards. Deferred tax amounts are determined by using the tax rates expected to
be in effect when the taxes will actually be paid or refunds received, as provided under current tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or
benefit is the tax payable or refundable, respectively, for the period adjusted for the change during the period in deferred tax assets and liabilities.

The accounting standard for income taxes requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized.
We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent historical results and our expectations for the future. Historically, we have recorded a valuation allowance on our
deferred tax assets, the majority of which relate to net operating loss carryforwards and we maintain that a full valuation allowance should be accounted for against our net deferred tax assets at March 31, 2011.



16



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##### Table of Contents

RESULTS OF OPERATIONS

The following table summarizes certain financial data related to our operations for the periods indicated:



|                                                       |  |                                       |        |   |      |   |        |  
|------------------------------------------------------ |  | ------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                       |  | Three Months EndedMarch 
31,          |       
|Consolidated statements of operations data (unaudited) |  | 2011                                  |        |   | 2010 |  
|                                                       |  | (In thousands, except per share data) |       
|Net transaction revenues                               |  | $                                     | 18,392 |   |      | $ | 24,841 |  
|Marketing and other revenues                           |  |                                       | 1,353  |   |      |   | 947    |  
|                                                       |  |                                       |        |   |      |   |        |  
|Net revenues                                           |  |                                       | 19,745 |   |      |   | 25,788 |  
|                                                       |  |                                       |        |   |      |   |        |  
|Operating expenses:                                    |  |                                       |        |   |      |   |        |  
|Cost of revenues                                       |  |                                       | 10,959 |   |      |   | 15,306 |  
|Product development                                    |  |                                       | 1,949  |   |      |   | 2,415  |  
|Sales and marketing                                    |  |                                       | 8,155  |   |      |   | 10,766 |  
|General and administrative                             |  |                                       | 2,357  |   |      |   | 3,609  |  
|Restructuring charges, net                             |  |                                       | 2,264  |   |      |   |       |  
|                                                       |  |                                       |        |   |      |   |        |  
|Total operating expenses                               |  |                                       | 25,684 |   |      |   | 32,096 |  
|                                                       |  |                                       |        |   |      |   |        |  
|Loss from operations                                   |  |                                       | (5,939 | ) |      |   | (6,308 | )
|Interest income                                        |  |                                       | 28     |   |      |   | 89     |  
|                                                       |  |                                       |        |   |      |   |        |  
|Loss before income taxes                               |  |                                       | (5,911 | ) |      |   | (6,219 | )
|Provision for income taxes                             |  |                                       |       |   |      |   |       |  
|                                                       |  |                                       |        |   |      |   |        |  
|Net loss                                               |  | $                                     | (5,911 | ) |      | $ | (6,219 | )
|                                                       |  |                                       |        |   |      |   |        |  
|Net loss per share:                                    |  |                                       |        |   |      |   |        |  
|Basic and diluted                                      |  | $                                     | (0.29  | ) |      | $ | (0.31  | )
|Weighted average common shares outstanding:            |  |                                       |        |   |      |   |        |  
|Basic and diluted                                      |  |                                       | 20,494 |   |      |   | 20,342 |  

The following table
presents our operating results as a percentage of net revenues for the periods indicated:



|                                                       |  |                             |       |    |      |  |       |   
|------------------------------------------------------ |  | --------------------------- | ----- | -- | ---- |  | ----- | --
|                                                       |  | Three Months EndedMarch 31, |      
|Consolidated statements of operations data (unaudited) |  | 2011                        |       |    | 2010 | 
|Net transaction revenues                               |  |                             | 93.1  | %  |      |  | 96.3  | % 
|Marketing and other revenues                           |  |                             | 6.9   |    |      |  | 3.7   |   
|                                                       |  |                             |       |    |      |  |       |   
|Net revenues                                           |  |                             | 100.0 |    |      |  | 100.0 |   
|                                                       |  |                             |       |    |      |  |       |   
|Operating expenses:                                    |  |                             |       |    |      |  |       |   
|Cost of revenues                                       |  |                             | 55.5  |    |      |  | 59.4  |   
|Product development                                    |  |                             | 9.9   |    |      |  | 9.4   |   
|Sales and marketing                                    |  |                             | 41.3  |    |      |  | 41.7  |   
|General and administrative                             |  |                             | 11.9  |    |      |  | 14.0  |   
|Restructuring charges, net                             |  |                             | 11.5  |    |      |  |      |   
|                                                       |  |                             |       |    |      |  |       |   
|Total operating expenses                               |  |                             | 130.1 |    |      |  | 124.5 |   
|                                                       |  |                             |       |    |      |  |       |   
|Loss from operations                                   |  |                             | (30.1 | )  |      |  | (24.5 | ) 
|Interest income                                        |  |                             | 0.1   |    |      |  | 0.3   |   
|                                                       |  |                             |       |    |      |  |       |   
|Loss before income taxes                               |  |                             | (30.0 | )  |      |  | (24.2 | ) 
|Provision for income taxes                             |  |                             |      |    |      |  |      |   
|                                                       |  |                             |       |    |      |  |       |   
|Net loss                                               |  |                             | (30.0 | )% |      |  | (24.2 | )%
|                                                       |  |                             |       |    |      |  |       |   



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Comparison of the three months ended March 31, 2011 and 2010

Other operating data



|                                                    |  |                             |       |  |                    |   |       |               |  |   |        |   |  |  |       |   
|--------------------------------------------------- |  | --------------------------- | ----- |  | ------------------ | - | ----- | ------------- |  | - | ------ | - |  |  | ----- | --
|                                                    |  | Three Months EndedMarch 31, |       |  | Increase(Decrease) |   |       | PercentChange | 
|                                                    |  | 2011                        |       |  | 2010               |   |       |              
|Number of markets (1)                               |  |                             | 23    |  |                    |   | 35    |               |  |   | (12    | ) |  |  |       |   
|Number of transactions closed during the period (2) |  |                             |       |  |                    |   |       |               |  |   |        |   |  |  |       |   
|Buyer representation                                |  |                             | 3,350 |  |                    |   | 4,527 |               |  |   | (1,177 | ) |  |  | (26.0 | )%
|Seller representation                               |  |                             | 286   |  |                    |   | 376   |               |  |   | (90    | ) |  |  | (23.9 | )%
|                                                    |  |                             |       |  |                    |   |       |               |  |   |        |   |  |  |       |   
|Total                                               |  |                             | 3,636 |  |                    |   | 4,903 |               |  |   | (1,267 | ) |  |  | (25.8 | )%
|                                                    |  |                             |       |  |                    |   |       |               |  |   |        |   |  |  |       |   
|Average net revenue per transaction (3)             |  | $                           | 5,058 |  |                    | $ | 5,067 |               |  | $ | (9     | ) |  |  | (0.2  | )%
|Number of agents at end of the period               |  |                             | 2,422 |  |                    |   | 3,017 |               |  |   | (595   | ) |  |  | (19.7 | )%



|(1) | On January 10, 2011, we announced a restructuring, including closing our owned and operated brokerage offices in twelve markets and eliminating additional
positions in field sales support, corporate sales support and administration. The restructuring was substantially completed during the quarter ended March 31, 2011 and our operations in Fresno/Central Valley, Charlotte, Naples, Jacksonville,
Miami, Palm Beach, Tampa, Hartford, Minneapolis, Virginia Beach, Atlanta and Tucson were closed.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The term transaction refers to each representation of a buyer or seller in a real estate purchase or sale.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Average net revenue per transaction equals net transaction revenues divided by number of transactions with respect to each period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

Net transaction revenues

Net transaction revenues consist of commissions earned as agents to buyers and sellers on the purchase or sale of real estate transactions, net of any rebate, commission discount or transaction fee
adjustment.



|                        |  |                             |        |  |                    |   |        |               |  |   |        |   |  |  |       |   
|----------------------- |  | --------------------------- | ------ |  | ------------------ | - | ------ | ------------- |  | - | ------ | - |  |  | ----- | --
|                        |  | Three Months EndedMarch 31, |        |  | Increase(Decrease) |   |        | PercentChange | 
|                        |  | 2011                        |        |  | 2010               |   |        |              
|                        |  | (In thousands)              |       
|Net transaction revenue |  | $                           | 18,392 |  |                    | $ | 24,841 |               |  | $ | (6,449 | ) |  |  | (26.0 | )%

The decrease in our net
transaction revenues of $6.4 million or 26.0% for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 was driven primarily by a decrease in the number of transactions closed during the quarter of
1,267 or 25.8%. Transactions closed during the quarter in our remaining markets were 3,428 compared to 3,904 last year, a decrease of 476 or 12.2%. Average net revenue per transaction for the quarter in our remaining markets was $5,159 compared to
$5,365 last year, a decrease of $206 or 3.8%. The decrease in average net revenue per transaction in our remaining markets was primarily attributable to a combination of factors including an overall decrease in housing prices, the impact of
foreclosure, bank real estate owned (REO) and short sale transactions, typically at further reduced sales prices, and ongoing tightening in the availability of consumer mortgage financing particularly impacting the sale of higher priced
housing.

We expect our net transaction revenues will decrease in 2011 driven by a decrease in the overall number of
transactions, primarily as a result of closing some of our markets. Average net revenue per transaction is expected to continue to be impacted by factors including overall decreases in housing prices, the volume of distressed sales, including
foreclosure, bank REO and short sale transactions, and ongoing pressure on the availability of consumer mortgage financing particularly impacting the sale of higher priced housing.



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##### Table of Contents

Marketing and other revenues

Marketing and other revenues consist primarily of market transaction referrals and corporate marketing agreements, lead generation and
advertising.



|                             |  |                             |       |  |                    |   |     |               |  |   |     |  |  |  |       |  
|---------------------------- |  | --------------------------- | ----- |  | ------------------ | - | --- | ------------- |  | - | --- |  |  |  | ----- | -
|                             |  | Three Months EndedMarch 31, |       |  | Increase(Decrease) |   |     | PercentChange | 
|                             |  | 2011                        |       |  | 2010               |   |     |              
|                             |  | (In thousands)              |      
|Marketing and other revenues |  |                             |       |  |                    |   |     |               |  |   |     |  |  |  |       |  
|Markets                      |  | $                           | 208   |  |                    | $ | 104 |               |  | $ | 104 |  |  |  | 100.8 | %
|Corporate                    |  |                             | 1,145 |  |                    |   | 843 |               |  |   | 302 |  |  |  | 35.9  | %
|                             |  |                             |       |  |                    |   |     |               |  |   |     |  |  |  |       |  
|Total                        |  | $                           | 1,353 |  |                    | $ | 947 |               |  | $ | 406 |  |  |  | 43.0  | %
|                             |  |                             |       |  |                    |   |     |               |  |   |     |  |  |  |       |  

The increase in corporate marketing and other revenues for the three months ended March 31,
2011 compared to the three months ended March 31, 2010 was primarily attributable to $0.3 million in lead referral fees.

We expect our marketing and other revenue will increase for 2011 primarily attributable to increased advertising, lead referral fees and
fees earned from marketing agreements.

Cost of revenues

During the three months ended March 31, 2011, we completed the transition of our agent force from an employee model to an independent
contractor model. Under the employee model, our cost of revenues consists principally of commissions, payroll taxes, benefits including health insurance, performance and tenure based award programs, agent expense reimbursements and amortization of
internal-use software and website development costs which relate primarily to our ZAP technology. Under the independent contractor model, our cost of revenues consists principally of commissions and amortization of internal-use software and website
development costs which relate primarily to our ZAP technology. Agent commissions are generally paid on market net revenues which include net transaction revenues plus referral and other revenues generated by our agents.



|                 |  |                             |        |  |                    |   |        |               |  |   |        |   |  |  |       |   
|---------------- |  | --------------------------- | ------ |  | ------------------ | - | ------ | ------------- |  | - | ------ | - |  |  | ----- | --
|                 |  | Three Months EndedMarch 31, |        |  | Increase(Decrease) |   |        | PercentChange | 
|                 |  | 2011                        |        |  | 2010               |   |        |              
|                 |  | (In thousands)              |       
|Cost of revenues |  | $                           | 10,959 |  |                    | $ | 15,306 |               |  | $ | (4,347 | ) |  |  | (28.4 | )%

The decrease in cost of
revenues for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 was primarily related to the overall decrease in net revenues on which we pay agent commissions. Agent commissions and payroll taxes
decreased by $2.0 million or 16.1% primarily attributable to the blend of agent commission rates paid. Agent performance and tenure based programs, benefits and expense reimbursements decreased by approximately $2.3 million or 89.2% primarily
attributable to the transition of our agents to independent contractors who do not qualify for benefits and expense reimbursements and to the elimination of performance and tenure based programs as a component of agent compensation. Our agents in
New York, Nevada and California completed the transition to independent contractor status during 2010 and agents in our remaining markets completed the transition to independent contractor status as of January 31, 2011. Overall, cost of
revenues as a percentage of market net revenues for the three months ended March 31, 2011 decreased about 2.5 percentage points from the three months ended March 31, 2010. In our remaining markets, cost of revenues as a percentage of
market net revenues for the three months ended March 31, 2011 were 58.4%, a decrease of 3.4 percentage points from 61.8% for the three months ended March 31, 2010.

We expect our cost of revenues for 2011 will decrease because of the decrease in market net revenues attributable primarily to the market closures in the first quarter of 2011. Our cost of revenues
primarily moves in relation to the market net revenues on which commissions are based. Cost of revenues may also increase or decrease as a result of the mix of commission rates paid to our agents. Overall, we expect cost of revenues to decrease as a
percentage of market net revenues for 2011 compared to 2010.



19



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##### Table of Contents

Product development

Product development expenses include our information technology costs relating to the maintenance of our website, proprietary technology
platforms and system infrastructure. These costs consist primarily of compensation and benefits for our product development and infrastructure personnel, depreciation of software and equipment and infrastructure costs consisting primarily of
facilities, communications and other related operating expenses.



|                    |  |                             |       |  |                    |   |       |               |  |   |      |   |  |  |       |   
|------------------- |  | --------------------------- | ----- |  | ------------------ | - | ----- | ------------- |  | - | ---- | - |  |  | ----- | --
|                    |  | Three Months EndedMarch 31, |       |  | Increase(Decrease) |   |       | PercentChange | 
|                    |  | 2011                        |       |  | 2010               |   |       |              
|                    |  | (In thousands)              |      
|Product development |  | $                           | 1,949 |  |                    | $ | 2,415 |               |  | $ | (466 | ) |  |  | (19.3 | )%

The decrease in product
development expenses for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 was due primarily to decreases in salaries and benefits of $0.2 million attributable to reductions in headcount resulting from
our restructuring, depreciation expense of $0.1 million and technology infrastructure costs of $0.2 million. As a percentage of net revenues, product development expenses increased by 0.5 percentage points for the three months ended
March 31, 2011 compared to the three months ended March 31, 2010.

We expect to continue enhancing tools and
features on our website for consumers but expect that our product development expenses will decrease in 2011, compared to 2010, in absolute dollars but increase as a percentage of net revenues as a result of lower anticipated net revenues for the
year.

Sales and marketing

Sales and marketing expenses consist primarily of compensation and related costs for personnel engaged in sales, sales support and customer service as well as promotional, advertising and client
acquisition costs. These expenses have been categorized below between those incurred in our market offices and those expenses which are incurred by the regional and corporate support functions across all markets.



|                                               |  |                             |       |  |                    |   |        |               |  |   |        |   |  |  |       |   
|---------------------------------------------- |  | --------------------------- | ----- |  | ------------------ | - | ------ | ------------- |  | - | ------ | - |  |  | ----- | --
|                                               |  | Three Months EndedMarch 31, |       |  | Increase(Decrease) |   |        | PercentChange | 
|                                               |  | 2011                        |       |  | 2010               |   |        |              
|                                               |  | (In thousands)              |      
|Sales and marketing:                           |  |                             |       |  |                    |   |        |               |  |   |        |   |  |  |       |   
|Markets                                        |  | $                           | 6,938 |  |                    | $ | 8,787  |               |  | $ | (1,849 | ) |  |  | (21.0 | )%
|Regional/corporate sales support and marketing |  |                             | 1,217 |  |                    |   | 1,979  |               |  |   | (762   | ) |  |  | (38.5 | )%
|                                               |  |                             |       |  |                    |   |        |               |  |   |        |   |  |  |       |   
|Total                                          |  | $                           | 8,155 |  |                    | $ | 10,766 |               |  | $ | (2,611 | ) |  |  | (24.2 | )%
|                                               |  |                             |       |  |                    |   |        |               |  |   |        |   |  |  |       |   

Market level sales and marketing expenses decreased for the three months ended March 31, 2011
compared to the three months ended March 31, 2010 as a result of closing twelve markets and eliminating positions in our remaining markets during our restructuring. The $1.8 million or 21.0% decrease is principally attributable to decreases in
salaries and benefits of $1.0 million, customer acquisition and marketing costs of $0.5 million and facilities and operating expenses of $0.2 million. As a percentage of market net revenues, market sales and marketing expenses were 37.3% in the
current quarter compared to 35.2% in the same quarter last year.

Regional/corporate sales support and marketing expenses
decreased by approximately $0.8 million and consisted primarily of decreases in salary and benefits of $0.4 million, facilities and operating expenses of $0.2 million, and consulting fees of $0.1 million. The decrease in expenses was primarily
attributable to the elimination of positions and other expenses resulting from our restructuring in the first quarter of 2011, as well as positions eliminated in the last half of 2010. As a percentage of net revenues, regional/corporate sales
support and marketing expenses were approximately 6.2% in the three months ended March 31, 2011 compared to 7.7% in the three months ended March 31, 2010.

We expect our market level and regional/corporate sales and marketing expenses to decrease in absolute dollars and as a percentage of net revenues for 2011 compared to 2010 primarily as a result of our
2011 restructuring and positions eliminated the last half of 2010. We expect this decrease in expenses to consist of office operating expenses and customer acquisition and marketing cost in the closed markets as well as staff reductions in our
remaining markets and in the regional and corporate sales support and marketing operations.



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General and administrative

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities related to our
executive, finance, human resources, facilities and legal organizations, and fees for professional services. Professional services are principally comprised of outside legal, audit and tax services.



|                           |  |                             |       |  |                    |   |       |               |  |   |        |   |  |  |       |   
|-------------------------- |  | --------------------------- | ----- |  | ------------------ | - | ----- | ------------- |  | - | ------ | - |  |  | ----- | --
|                           |  | Three Months EndedMarch 31, |       |  | Increase(Decrease) |   |       | PercentChange | 
|                           |  | 2011                        |       |  | 2010               |   |       |              
|                           |  | (In thousands)              |      
|General and administrative |  | $                           | 2,357 |  |                    | $ | 3,609 |               |  | $ | (1,252 | ) |  |  | (34.7 | )%

General and
administrative expenses for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 decreased by approximately $1.3 million or 34.7% and were primarily attributable to decreased salaries and benefits of
$1.0 million attributable to positions eliminated during the last half of 2010 and the restructuring, as well as reductions in operating expenses of $0.1 million, and professional fees of $0.2 million primarily as a result of our
restructuring. As a percentage of net revenues, general and administrative expenses were 11.9% for the quarter compared to 14.0% in the three months ended March 31, 2010.

We expect our general and administrative expenses for 2011 will decrease in absolute dollars and as a percentage of net revenues primarily as a result of positions eliminated during the last half of 2010
and our January 2011 restructuring, which included eliminating expenses as well as administrative activities required in the employee agent model.

Restructuring charges, net



|                           |  |                             |       |  |                    |   |   |               |  |   |       |  |  |  |       |  
|-------------------------- |  | --------------------------- | ----- |  | ------------------ | - | - | ------------- |  | - | ----- |  |  |  | ----- | -
|                           |  | Three Months EndedMarch 31, |       |  | Increase(Decrease) |   |   | PercentChange | 
|                           |  | 2011                        |       |  | 2010               |   |   |              
|                           |  | (In thousands)              |      
|Restructuring charges, net |  | $                           | 2,264 |  |                    | $ |  |               |  | $ | 2,264 |  |  |  | 100.0 | %

During the three months
ended March 31, 2011, we implemented a cost reduction initiative, including closing brokerage operations in twelve markets and reducing our workforce in remaining market brokerage operations as well as in our corporate sales support and
administrative functions. The restructuring charge includes lease obligation costs and other non-cash charges relating to lease terminations of approximately $0.9 million and severance pay and related expenses of approximately $1.4 million.
Adjustments to non-cash stock-based compensation expense resulting from expense reversals for unvested stock awards that were forfeited were not significant. At March 31, 2011, the aggregate outstanding restructuring liability was approximately
$1.0 million, most of which relates to non-cancelable lease costs we expect to pay over the remaining term of the leases, which end by the third quarter of 2016.

We expect that substantially all expenses relating to the restructuring have been recognized in the three months ended March 31, 2011. Some expenses required estimates, particularly those related to
our ability and the timing of generating sublease income and terminating lease obligations, and may require future adjustments to the amount of the restructuring charge recorded.

Interest income

Interest income relates to interest we earn on our money market deposits and short-term investments.



|                |  |                             |    |  |                    |   |    |               |  |   |     |   |  |  |       |   
|--------------- |  | --------------------------- | -- |  | ------------------ | - | -- | ------------- |  | - | --- | - |  |  | ----- | --
|                |  | Three Months EndedMarch 31, |    |  | Increase(Decrease) |   |    | PercentChange | 
|                |  | 2011                        |    |  | 2010               |   |    |              
|                |  | (In thousands)              |   
|Interest income |  | $                           | 28 |  |                    | $ | 89 |               |  | $ | (61 | ) |  |  | (68.8 | )%

Interest income
fluctuates as our cash equivalents and short-term investment balances change and applicable interest rates increase or decrease. The decrease in interest income for the three months ended March 31, 2011, compared to the three months ended
March 31, 2010, was due primarily to lower interest rates earned on lower average balances. The lower interest rates were primarily attributable to overall decreases in market interest rates combined with maintaining higher money market fund
balances yielding lower interest rates as we decreased our short-term investments positions. The lower average balances were primarily attributable to cash used in our operating activities as a result of the losses incurred during the quarter.



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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for 2011 are our cash, cash equivalents and short-term investments. As of March 31, 2011, we had
cash, cash equivalents and short-term investments at fair value of $26.7 million and no bank debt, line of credit or equipment facilities.

Operating activities

Our operating activities used cash in the
amount of $5.2 million in each of the three months ended March 31, 2011 and 2010. Cash used in the three months ended March 31, 2011 resulted primarily from a net loss of $5.9 million and net changes in operating assets and liabilities of
$0.3 million offset by non-cash adjustments. Cash used of $0.3 million from the net change in operating assets and liabilities included a $1.0 million restructuring charge accrual. The non-cash adjustments resulted primarily from $0.5 million of
depreciation and amortization and $0.4 million of stock-based compensation expense. The increase in cash used attributable to the net changes in operating assets and liabilities was mainly driven by timing differences in accounts receivable,
accounts payable and accrued expenses relating to agent compensation, bonuses, and customer acquisition expenses. Cash used in the three months ended March 31, 2010 resulted primarily from a net loss of $6.2 million increased by changes in
operating assets and liabilities of $0.5 million and offset by non-cash adjustments including $0.6 million of depreciation and amortization and $0.7 million of stock-based compensation expense.

Our primary source of operating cash flow is the collection of net commission income, from escrow companies or similar intermediaries in
the real estate transaction closing process, plus marketing and other revenues. These cash collections are offset by cash payments for operating expenses including agent commissions, payroll taxes, benefits, award programs and expense
reimbursements, as well as for employee compensation, benefits, client acquisition costs and other expenses. Due to the structure of our commission arrangements, our accounts receivable are settled in cash on a short-term basis and our accounts
receivable balances at period end have historically been significantly less than one months net revenues.

Investing activities

Our investing activities provided cash of $7.0 million and $0.4 million in the three months ended March 31, 2011 and 2010, respectively. Cash provided for in the three months ended
March 31, 2011 primarily represents the proceeds from the sale and maturity of short-term investments of $7.4 million less the purchase of property and equipment, including amounts for website development and internal use software. Cash
provided for the three months ended March 31, 2010 represent the net proceeds from the sales and maturity of short-term investments of $0.9 million less the purchase of property and equipment, including amounts for website development and
internal use software.

We typically maintain a minimum amount of cash and cash equivalents for operational purposes and
invest the remaining amount of our cash in investment grade, highly liquid interest-bearing securities which allows for flexibility in the event our cash needs change. During the current economic slowdown, we have retained proceeds from short-term
investments in money market securities and, therefore, maintained higher balances of cash and cash equivalents.

Currently, we
expect our remaining 2011 capital expenditures to be approximately $1.8 million primarily attributable to amounts capitalized for internal-use software and website development as well as expenditures for increased server capacity and software.
In the future, our ability to make significant capital investments may depend on our ability to generate cash flow from operations and to obtain adequate financing, if necessary and available.

Financing activities

Our financing activities were not significant in the three months ended March 31, 2011 and used cash of $0.1 million in the three months ended March 31, 2010. The use of cash for the three
months ended March 31, 2010 represents primarily the repurchase of shares of our common stock in connection with the payment of withholding and payroll taxes due upon vesting of employee restricted stock awards partially offset by the proceeds
from stock option exercises.

Future needs

We believe that our current cash, cash equivalents and short-term investments will be sufficient to fund cash used in our operations,
restructuring and capital expenditures for at least the next twelve months. Our future capital requirements will depend on many factors, including our level of investment in technology and advertising initiatives, our rate of growth in our
geographic markets and possible repurchases of our common stock. In addition, if the current macroeconomic environment and depressed state of the residential real estate market continues or worsens, we may have a greater need to fund our business by
using our cash reserves, which could not continue indefinitely without our raising additional capital.



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We currently have no bank debt or line of credit facilities. In the event that additional
financing is required, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operations and results will likely suffer.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

We lease office space under non-cancelable operating leases with various expiration dates through August 2016. The following table provides summary information concerning our future contractual
obligations and commitments at March 31, 2011.



|                       |  |                        |       |  |              |   |       |              |  |   |                  |  |  |       |    |  |  |   |       | 
|---------------------- |  | ---------------------- | ----- |  | ------------ | - | ----- | ------------ |  | - | ---------------- |  |  | ----- | -- |  |  | - | ----- | 
|                       |  | Payments due by period |      
|                       |  | Less than1 year        |       |  | 1 to 3 years |   |       | 3 to 5 years |  |   | More than5 years |  |  | Total |   
|                       |  | (In thousands)         |      
|Minimum lease payments |  | $                      | 2,475 |  |              | $ | 1,947 |              |  | $ | 446              |  |  | $     | 22 |  |  | $ | 4,890 | 

OFF-BALANCE SHEET ARRANGEMENTS AND
INDEMNIFICATIONS

We do not have any off balance-sheet arrangements, investments in special purpose entities or undisclosed
borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases. Our indemnifications agreements are described in note 7, Commitments and Contingencies of the unaudited condensed consolidated
financial statements.

NON-GAAP MEASURE

The table below shows the trend of Adjusted EBITDA as a percentage of revenue for the periods indicated:



|                       |  |                             |        |    |      |   |        |   
|---------------------- |  | --------------------------- | ------ | -- | ---- | - | ------ | --
|                       |  | Three Months EndedMarch 31, |       
|                       |  | 2011                        |        |    | 2010 |  
|                       |  | (In thousands)              |       
|Net revenue            |  | $                           | 19,745 |    |      | $ | 25,788 |   
|Adjusted EBITDA        |  | $                           | (2,798 | )  |      | $ | (5,010 | ) 
|Adjusted EBITDA margin |  |                             | (14.2  | )% |      |   | (19.4  | )%

We present Adjusted
EBITDA, a non-GAAP financial measure, as a supplemental measure of our performance. We believe Adjusted EDITDA provides useful information regarding the operating results of our core business activity and prospects for the future. We define Adjusted
EBITDA as net income (loss) less interest income plus interest expense, provision for income taxes, depreciation and amortization expense, stock-based compensation and further adjusted to eliminate the impact of certain items that we do not consider
reflective of our ongoing core operating performance.

We present Adjusted EBITDA because we believe it assists investors and
analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are reflective of our core operating performance. In addition, we use Adjusted EBITDA to evaluate our financial
results and business strategies, develop budgets, manage expenditures and as a factor in evaluating managements performance when determining incentive compensation.

Our use of Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:



| |  |  | Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and
Adjusted EBITDA does not reflect any cash requirements for such replacements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | non-cash stock-based compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as
an expense when evaluating our ongoing operating performance for a particular period;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adjusted EBITDA does not reflect the impact of certain cash charges or credits resulting from matters we consider not to be reflective of our core
ongoing operations, and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other companies, including companies in our industry, may calculate Adjusted EBITDA differently than we do, which limits its usefulness as a
comparative measure.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a
substitute for performance measures calculated in accordance with GAAP. When evaluating our performance, Adjusted EBITDA should be considered alongside other financial measures, including net income and our other GAAP results.

The following is a reconciliation of Adjusted EBITDA to the most comparable GAAP measure, net loss for the three months ended
March 31, 2011 and 2010:



|                                 |  |                              |        |   |      |   |        |  
|-------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                 |  | Three Months Ended March 31, |       
|                                 |  | 2011                         |        |   | 2010 |  
|                                 |  | (In thousands)               |       
|Net loss                         |  | $                            | (5,911 | ) |      | $ | (6,219 | )
|Add back                         |  |                              |        |   |      |   |        |  
|Interest income                  |  |                              | (28    | ) |      |   | (89    | )
|Depreciation and amortization    |  |                              | 489    |   |      |   | 603    |  
|Stock-based compensation expense |  |                              | 388    |   |      |   | 695    |  
|Restructuring charges, net       |  |                              | 2,264  |   |      |   |       |  
|                                 |  |                              |        |   |      |   |        |  
|Non-GAAP Adjusted EBITDA         |  | $                            | (2,798 | ) |      | $ | (5,010 | )
|                                 |  |                              |        |   |      |   |        |  



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk:
|------- | -----------------------------------------------------------

Interest rate sensitivity

Our investment policy requires us to invest
funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. We believe this investment
policy is prudent, and helps to reduce, but does not prevent, loss of principal, and results in minimal interest rate exposure on our investments.

As of March 31, 2011 and 2010, our cash and cash equivalents consisted primarily of money market funds and our short-term investments consisted primarily of investment grade, highly liquid
interest-bearing securities. The recorded carrying amounts of cash and cash equivalents approximate fair value due to their short maturities and short-term investments are carried at fair value. The amount of credit exposure to any one issue, issuer
and type of instrument is limited. Our interest income is sensitive to changes in the general level of interest rates in the United States, particularly since the majority of our investments are fixed income investments. If market interest rates
were to increase or decrease immediately and uniformly by 10% from levels at March 31, 2011 and 2010, there would be a negligible increase or decline in fair market value of the portfolio.

Exchange rate sensitivity

We consider our exposure to foreign currency exchange rate fluctuations to be minimal, as we do not have any revenues or expenses
denominated in foreign currencies. We have not engaged in any hedging or other derivative transactions to date.



|Item 4. | Controls and Procedures:
|------- | ------------------------

(a) Disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such items are defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report are effective to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings:
|------- | ------------------

On March 26, 2010, we were named as one of fourteen defendants in a lawsuit filed in United States District Court for the District of Delaware, Smarter Agent LLC v. Boopsie, Inc., et al., by
plaintiff, Smarter Agent LLC. The complaint alleges that the defendants have each infringed on patents owned by Smarter Agent relating to mobile device application technology and seeks unspecified damages and injunctive relief. After completing our
initial investigation of this matter, we do not currently believe that we have infringed on any patent, or that we have any liability for the claims alleged and thus, we intend to vigorously defend against this lawsuit.

We are not currently subject to any other material legal proceedings. From time to time we have been, and we currently are, a party to
litigation and subject to claims incident to the ordinary course of the business. The amounts in dispute in these matters are not material to us, and we believe that the resolution of these proceedings will not have a material adverse effect on the
business, financial position, results of operations or cash flows.



|Item 1A. | Risk Factors:
|-------- | -------------

Our business is subject to a number of risks and uncertainties. Because of risks and uncertainties affecting our operating results and financial condition, past financial performance may not be a reliable
indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. You should consider carefully the risk factors described under Risk Factors in Item 1A of Part I of our
annual report on Form 10-K for our fiscal year ended December 31, 2010. At this time, we are not aware of any material changes to the nature of those risk factors. We intend to set forth material changes to the nature of those risk factors in
our future reports on Form 10-Q as required by Item 1A of Part II thereof. For business, market and other developments in the quarter ended March 31, 2011, please see Item 2 of Part I of this report, Managements Discussion
and Analysis of Financial Condition and Results of Operations.



|Item 5. | Other Information:
|------- | ------------------

Our Insider Trading Compliance Program allows directors, officers and other employees covered under the program to establish, under limited circumstances contemplated by Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended, written programs that permit automatic trading of our stock or trading of our stock by an independent person (such as an investment bank) who is not aware of material inside information at the time of the
trade. As of the filing date of this report, our officers have adopted Rule 10b5-1 trading plans under which a total of about 195,000 shares may be sold in the future. Sales under those plans will be made at various dates and prices, subject to the
terms of the plans. Our additional directors, officers and employees may establish such programs.



|Item 6. | Exhibits:
|------- | ---------

The exhibits listed in the Exhibit Index are filed as a part of this report.



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##### Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.



ZIPREALTY, INC.By:

/s/    David A. RectorDavid A. RectorSenior Vice President and Chief Financial Officer


Date: May 6, 2011



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##### Table of Contents

Exhibit Index



|               |  |                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description                                                                                                                               
|3.1(a)(1)      |  | Certificate of Correction to Amended and Restated Certificate of Incorporation                                                            
|               | 
|3.2(a)(2)      |  | Bylaws                                                                                                                                    
|               | 
|4.1(2)         |  | Form of Common Stock Certificate                                                                                                          
|               | 
|10.1(3)*       |  | Management Incentive Plan  Fiscal Year 2011                                                                                              
|               | 
|31.1           |  | Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934          
|               | 
|31.2           |  | Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934          
|               | 
|32.1           |  | Certification of Chief Executive Officer, as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
|               | 
|32.2           |  | Certification of Chief Financial Officer, as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)



|(1) | Incorporated by reference to the Exhibit 3.1 to the Registrants Current Report on Form 8-K (File No. 000-51002) filed with the Securities and
Exchange Commission on December 16, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the exhibit of the same number to the Registrants Registration Statement on Form S-1 (File No. 333-115657) filed with the
Securities and Exchange Commission on May 20, 2004, as amended.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Exhibit 10.9 to the Registrants Annual Report on Form 10-K (file No. 000-51002) filed with the Securities and Exchange
Commission on March 9, 2011.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Identifies a management contract or compensatory plan of arrangement required to be filed as an exhibit to this report.
|- | -----------------------------------------------------------------------------------------------------------------------



27