TWST: May we start with a short history and overview of your company?

Mr. Lashinsky: ZipRealty was the first company that really took the lead of bringing all of the housing inventory available to consumers and made it available through the Internet, and was the first brokerage to really focus on providing consumers with a superior experience for using the Internet and a better value by giving a rebate. The company started off in 13 markets and has expanded to 35 markets, combining high-end technology, a very consumer-oriented approach to service and focusing on helping home sellers to sell their homes and buyers to find the appropriate home for them.

TWST: How does that differ from the other traditional real estate brokerage companies?

Mr. Lashinsky: There are number of ways that ZipRealty differs from traditional brokerage companies. We'll start with the first one, which is that we're a consumer-oriented company instead of an agent-oriented company. The decisions that are made are always focused around what is the better way for consumers to do this business. So I will give you a couple of pieces that support that. First of all, when consumers buy a home with us they get a 20% rebate back of our commission; we do that because we're able to provide for better value than others. Second, we were the first and, as far as I know, the only national brokerage that has the customer service guarantee. And so if you are unhappy with our service for any reason, we will give you additional cash back for anything. Third is, we continue to invest on the consumer and the Internet side to bring tools that allow consumers to have a better experience than they could have other ways. And some the examples of that would be the ability to search for nearby homes, to put down: here is where I work and I want to see homes within a mile. The ability to search for homes that have had price reductions, so you're seeing homes where the sellers have already taken pricing down, or to see homes that others that have looked at this home have also looked at. So you can see what others that are interested in what you're looking at have done. It's very different from a traditional brokerage model. Finally, ZipRealty has focused on keeping costs down relative to the traditional model, which is focused very heavily on having store locations and storefronts in different places. With ZipRealty, we don't have storefronts. The whole focus is on providing an experience that could be led through the high levels of technology and letting technology be that investment, in place of the brick and mortar expense that a traditional brokerage would have.

TWST: Typically, what value homes do you mostly transact and who is your typical customer?

Mr. Lashinsky: In most of the markets that we've been in until about a year ago, we were just slightly over the average in every market we were in. I would tell you in the last year, we moved a little below the mean as we continued to do more distressed property and more value-oriented property. About 50% of our consumers have been first-time homebuyers. So the people who are looking for their first home, they tend to have a very, very high credit score. They can be Internet-savvy, well educated. There are consumers who believe that they should be partners in the process, not being led around by traditional agents. They don't want an agent to tell them "here is the home that I think you should buy," it is someone who wants to be a partner in the process, someone who has grown up using the Internet and they're very, very self- sufficient in identifying what they want. And what they want is expertise and someone to help them through the rigors of doing a real estate transaction, which is very different from most of the things that you buy. Unlike buying a computer or buying a phone, there are some significant laws, paperwork risk, and a lot of other things that have to go in to making sure that the home is yours and is appropriately handled legally. And they are looking for help in that instead of looking for someone to tell them what home to buy, which is what the traditional model is all about.

TWST: How are you executing your business plan currently, given what is going on in the housing market?

Mr. Lashinsky: We believe that our execution has been superior to anyone else in the industry. We feel like we've done a very, very good job of execution. There is always room for improvement and always ways to continue to get better. But I would tell you, in the third quarter, our volume was up 31%. And if you look at it on a year over year basis, we've continued to grow on a quarter-by-quarter, year-over-year basis, which I don't know that many people or anyone in the industry can talk about. I think we have done that because we've continued to keep the focus on the consumer, what the consumer is looking for or what the consumer wants. And then because we centralize the key functions such as marketing and our product development, we're able to go in and more rapidly deploy those needs and fulfill the consumer demand in a way that a traditional company can't. An example of that is, as REO and foreclosure properties have become more prominent in the last year, we've been able to add those properties to the available inventory we have on our site. We've been able to give our agents access to tools that allow them to find those for consumers in a way that a traditional brokerage would never be able to do.

TWST: Are the barriers to entry into your business model very high?

Mr. Lashinsky: It's two different levels there. I would say that, if you look at it on just a plain level, the barriers aren't very high; it is finding great people and having great resources. However, getting the experience of knowing what consumers are looking for and changing the dynamic in an industry that's been more about the agents than about the consumers, that's a very, very difficult mind shift to make. And then second is the experience that we've developed through all of the interactions that we've had with millions of clients through our Web technology and through the processes we have out there. I think that that barrier is fairly high and then the institutional barrier in this industry is very, very high. Lots of people have tried lots of models. Most of them have not succeeded and the reason they haven't succeeded is that they've not focused enough on execution. And the execution part of this model, like many others, is probably the most difficult; it's probably the hardest barrier. It's probably the best barrier to entry we have.

TWST: Given the decline in home prices as well as the lower commission structure that you have, how do you keep your realtors happy?

Mr. Lashinsky: We keep our realtors happy by providing the one thing that they really want and that's the ability to have leads and to work with clients. Our agents don't spend time going out and trying to find out one or two clients who they want to work with. Our clients are given all the business that they need to work with and we give them all the tools that they need and we give them the resources needed to manage a much more significant database. We provide them with technology and we provide them with significant levels of support and training that they can't get anywhere else. One of the things that we found is that people come in and we're the first place that they have done real estate. They sometimes believe that they can go somewhere else with just the same kind of support. And they'll leave and within a couple of months, the vast majority of them come back and say, "I didn't realize how much I was getting here, I tried to replicate this somewhere else, but I just couldn't do it." So whereas even the home prices are down for everyone, that's not an issue that we deal with, but it's the rebate that is something that we give that nobody else gives and that does affect agent commission. Well, we think that because they are given more volume, because they spend their time taking care of clients instead of looking for clients and because the company pays for all their marketing support, our agents don't spend money on marketing. They are out making money as they close deals, not spending money looking for clients. Those are all advantages we have that keep our agents happy.

TWST: Have you noticed any change in trends after TARP and after the federal regulation and new rules for Fannie Mae and Freddie Mac to encourage home buying?

Mr. Lashinsky: I'll say two things that we've seen actually. First of all, the numbers of deals that are going through FHA and Fannie right now are the highest that we've ever seen in the nine and a half years of the company. So there's definitely been more there and it has had a huge negative effect on jumbo loans. The homes that are over the limits wwere going from conventional to jumbo in every market, and we've seen a real decline there as the requirements have gotten much, much higher and much more aggressive probably good changes that needed to take place. Some of the changes that they've made, requiring that people have to present proof of their income and proof of their ability to buy a home, are probably good things that should have been done before that weren't. And in some cases, getting some people who maybe would have bought a home two years ago and they're not able to buy it right now, we don't think that's a bad thing. It's probably a settling up that needed to occur and I would think that that's a positive that needed to take place and, yes, we're seeing that, but it's not too pronounced.

TWST: What's the competition doing while all this is going on?

Mr. Lashinsky: I think that the competition is in a bunker mentality, kind of lying down or just saying "how do we survive through this time?" We're not seeing much investment, we're not seeing people being aggressive and trying to steal share. Some people are, but it's very, very rare. Most people are in a survival mode and the competition right now is asking, "can I survive this or is this the time for me to exit the business?" We believe this is a fantastic time to get share. There are lots of consumers who are out there still looking to buy. Yes, they are looking at low-priced homes, but there's still a lot of demand out there and we believe that we can do a great job of executing on the demand side while the competition is kind of scared. The famous Warren Buffett quote, "I'm nervous when others are greedy and I'm greedy when others are nervous," well, right now everyone seems to be nervous out there; we think it's a good time to be greedy going after share.

TWST: Would you give us some examples of where you have gained market share?

Mr. Lashinsky: In the first two quarters of 2008, we gained market share in every market we were in. And in the third quarter, there was only one market that we did not gain market share, but everywhere from Los Angeles, San Francisco, Boston, Chicago, Minneapolis, even in places like Miami, Orlando and Texas, we gained share in every one of those markets. And I think that the reason that we're gaining share is that we're continuing to focus on the consumer and we make sure that our agents are available and our agents are able to take care of their demand. If a consumer is looking at a $250,000 REO property, we're going to show them that $250,000 REO property and show them a $250,000 non-REO property and let them make the comparison and help them understand the choices that they are making, but let them make their choice. I'm not sure that everyone in the industry has that thing focused.

TWST: What are your marketing programs to draw potential customers to you? Do you have any collaborations?

Mr. Lashinsky: We don't have any formal partnerships that are out there. We try and be everywhere on the Internet that consumers are where they look obviously. We do a lot with Google, we do a lot with Yahoo, we have partnerships with HomeGain, which is a real estate site that draws a lot of traffic. We have large affiliate partnerships. Our approach is, wherever consumers are going to start their real estate search or their real estate transaction. We are an advertiser on Zillow, for example, we are an advertiser on Trulia. Anywhere where consumers are going to go to start their real estate transaction, we want to be there. We want to get ZipRealty in front of them. We want them to know that when they need help, they need service, they need the best tools available online, in comes ZipRealty and we will take care of them and we'll provide them the best service to helping them buy or sell their home.

TWST: We understand certain geographies are doing better than others. Are you concentrating on those areas? And where would they be?

Mr. Lashinsky: We continue to concentrate everywhere, but we're trying to take better advantage of the areas that are doing well. Some of the areas that are doing well, I think are surprising for most people out there. Some of the markets that I have seen as the strongest gains recently are the markets where home prices have dropped most dramatically and where the REO and foreclosed distressed properties are higher. Some of the examples of that would be the San Gabriel Valley, the Inland Empire, which has had very significant drops in home prices and inventory increases, but the volume has been up, and investors are getting in, and people who were previously priced out of the market for income reasons are able to get back into it. Las Vegas is another market that is showing great strength and is starting to return. Phoenix has been a great market for us. We're seeing good strength there. Investors are actually coming back into the market, which most people forecast wouldn't happen again till about 2010. But investors have come back in as they have found that the home prices are getting down to a more reasonable level and are doing good. Those have been good areas. Areas that continue to be very difficult include Florida. Even as home prices were coming down, there was just such an inventory clot there, and so many new homes built, that continues to be a real challenge. In the last couple of months, Texas went from being a real stronghold for a long period of last year and toward the end of the year it's starting to show some signs of softening and some deterioration, and we're seeing more difficulty in that market than we had previously seen.

TWST: What's the scenario for the next two to three years and your strategy looking forward?

Mr. Lashinsky: For us, the approach is to continue to gain share, focus on providing consumers with superior experience and service, continue to add innovations in a way that allows both consumers to have a better experience as well as to allow our agency to be more effective and more efficient than others. Our approach is to take the model, continue to expand in the markets that we are in, to become a much more well-known brand within that center and to focus on providing a high growth environment where we're able to provide great returns to our investors, a great place to work for our employees and just a fantastic experience for our clients.

TWST: Would you comment on your corporate culture and the expertise of the key members of your management team, including yourself?

Mr. Lashinsky: I think that we have a corporate culture that's collegial. It's very, very action-oriented. It's been a process of how we go about making things different and better today. Our focus on the team is everything should be up for discussion and everyone should be able to tell us everything. We are very, very team based, meaning that if we have a marketing decision, someone from HR might be in on it, sales will definitely be in on it, someone from operations will be in on it, finance will be a part of it, everybody gets a say in what we're doing because we believe in the collective wisdom of the crowd and we think we have a very strong crowd and a great wisdom. In terms of the management team that we have, my background is mostly from well- known brand companies. My longest experience was with General Mills where I was heading up innovation works for them. I worked on brands such as Pop Secret and Chex Mix, Yoplait yogurt in the Betty Crocker division, working on consumer oriented approaches. From there I went to Del Monte where I headed up the innovation groups for them. So my background is primarily working with marketing companies and with consumer oriented companies. Our CFO, Lanny Baker, is a great addition to our team. He has been with us just a little over a month now and his background comes from working with the major banks; most recently he was at Monster.com as a CFO where he helped them go through some challenging times and continued their growth pattern in a way that I think everyone was very impressed with. Previous to that, he had worked at Citibank, Solomon Smith Barney and Morgan Stanley and was kind of the Internet expert there and he brings the ability to focus on kind of how you bring strategy into an Internet and to grow in business and leverage that and scale back to a greater level. Genni Combes is a key member of our team. Previously she was at H&Q as an analyst and she brings the ability to combine information and technology into actionable, executable activities that we have. Bob Yakominich is the head of our sales. He was previously Vice President of Sales at American Express and then moved from there to Citysearch and was a VP of Sales at Citysearch and was the one who led them through a heavy growth period and really understands how you take a sales approach and combine strong technology skills with really good sales skills and match those two. Bill Sinclair was previously the President of Wyndham Asia and oversaw the running of the Asian operations. He is really an operational expert who brings the approach of how you manage 35 different offices that are spread out, that all need to do functions together and collectively, and now allows us to centralize a lot of functions that allows us to be a lot more efficient than everybody else. The collective wisdom of this crowd is such that we have great experts from a variety of different fields, but everyone's focus is on how we provide consumers a better experience and how we make our agents more efficient and effective. And that unity of focus is probably one of the great strengths we have in the team.

TWST: How does the balance sheet look to you? Do you expect any major changes in the near term?

Mr. Lashinsky: This is strictly an undercapitalized business where most of the competitors we have really don't have a balance sheet. So we feel like we are in a great situation relative to all of our other competitors that are out there. We have a little more than $50 million of cash on hand. We understand the need to protect the cash and use it appropriately and wisely in the best interest of our shareholders. We're doing what we need to do to protect; we've been very aware of the costs. A little over a year ago, we saw heavy decline coming in the market and we made some pretty significant cost reductions. We continued to be cost conscious last year and we feel like we're in a very good position from a cash standpoint and the balance sheet that we have.

TWST: Do you feel your company is well understood by investors? Do you think you're getting credit for where you are compared to where your competition is?

Mr. Lashinsky: No, honestly I don't think that investors really understand. I think there are a number of reasons. First of all, it's hard to get comps for business. There is nobody else who is doing exactly what we're doing or doing it the way we're doing it. And so it's a very difficult comp. It's great to be compared to Charles Schwab and that's a difficult comparison, it's great to be compared to eBay, but that's a whole different business from what we're doing. We don't think that we are the same as Realogy, which was out there in public for a short period of time, because they don't have the employee model and they don't have the technology we have. So it's hard to get the comps out there. Second, I think it's easy for people to see the Website and get an understanding of that, but the value that we provide to our agents through the backend tools and the resources we have in that backend is something that I don't think that most investors really understand or think about. And then third is the approach that we're taking relative to everyone else in the industry; I don't think it's apparent. It's different the level of difference in this modeling and the model of approach that we're taking first, being a consumer-oriented company because everyone talks about it, but very few people were really are living up to it, which is really different. I think in an industry where everybody is private, everyone is small, there is nobody else who is public or has been before, I think it's very hard to get a good understanding in that environment. To be the only company at the top, we are doing what we are doing; I think that makes it more difficult for investors to really have a good handle on us.

TWST: How are you addressing that issue?

Mr. Lashinsky: The first thing we did, as I mentioned just a minute ago, is we brought on Lanny Baker as our CFO and one of the things where I think Lanny will really be able to help us is having a great understanding of what the financial world is looking for both from an investor standpoint as well as from an analyst standpoint and the ability to communicate with them in a way that will help them better understand exactly what the differences are and what the strategic advantages that we have. Second is, we've been focusing really heavily on execution in the last 12 to 18 months. We're going to continue to focus on execution, but during that same time, we're going to try and be a little more visible and aware and we're going to try and do a better job of going out and making sure that our messages are appropriate and people understand it. We're also going to spend a little more time making sure that investors get a chance to ask us the questions that are important to them and they get a chance to understand what's important to us and where we're going.

TWST: What are some of the benchmarks that you will be targeting for success over the next year or two? What should investors look for in your balance sheet?

Mr. Lashinsky: I think, for us, the key is to continue to focus on whether we gaining share in this market as the market may continue to decline. For us, the goal is to continue to gain market share in every market that we're in and continue to have growth in terms of both transaction volumes and in terms of revenues that we do to show we'll have a loss this year, they'll have a significantly smaller loss next year than we have this year. Those are some of the key metrics that they should be looking for next year. And the ability to continue to grow our consumer base and our users who are using the site we are the largest brokerage Website in the whole real estate transaction business. We are only in 35 markets and we are the third or fourth most trafficked real estate site in the entire Internet in the real estate sector, and that's in only 35 markets. So if we can continue to do that, do a good job there, continue to drive consumer adoption and consumer usage of our site, we can continue to make progress on those indicators. I think that those will be really good benchmarks.

TWST: Do you have any final thoughts?

Mr. Lashinsky: We think it's going to be an interesting 2009. It's going to be an interesting housing market. Hopefully, we'll see some stability here in the near term. But we're going to continue to focus on executing, we're going to continue to focus on taking care of clients and we'll use that as our approach and our foundation to grow the business.

TWST: Thank you. (WT)

PAT LASHINSKY President & CEO ZipRealty, Inc. 2000 Powell Street Suite 300 Emeryville, CA 94608 (510) 735-2600 (800) 225-5947 TOLL FREE (510) 735-2850 FAX www.ziprealty.com e-mail: team@ziprealty.com