10-Q

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 June 30, 2010

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 ¨	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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 20,490,635 shares of common stock outstanding at July 30, 2010.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		4
Item 1.	Unaudited Condensed Consolidated Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	4
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	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	27
Item 4.	Controls and Procedures	27
PART II — OTHER INFORMATION		28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
SIGNATURE		29
EXHIBIT INDEX		30

2

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,” “should,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “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 and expansion;

• our future advertising and marketing activities;

• our future investment in technology, and

• the impact of transitioning certain of our agents from employees to independent contractors.

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, 2009, 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,” “ZipAgent,” “ZipNotify,” 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 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

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements:

ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	June 30, 2010			December 31, 2009
Assets
Current assets
Cash and cash equivalents	$	21,512		$	23,737
Short-term investments		18,361			20,397
Accounts receivable, net of allowance of $83 and $29, respectively		3,016			1,603
Prepaid expenses and other current assets		2,327			2,726
Total current assets		45,216			48,463
Restricted cash		90			110
Property and equipment, net		3,188			3,390
Intangible assets, net		44			58
Other assets		264			371
Total assets	$	48,802		$	52,392
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,640		$	1,620
Accrued expenses and other current liabilities		8,915			8,815
Total current liabilities		11,555			10,435
Other long-term liabilities		242			327
Total liabilities		11,797			10,762
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock: $0.001 par value; 100,000 shares authorized; 24,037 and 23,930 shares issued and 20,502 and 20,445 shares outstanding, respectively		24			24
Additional paid-in capital		154,317			152,440
Common stock warrants		4			4
Accumulated other comprehensive loss		(8	)		(153	)
Accumulated deficit		(99,819	)		(93,375	)
Treasury stock at cost: 3,535 and 3,485 shares, respectively		(17,513	)		(17,310	)
Total stockholders’ equity		37,005			41,630
Total liabilities and stockholders’ equity	$	48,802		$	52,392

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

4

ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net transaction revenues	$	36,415		$	31,702		$	61,256		$	53,054
Marketing and other revenues		1,169			432			2,116			792
Net revenues		37,584			32,134			63,372			53,846
Operating expenses
Cost of revenues		20,995			18,909			36,301			32,743
Product development		2,257			2,344			4,672			4,656
Sales and marketing		11,645			10,237			22,411			20,181
General and administrative		2,990			3,278			6,599			6,757
Total operating expenses		37,887			34,768			69,983			64,337
Loss from operations		(303	)		(2,634	)		(6,611	)		(10,491	)
Other income (expense), net
Interest income		78			200			167			509
Other income (expense), net		—			1			—			1
Total other income (expense), net		78			201			167			510
Loss before income taxes		(225	)		(2,433	)		(6,444	)		(9,981	)
Provision for income taxes		—			—			—			—
Net loss	$	(225	)	$	(2,433	)	$	(6,444	)	$	(9,981	)
Net loss per share:
Basic and diluted	$	(0.01	)	$	(0.12	)	$	(0.32	)	$	(0.50	)
Weighted average common shares outstanding:
Basic and diluted		20,338			20,140			20,381			20,136

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

5

ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2010			2009
Cash flows from operating activities
Net loss	$	(6,444	)	$	(9,981	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,156			1,285
Amortization of intangible assets		14			15
Stock-based compensation expense		1,738			2,079
Provision for doubtful accounts		54			—
Amortization of short-term investment premium (discount)		310			(17	)
Loss on disposal of property and equipment		—			7
Changes in operating assets and liabilities
Accounts receivable		(1,467	)		(720	)
Prepaid expenses and other current assets		399			385
Other assets		107			288
Accounts payable		1,020			541
Accrued expenses and other current liabilities		146			2,296
Other long-term liabilities		(85	)		(40	)
Net cash used in operating activities		(3,052	)		(3,862	)
Cash flows from investing activities
Restricted cash		20			20
Proceeds from sale and maturity of short-term investments		1,871			21,440
Purchases of property and equipment		(919	)		(746	)
Net cash provided by investing activities		972			20,714
Cash flows from financing activities
Proceeds from stock option exercises		58			6
Acquisition of treasury stock		(203	)		(30	)
Net cash used in financing activities		(145	)		(24	)
Net increase (decrease) in cash and cash equivalents		(2,225	)		16,828
Cash and cash equivalents at beginning of period		23,737			18,500
Cash and cash equivalents at end of period	$	21,512		$	35,328

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

6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements as of June 30, 2010 and 2009 and for the three and six 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 and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010, or any other period. The unaudited condensed consolidated balance sheet at December 31, 2009 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, 2009.

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 June 30, 2009 and 2008 accounted for approximately 26.3% and 28.3% of annual net transaction revenues in 2009 and 2008, respectively. Net transaction revenues during the six months ended June 30, 2009 and 2008 accounted for approximately 43.9% and 47.4% of annual net transaction revenues in 2009 and 2008, respectively.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued new accounting guidance related to the disclosure requirements for fair value measurements and provides clarification for existing disclosures requirements, which amends the use of the fair value measures and the related disclosures. This new guidance requires new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements. The Company adopted the provisions of this new guidance and its adoption did not have any significant impact on the Company’s 2010 consolidated financial position, results of operations and cash flows.

3. SHORT-TERM INVESTMENTS AND FAIR VALUE MEASUREMENTS

At June 30, 2010, short-term investments were classified as available-for-sale securities, except for restricted cash, and were reported at fair value as follows:

	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(In thousands)
Money market securities	$	16,118	$	1	$	—		$	16,119
Asset backed		2,000		—		(11	)		1,989
Mortgage backed		617		3		—			620
Corporate obligations		5,465		—		(11	)		5,454
US Government and agency obligations		9,288		10		—			9,298
Total	$	33,488	$	14	$	(22	)	$	33,480

7

	June 30, 2010
	(In thousands)
Recorded as:
Cash equivalents	$	15,119
Short-term investments		18,361
	$	33,480

At June 30, 2010 the fair value of the Company’s investments that had been in an unrealized loss position for over twelve months was $2.0 million and the related unrealized loss was approximately $11,000. The Company evaluates its investments periodically for possible other-than-temporary impairment and records impairment charges equal to the amount that the carrying value of its available-for-sale securities exceeds the estimated fair market value of the securities as of the evaluation date, if appropriate. The Company considers various factors such as the length of time and extent to which fair value has been below cost basis and the financial condition of the issuer. The Company has no requirement or intent to sell the securities and expects to recover up to (or beyond) the initial cost of the investment. The evaluation of asset and mortgage backed securities involves many factors including, but not limited to, lien position, loan to value ratios, fixed vs. variable rate, amount of collateralization, delinquency rates, credit support, and servicer and originator quality. Based on its evaluation, the Company has determined that the unrealized loss is temporary and, accordingly, no impairment charge on investments has been recorded in the three and six months ended June 30, 2010. The factors evaluated in this determination may change and an impairment charge may be recorded in the future.

The estimated fair value of short-term investments classified by date of contractual maturity at June 30, 2010 was as follows:

	June 30, 2010
	(In thousands)
Due within one year or less	$	30,871
Due after one year through two years		—
Due after two years through four years		2,609
	$	33,480

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 its investments in money market funds and available-for-sale securities. At June 30, 2010 there were no liabilities within the scope of the accounting standards.

At June 30, 2010, our available-for-sale short-term investments, measured at fair value on a recurring basis, by level within the fair value hierarchy were as follows:

	Level 1		Level 2		Level 3		Total
	(In thousands)
Money market securities	$	16,119	$	—	$	—	$	16,119
Asset backed		—		1,989		—		1,989
Mortgage backed		—		620		—		620
Corporate obligations		—		5,454		—		5,454
US Government and agency obligations		—		9,298		—		9,298
Total	$	16,119	$	17,361	$	—	$	33,480

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.

8

4. 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 June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands, except per share data)
Numerator:
Net loss	$	(225	)	$	(2,433	)	$	(6,444	)	$	(9,981	)
Denominator:
Shares used to compute EPS basic and diluted:		20,338			20,140			20,381			20,136
Net loss per share basic and diluted:	$	(0.01	)	$	(0.12	)	$	(0.32	)	$	(0.50	)

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 Ended June 30,		Six Months Ended June 30,
	2010	2009	2010	2009
	(In thousands)
Options to purchase common stock	4,596	5,241	4,446	5,226
Warrants to purchase common stock	3	3	3	3
Nonvested common stock	192	274	189	251
Total	4,791	5,518	4,638	5,480

5. 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 and six months ended June 30, 2010 and 2009 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.

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2010	2009	2010	2009
Expected volatility	47%	45%	46 - 47%	44 - 45%
Risk-free interest rate	2.0 - 2.4%	0.5 - 2.5%	2.0 - 2.7%	0.5 - 2.5%
Expected life (years)	5.5 - 6.1	5.5 - 6.1	5.5 - 6.1	5.5 - 6.1
Expected dividend yield	0%	0%	0%	0%
Weighted-average fair value of options granted during the period	$1.62	$1.41	$2.23	$1.32

9

Stock-based compensation expense was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Cost of revenues	$	107	$	81	$	170	$	193
Product development		125		95		224		171
Sales and marketing		264		292		416		542
General and administrative		547		618		928		1,173
Total stock-based compensation expense		1,043		1,086		1,738		2,079
Tax effect on stock-based compensation		—		—		—		—
Net effect on net income	$	1,043	$	1,086	$	1,738	$	2,079

The Company utilizes the hosted services of a third-party to automate the administration of its employee equity programs and calculate its stock-based compensation expense. The Company noted that stock-based compensation expense was incorrectly calculated and recorded an immaterial correction of an error of $246,000 relating to prior periods during the three months ended June 30, 2010.

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 June 30, 2010, there was $4.9 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 2.5 years. As of June 30, 2010, there was $0.6 million 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 0.8 years.

Stock option activity

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

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
	(In thousands)					(In thousands)
Outstanding at December 31, 2009	4,195		$	4.00	6.97	$	2,495
Options granted	582			4.70
Options exercised	(32	)		1.80
Options forfeited/cancelled/expired	(159	)		5.11
Outstanding at June 30, 2010	4,586		$	4.07	6.92	$	546
Exercisable at June 30, 2010	1,867		$	4.47	5.72	$	532

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 $2.61 on June 30, 2010, and the exercise price for the options that were in-the-money at June 30, 2010. The total number of in-the-money options exercisable as of June 30, 2010 was 496,000. Total intrinsic value of options exercised was $74,000 and $10,000 for the six months ended June 30, 2010 and 2009, respectively.

The Company settles employee stock option exercises with newly issued common shares.

10

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 and six months ended June 30, 2010 was $180,000, and $364,000, respectively. Stock-based compensation expense related to restricted stock for the three and six months ended June 30, 2009 was $255,000, and $469,000, respectively.

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

	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	(In thousands)
Nonvested at December 31, 2009	225		$	4.29
Shares granted	75
Shares vested	(132	)
Shares forfeited	—
Nonvested at June 30, 2010	168		$	5.02

6. 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 June 30, 2010. 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 taxable loss for the six months ended June 30, 2010, the Company has not recorded a tax provision or benefit.

7. 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 Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
Net loss	$	(225	)	$	(2,433	)	$	(6,444	)	$	(9,981	)
Other comprehensive income (loss):
Change in accumulated unrealized gain (loss) on available-for-sale securities, net of tax		71			112			145			52
Comprehensive loss	$	(154	)	$	(2,321	)	$	(6,299	)	$	(9,929	)

11

8. COMMITMENTS AND CONTINGENCIES

The Company leases office space under non-cancelable operating leases with various expiration dates through June 2016.

Future minimum lease payments under non-cancelable operating leases at June 30, 2010 were as follows, in thousands:

Year ending December 31,	Operating Leases
2010	$	1,350
2011		2,577
2012		1,457
2013		741
2014		409
Thereafter		184
Total minimum lease payments	$	6,718

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. The Company is in the initial stages of investigating this matter, but it 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.

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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, 2009, as such disclosure may be revised under “Risk Factors” in Item 1A of Part II of this report. 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 that uses an innovative combination of a comprehensive online presence, robust proprietary technology and knowledgeable local agents to offer our clients fast, responsive and transparent service. Our award-winning, user-friendly website gives our users 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 platform and customer relationship tools, helps us to enhance customer service while increasing agent efficiency and reducing costs, allowing us to pass on significant savings to consumers as permitted by law.

We have grown our business rapidly since our inception in 1999. In 2009, we ranked as the 5^th largest residential real estate brokerage in the nation as ranked by closed transaction sides, accordingly to REAL Trends, an industry research firm. Also in 2009, our website received more traffic than any other residential real estate brokerage in the nation, according to Hitwise, a provider of online competitive information. As of August 1, 2010, we had wholly owned operations in 35 major markets serviced by our team of over 3,000 local, licensed sales agents, and we had approximately 2.6 million active registered users who had accessed our website within the last year. All of our markets were opened prior to 2009 with the exception of Portland, which we opened in April 2009.

We typically share a portion of our commissions with our buyer clients in the form of a cash rebate, and typically represent our seller clients at fees below those offered by most traditional brokerage companies in our markets. Generally, our seller clients 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. In the Oregon portion of our Portland market (which includes portions of both Oregon and Washington), the payment of cash rebates is not currently permitted by law, so we have adjusted our value proposition for our buyer clients by offering an enhanced client satisfaction guarantee.

Our agents show properties to our buyers, list and market properties for our sellers, negotiate transactions and handle closing details. In most of our markets, our agents are employees to whom we provide training, marketing support, technology, customer leads and other employee benefits that are typically not provided by residential real estate brokerages. However, in February 2010, we ceased to employ agents in New York, and instead engaged agents as independent contractors in that state. We did likewise in Nevada in June 2010. Also, we are currently adopting an independent contractor model in California, and we expect that all of our sales agents in California will be independent contractors by September 2010. Through our modified business models in those states, we hope to deliver excellent customer service and enable independent contractor agents to be productive and efficient with minimal management oversight. We currently do not have plans to make a similar change in other markets, although we continually evaluate all aspects of our business and operational model and could make changes in other markets in the future.

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. 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 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. 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.

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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, as could poor consumer credit ratings caused by past and future mortgage defaults. 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, including the federal government’s purchase of troubled assets from financial institutions, as well as the offering of tax credits to home buyers. However, there can be no assurance that these activities will have a positive, meaningful and lasting impact. In addition, as these activities end, the demand for housing, the availability of credit and interest rates could be negatively affected. For 2010, we currently believe that the health of the residential housing market will be significantly affected by the availability of credit, shadow inventory levels, and interest rates, as well as any persistence in high unemployment levels.

Current residential real estate market conditions. The residential real estate market remains volatile and unpredictable both nationally and regionally. We have seen indications of a reduced demand for home purchases and an increased interest in home rentals. According to Hitwise, in June 2010 online share of visits to the Business and Finance – Real Estate category declined by about 20% year-over-year, despite share of visit gains of about 30% to the top rental sites within this same category. We believe this drop in demand for home purchases has been caused by the lingering macroeconomic pressures discussed above, and may have been exacerbated by the expiration in the second quarter of 2010 of the federal tax credit program for home buyers, which is discussed in more detail below. Although the housing market has been bolstered by historically low mortgage rates, any future rise in interest rates could deter future home buyers.

Recent indicators of national market conditions include the following:

• Volume: According to the National Association of REALTORS^®, or NAR, existing home sales in the second quarter of 2010 were stronger year-over-year in all major regions of the country, but gains over prior-year levels slowed by the end of the quarter, with sales in June 2010 rising 9.8% from June 2009. Home purchases were apparently bolstered by low mortgage rates, which reached a record low in June 2010 for a 30-year, conventional, fixed-rate mortgage, as well by as the federal tax credit program for homebuyers, which is discussed below under “Fluctuations in quarterly profitability.” However, the tax credit program was available only for transactions that were opened by April 30, 2010, and the opening of transactions declined considerably after that deadline passed. According to NAR, in May 2010 its pending home sales index dropped 30.0% from the previous month and 15.9% from May 2009. This decline in pending transactions should translate into fewer closed transactions in the third quarter of 2010. It is unclear to what extent the federal tax credit program increased true demand for housing, and to what extent it simply accelerated the decision to purchase a home for some buyers who otherwise would have transacted in the second half of 2010 or later.

• Price: According to NAR, in June 2010, the median existing home sales price remained relatively flat from June 2009, increasing by 1.0%. We believe that some of this price stabilization was caused by the stabilization in the transaction mix with respect to distressed properties, as discussed below, and any future shift in the transaction mix back towards distressed properties could have a negative impact on prices. Some of this price stabilization may also have been caused by the federal tax credit program, and it remains uncertain whether, or how, the expiration of that program will affect home sales prices in the third quarter of 2010. In addition, 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: Inventory levels appear to have stabilized. According to NAR, in April 2010, the total inventory of homes available for sale increased year-over-year for the first time in 21 months, and by June 2010, inventory levels had increased by more than 4% year-over-year. According to NAR, foreclosures have been feeding into inventory at a fairly steady pace, which we believe has helped to support 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 second quarter of 2010, the percentage of our sales transactions composed of distressed properties was approximately 31%, which was less than the 37% realized in the previous quarter and substantially lower than the peak of 53% realized in the first quarter of 2009. We believe this decrease may have been caused, in part, by buyers preferring standard transactions over purchases of distressed properties, which typically take longer to complete, in order to meet the deadlines for the federal tax credit program. We currently expect that this percentage may rise again in 2010, particularly as banks expand their efforts to sell shadow inventory through short sales, as discussed below. 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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• 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. Recently, we have perceived a change in the handling by banks of distressed properties, whereby banks appear to be pursuing more short sales potentially to avoid the foreclosure process. We believe this trend will continue through at least the remainder of 2010 due, in part, to the federal Home Affordable Foreclosure Alternatives Program, or HAFA. HAFA was designed to promote the use of short sales instead of foreclosures for certain borrowers by offering incentives to lenders and by streamlining the short sale process.

Fluctuations in quarterly profitability. We have experienced fluctuations in profitability from period to period. Our profitability has been impacted by various factors including seasonality, new market expansion, legal settlements, government intervention and ongoing market challenges, including changes in the availability of home mortgage credit.

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 complete the purchase by September 30, 2010 (this deadline was extended from the original deadline of June 30). We believe that this program had a positive effect on home sales volume in the first half of 2010, particularly in the second quarter. However, we also believe that the program may have accelerated the decision to purchase a home for some buyers and, therefore, may result in fewer sales than otherwise would have closed in the second half of 2010 and later.

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 progressively increase from January through the summer months, then gradually slow 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, periodic business cycles or other factors. Generally, when economic times 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, 2009, 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 revenues from commissions earned as agents for buyers and sellers in residential real estate transactions. We recognize commission revenues upon closing of a sale and purchase transaction, net of any rebate, 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. We recognize non-commission revenues from our other business relationships, including marketing agreements, advertising, referral and other income, as the fees are earned from the other party. We recognize revenue only when there is persuasive evidence an arrangement exists, the sales price is fixed or determinable, the transaction has been completed and collectability of the resulting receivable is reasonably assured.

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Internal-use software and website development costs

We account for internal-use software and website development costs, including the development of our ZipAgent 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 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 June 30, 2010.

Recently issued accounting pronouncements

See Note 2 titled “Recent Accounting Pronouncements” of our Notes to Unaudited Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

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RESULTS OF OPERATIONS

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

	Three Months Ended June 30,						Six Months Ended June 30,
Consolidated statements of operations data (unaudited)	2010			2009			2010			2009
	(In thousands, except per share data)
Net transaction revenues	$	36,415		$	31,702		$	61,256		$	53,054
Marketing and other revenues		1,169			432			2,116			792
Net revenues		37,584			32,134			63,372			53,846
Operating expenses:
Cost of revenues		20,995			18,909			36,301			32,743
Product development		2,257			2,344			4,672			4,656
Sales and marketing		11,645			10,237			22,411			20,181
General and administrative		2,990			3,278			6,599			6,757
Total operating expenses		37,887			34,768			69,983			64,337
Loss from operations		(303	)		(2,634	)		(6,611	)		(10,491	)
Other income (expense):
Interest income		78			200			167			509
Other income (expense), net		—			1			—			1
Total other income (expense), net		78			201			167			510
Loss before income taxes		(225	)		(2,433	)		(6,444	)		(9,981	)
Provision for income taxes		—			—			—			—
Net loss	$	(225	)	$	(2,433	)	$	(6,444	)	$	(9,981	)
Net loss per share:
Basic and diluted	$	(0.01	)	$	(0.12	)	$	(0.32	)	$	(0.50	)
Weighted average common shares outstanding:
Basic and diluted		20,338			20,140			20,381			20,136

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

	Three Months Ended June 30,				Six Months Ended June 30,
Consolidated statements of operations data (unaudited)	2010		2009		2010		2009
Net transaction revenues	96.9	%	98.7	%	96.7	%	98.5	%
Marketing and other revenues	3.1		1.3		3.3		1.5
Net revenues	100.0		100.0		100.0		100.0
Operating expenses:
Cost of revenues	55.9		58.8		57.3		60.8
Product development	6.0		7.3		7.4		8.6
Sales and marketing	31.0		31.9		35.4		37.5
General and administrative	8.0		10.2		10.4		12.5
Total operating expenses	100.9		108.2		110.5		119.4
Loss from operations	(0.9	)	(8.2	)	(10.5	)	(19.4	)
Other income (expense), net
Interest income	0.2		0.6		0.3		0.9
Other income (expense), net	—		—		—		—
Total other income (expense), net	0.2		0.6		0.3		0.9
Loss before income taxes	(0.7	)	(7.6	)	(10.2	)	(18.5	)
Provision for income taxes	—		—		—		—
Net loss	(0.7	)%	(7.6	)%	(10.2	)%	(18.5	)%

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Comparison of the three months ended June 30, 2010 and 2009

Other operating data

	Three Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
Number of markets (1)		35		35		—
Number of transactions closed during the period (2)
Buyer representation		6,391		5,628		763		13.6	%
Seller representation		709		389		320		82.3	%
Total		7,100		6,017		1,083		18.0	%
Average net revenue per transaction (3)	$	5,129	$	5,269	$	(140	)	(2.7	)%
Number of ZipAgents at end of the period		3,251		3,172		79		2.5	%

(1) We previously presented information about our existing or mature markets compared to our new or developing markets to provide an additional perspective on our business. We significantly curtailed new market expansion during the years ended December 31, 2009 and 2008 and currently have no plans to open any new markets during the year ending 2010. Accordingly, we believe the presentation of total market operations provides an appropriate perspective on our business until such time, if any, we expand into new markets. Our markets include:

Atlanta, GA	Jacksonville, FL	Richmond, VA
Austin, TX	Las Vegas, NV	Sacramento, CA
Baltimore, MD	Los Angeles, CA	Salt Lake City, UT
Boston, MA	Miami, FL	San Diego, CA
Charlotte, NC	Minneapolis, MN	San Francisco Bay Area, CA
Chicago, IL	Naples, FL	Seattle, WA
Dallas, TX	Orange County, CA	Tampa, FL
Denver, CO	Orlando, FL	Tucson, AZ
Fresno/Central Valley, CA	Palm Beach, FL	Virginia Beach, VA
Greater Philadelphia Area, PA	Phoenix, AZ	Washington, DC
Hartford, CT	Portland, OR	Westchester County/Long Island, NY
Houston, TX	Raleigh-Durham, NC

(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 primarily 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 Ended June 30,				Increase (Decrease)		Percent Change
	2010		2009
	(In thousands)
Net transaction revenues	$	36,415	$	31,702	$	4,713	14.9	%

The increase in net transaction revenues of $4.7 million or 14.9% was driven primarily by an increase in the number of transactions closed during the period partially offset by a decrease in average net revenue per transaction. The year over year increase in the number of transactions closed of 1,083 or 18.0%, was partially attributable to an increase of 320 or 82.3% sell side transactions as these seller representation transactions increased to 10.0% of total transactions closed from 6.5% in the quarter ended June 30, 2009. The year over year decrease in average net revenue per transaction was $140 or 2.7% compared to the year over year decrease in average net revenue per transaction of $1,112 or 17.4% last year. We believe year over year decreases in average net revenue per transaction have moderated because of a combination of factors including fewer non standard transactions as foreclosure, bank real estate owned (“REO”) and short sale transactions, which are typically transacted at reduced sales prices, declined to 31.1% of transactions in the quarter ended June 30, 2010 from 42.7% in the quarter ended June 30, 2009. Depressed housing prices continue, and ongoing tightness in the availability of consumer mortgage financing particularly impacts the sale of higher priced housing.

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We expect our net transaction revenues will be relatively flat to down for the remainder of 2010, compared to the same period last year, due to continued uncertainty in transaction volumes and net revenue per transaction. Net revenue per transaction is impacted by housing prices, and particularly, by the number of foreclosure, bank REO and short sale transactions.

Marketing and other revenues

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

	Three Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
Marketing and other revenues
Markets	$	118	$	125	$	(7	)	(5.8	)%
Corporate		1,051		307		744		242.4	%
Total	$	1,169	$	432	$	737		170.4	%

The increase in corporate marketing and other revenues for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009 was primarily attributable to fees from a mortgage services marketing agreement with Bank of America, which commenced in June 2009, and advertising on our website.

We expect our marketing and other income will increase for the remainder of 2010 compared to the same period last year attributable to increased advertising on our website.

Cost of revenues

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. Agent commissions are generally paid on market net revenues which include net transaction revenues plus referral and other revenues generated by our ZipAgents.

	Three Months Ended June 30,				Increase (Decrease)		Percent Change
	2010		2009
	(In thousands)
Cost of revenues	$	20,995	$	18,909	$	2,086	11.0	%

The increase in cost of revenues for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009 was primarily related to the overall increase in net revenues on which we pay agent commissions. Agent commissions, payroll taxes and benefits increased by $2.9 million or 18.6% primarily attributable to the mix of agent commissions paid and the increase in the net revenues on which these costs are based. Agent performance and tenure based programs, benefits and expense reimbursements decreased by approximately $0.8 million or 24.7% primarily attributable to changes made to the qualification standards of some of these programs and a decrease in the number of qualifying agents. Overall, cost of revenues as a percentage of market net revenues decreased by about 1.9 percentage points.

We expect our cost of revenues for the remainder of 2010 compared to the same period last year will be relatively flat to down. Our cost of revenues primarily moves in relation to the market net revenues on which commissions and related costs are based. Cost of revenues may increase or decrease primarily as a result of the mix of commission rates paid to our ZipAgents.

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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 operating expenses.

	Three Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
Product development	$	2,257	$	2,344	$	(87	)	(3.7	)%

The decrease in product development expenses for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009 was due primarily to a decrease in depreciation expense of $0.1 million. As a percentage of net revenues, product development expenses decreased by 1.4 percentage points for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009.

We expect our product development expenses, as a percentage of net revenues, to be comparable for the remainder of 2010 compared to the same period last 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.

	Three Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
Sales and marketing
Markets	$	9,885	$	8,428	$	1,457		17.3	%
Regional/corporate sales support and marketing		1,760		1,809		(49	)	(2.7	)%
Total	$	11,645	$	10,237	$	1,408		13.7	%

Sales and marketing expenses increased in our markets by approximately $1.5 million or 17.3% principally attributable to increases in salaries and benefits of $0.4 million and customer acquisition and marketing costs of $1.1 million. As a percentage of market net revenues, market sales and marketing expenses were 27.1% in the current year compared to 26.5% in the prior year.

Regional/corporate sales support and marketing expenses were essentially flat compared to last year. As a percentage of net revenues, regional sales support and marketing expenses were approximately 4.7% in the current year compared to 5.6% in the prior year.

We expect our market level and regional/corporate sales and marketing expenses, as a percentage of net revenues, to be comparable for the remainder of 2010 compared to the same period last year.

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 Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
General and administrative	$	2,990	$	3,278	$	(288	)	(8.8	)%

The decrease in general and administrative expenses for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009 was principally due to an decrease in salaries and benefits of $0.3 million. The decrease in salaries and benefits was primarily due to the reversal of accrued management incentive plan payments as the performance metrics of the plan are not expected to be achieved. As a percentage of net revenues, general and administrative expenses were 8.0% for the current year compared to 10.2% in the prior year.

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We expect our general and administrative expenses, as a percentage of net revenues, to be comparable for the remainder of 2010 compared to the same period last year.

Interest income

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

	Three Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
Interest income	$	78	$	200	$	(122	)	(61.0	)%

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 quarter ended June 30, 2010 compared to the quarter ended June 30, 2009 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 account 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 since June 30, 2009.

Comparison of the six months ended June 30, 2010 and 2009

Other operating data

	Six Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
Number of markets (1)		35		35		—
Number of transactions closed during the period (2)
Buyer representation		10,918		9,582		1,336		13.9	%
Seller representation		1,085		606		479		79.0	%
Total		12,003		10,188		1,815		17.8	%
Average net revenue per transaction (3)	$	5,103	$	5,207	$	(104	)	(2.0	)%
Number of ZipAgents at end of the period		3,251		3,172		79		2.5	%

(1) We previously presented information about our existing or mature markets compared to our new or developing markets to provide an additional perspective on our business. We significantly curtailed new market expansion during the years ended December 31, 2009 and 2008 and currently have no plans to open any new markets during the year ending 2010. Accordingly, we believe the presentation of total market operations provides an appropriate perspective on our business until such time, if any, we expand into new markets. Our markets include:

Atlanta, GA	Jacksonville, FL	Richmond, VA
Austin, TX	Las Vegas, NV	Sacramento, CA
Baltimore, MD	Los Angeles, CA	Salt Lake City, UT
Boston, MA	Miami, FL	San Diego, CA
Charlotte, NC	Minneapolis, MN	San Francisco Bay Area, CA
Chicago, IL	Naples, FL	Seattle, WA
Dallas, TX	Orange County, CA	Tampa, FL
Denver, CO	Orlando, FL	Tucson, AZ
Fresno/Central Valley, CA	Palm Beach, FL	Virginia Beach, VA
Greater Philadelphia Area, PA	Phoenix, AZ	Washington, DC
Hartford, CT	Portland, OR	Westchester County/Long Island, NY
Houston, TX	Raleigh-Durham, NC

(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.

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Net transaction revenues

Net transaction revenues consist primarily 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.

	Six Months Ended June 30,				Increase (Decrease)		Percent Change
	2010		2009
	(In thousands)
Net transaction revenues	$	61,256	$	53,054	$	8,202	15.5	%

The increase in net transaction revenues of $8.2 million or 15.5% was driven primarily by an increase in the number of transactions closed during the period partially offset by a decrease in average net revenue per transaction. The year over year increase in the number of transactions closed of 1,815 or 17.8%, was partially attributable to an increase of 479 or 79.0% sell side transactions as these seller representation transactions increased to 9.0% of total transactions closed from 5.9% in the period ended June 30, 2009. The year over year decrease in average net revenue per transaction was $104 or 2.0% compared to the year over year decrease in average net revenue per transaction of $1,200 or 18.7% last year. We believe year over year decreases in average net revenue per transaction have moderated because of a combination of factors including fewer non standard transactions as foreclosure, bank real estate owned (“REO”) and short sale transactions, which are typically transacted at reduced sales prices, declined to 33.6% of transactions in the six months ended June 30, 2010 from 46.8% in the six months ended June 30, 2009. Depressed housing prices continue, and ongoing tightness in the availability of consumer mortgage financing particularly impacts the sale of higher priced housing.

Marketing and other revenues

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

	Six Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
Marketing and other revenues
Markets	$	222	$	224	$	(2	)	(1.0	)%
Corporate		1,894		568		1,326		233.1	%
Total	$	2,116	$	792	$	1,324		166.9	%

The increase in corporate marketing and other revenues for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was primarily attributable to fees from a mortgage services marketing agreement with Bank of America, which commenced in June 2009, and advertising on our website.

Cost of revenues

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. Agent commissions are generally paid on market net revenues which include net transaction revenues plus referral and other revenues generated by our ZipAgents.

	Six Months Ended June 30,				Increase (Decrease)		Percent Change
	2010		2009
	(In thousands)
Cost of revenues	$	36,301	$	32,743	$	3,558	10.9	%

The increase in cost of revenues for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was primarily related to the overall increase in net revenues on which we pay agent commissions. Agent commissions, payroll taxes and benefits increased by $4.8 million or 18.7% primarily attributable to the mix of agent commissions paid and the increase in the net revenues on which these costs are based. Agent performance and tenure based programs, benefits and expense reimbursements decreased by approximately $1.4 million or 21.9% primarily attributable to a decrease in the number of qualifying agents. Amortization of capitalized ZAP technology costs increased by $1.0 million or 36.0%. Overall, cost of revenues as a percentage of market net revenues decreased by about 2.5 percentage points.

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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 operating expenses.

	Six Months Ended June 30,				Increase (Decrease)		Percent Change
	2010		2009
	(In thousands)
Product development	$	4,672	$	4,656	$	16	0.3	%

Product development expenses for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 were essentially flat. Increases in salaries and benefits of approximately $0.1 million were offset by a decrease in depreciation expense of $0.1 million. As a percentage of net revenues, product development expenses decreased by 1.2 percentage points for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

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.

	Six Months Ended June 30,				Increase (Decrease)		Percent Change
	2010		2009
	(In thousands)
Sales and marketing
Markets	$	18,672	$	16,610	$	2,062	12.4	%
Regional/corporate sales support and marketing		3,739		3,571		168	4.7	%
Total	$	22,411	$	20,181	$	2,230	11.0	%

Sales and marketing expenses increased in our markets by approximately $2.1 million or 12.4% principally attributable to increases in salaries and benefits of $0.7 million and customer acquisition and marketing costs of $1.4 million. As a percentage of market net revenues, market sales and marketing expenses were 30.4% in the current year compared to 31.2% in the prior year.

Regional/corporate sales support and marketing expenses increased by approximately $0.2 million or 4.7% and consisted primarily of general operating expenses including sales incentive and management meetings. As a percentage of net revenues, regional/corporate sales support and marketing expenses were approximately 5.9% in the current year compared to 6.6% in the prior year.

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.

	Six Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
General and administrative	$	6,599	$	6,757	$	(158	)	(2.3	)%

The decrease in general and administrative expenses for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 was principally due to a decrease in salaries and benefits of $0.2 million primarily because management incentive plan payments were not accrued as the performance metrics of the plan are not expected to be achieved. As a percentage of net revenues, general and administrative expenses were 10.4% for the current year compared to 12.5% in the prior year.

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Interest income

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

	Six Months Ended June 30,				Increase (Decrease)			Percent Change
	2010		2009
	(In thousands)
Interest income	$	167	$	509	$	(342	)	(67.1	)%

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 six months ended June 30, 2010 compared to the six months ended June 30, 2009 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 account 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 since June 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for 2010 are our cash, cash equivalents and short-term investments. As of June 30, 2010, we had cash, cash equivalents and short-term investments at fair value of $39.9 million and no bank debt, line of credit or equipment facilities.

Operating activities

Our operating activities used cash in the amount of $3.1 and $3.9 million in the six months ended June 30, 2010 and 2009, respectively. Cash used in the six months ended June 30, 2010 resulted primarily from a net loss of $6.4 million increased by net changes in operating assets and liabilities of $0.1 million and decreased by non-cash adjustments. The non-cash adjustments resulted primarily from $1.2 million of depreciation and amortization and $1.7 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 six months ended June 30, 2009 resulted primarily from a net loss of $10.0 million decreased by changes in operating assets and liabilities of $2.8 million and by non-cash adjustments including $1.3 million of depreciation and amortization and $2.1 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 ZipAgent 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 $1.0 million and $20.7 million in the six months ended June 30, 2010 and 2009, respectively. Cash provided for in the six months ended June 30, 2010 primarily represents the proceeds from the sale and maturity of short-term investments of $1.9 million less the purchase of property and equipment, including amounts for website development and internal use software. Cash provided for the six months ended June 30, 2009 represent the net proceeds from the sales and maturity of short-term investments of $21.4 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 2010 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.

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Financing activities

Our financing activities used $0.1 million in the six months ended June 30, 2010 and were not significant in the six months ended June 30, 2009. The use of cash for the six months ended June 30, 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.

As of June 30, 2010, we had one warrant outstanding for the purchase of an aggregate of 3,284 shares of our common stock at an exercise price of $18.27 per share; that warrant is currently exercisable at the option of the holder and expires in August 2010.

Future needs

We believe that our current cash, cash equivalents and short-term investments will be sufficient to fund cash used in our operations 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 into new 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.

We routinely explore our options for offering services relating to the purchase, sale and ownership of a home, including services related to title insurance, escrow, mortgage, home warranty insurance and property and casualty insurance (including auto insurance), which we refer to as core services. We expect that some of our core services will be offered through affiliates (including wholly owned subsidiaries), while others will be offered through joint ventures or promoted through marketing arrangements with independent third parties, such as title companies, banks and insurance companies. We may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing.

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 June 2016. The following table provides summary information concerning our future contractual obligations and commitments at June 30, 2010.

	Payments due by period
	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
	(In thousands)
Minimum lease payments	$	2,684	$	3,123	$	831	$	80	$	6,718

OFF-BALANCE SHEET ARRANGEMENTS

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.

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NON-GAAP MEASURE

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
Net revenue	$	37,584		$	32,134		$	63,372		$	53,846
Adjusted EBITDA	$	1,307		$	(893	)	$	(3,703	)	$	(7,111	)
Adjusted EBITDA margin		3.5	%		(2.8	)%		(5.8	)%		(13.2	)%

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.

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 and six months ended June 30, 2010 and 2009:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
Net loss	$	(225	)	$	(2,433	)	$	(6,444	)	$	(9,981	)
Add back
Interest income		(78	)		(200	)		(167	)		(509	)
Depreciation and amortization		567			654			1,170			1,300
Stock-based compensation expense		1,043			1,086			1,738			2,079
Non-GAAP Adjusted EBITDA	$	1,307		$	(893	)	$	(3,703	)	$	(7,111	)

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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 June 30, 2010 and 2009, 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 June 30, 2010 and 2009, 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 sales 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 June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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. We are in the initial stages of investigating this matter, but 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, 2009. 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 June 30, 2010, 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, none of our directors or executive officers has adopted a Rule 10b5-1 trading plan, but they may do so in the future, and we believe that our additional officers and employees may have established such programs or may do so in the future.

Item 6. Exhibits:

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

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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/    Charles C. Baker
	Charles C. Baker
	Executive Vice President and Chief Financial Officer

Date: August 4, 2010

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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)*	Form of Director and Officer Indemnification Agreement, revised May 2010
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) Filed herewith.

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

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EX-10.1

Exhibit 10.1

ZIPREALTY, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is effective as of                                 , 2010, by and between ZipRealty, Inc., a Delaware corporation (the “Company”), and the indemnitee listed on the signature page hereto (“Indemnitee”).

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities;

WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by Delaware law;

WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company’s directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and

WHEREAS, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Delaware law.

NOW, THEREFORE, in consideration for Indemnitee’s services to the Company, the Company and Indemnitee hereby agree as follows:

1. Certain Definitions.

(a) “Change in Control” shall mean:

(1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this part (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company or any acquisition from other stockholders where (A) such acquisition was approved in advance by the Board of Directors of the Company and (B) such acquisition would not constitute a change of control under part (3) of this definition, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of part (3) of this definition; or

(2) Individuals who, as of the date hereof, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the stockholders, was approved by a vote of at least two thirds (2/3) of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or

(3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (ii) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or

(4) Approval by the stockholders of a complete liquidation or dissolution of the Company.

(b) “Claim” shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other, and whether brought by a third party, a government agency, the Company or its Board of Directors or a committee thereof, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism.

(c) References to the “Company” shall include, in addition to the Company, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which the Company (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(d) “Covered Event” shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity.

(e) “Disinterested Director” shall mean a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the Indemnitee.

(f) “Expenses” shall mean any and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement, actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement.

(g) “Expense Advance” shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgment in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim; provided, however, that Indemnittee shall have no right to any payment of Expense Advances in the event Indemnitee pleads guilty to willful misconduct.

(h) “Independent Legal Counsel” shall mean a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee’s rights under Section 2(d) hereof.

(i) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(j) “Reviewing Party” shall have the meanings as set forth in Section 2(d).

(k) “Section” refers to a section of this Agreement unless otherwise indicated.

2. Indemnification.

(a) Indemnification of Expenses. Subject to the provisions of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by Delaware law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses.

(b) Review of Indemnification Obligations. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid in indemnifying Indemnitee; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon.

(c) Indemnitee Rights on Unfavorable Determination; Binding Effect. If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation, within one (1) year of the Reviewing Party’s determination, seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee.

(d) Reviewing Party; Change in Control. The determination of Indemnitee’s entitlement hereunder shall be made by the Reviewing Party as follows: (1) if requested by the Indemnitee, by Independent Legal Counsel, or (2) if no request is made by the Indemnitee for a determination by Independent Legal Counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors, or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Legal Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, or (iii) if a quorum of Disinterested Directors so directs, by the stockholders of the Company. In the event the determination of entitlement to indemnification is to be made by Independent Legal Counsel at the request of the Indemnitee, the Independent Legal Counsel shall be selected by the Board of Directors unless there shall have occurred within two years prior to the date of the commencement of the proceeding for which indemnification is claimed a “Change of Control” (as defined in Section 1(a)), in which case the Independent Legal Counsel shall be selected by the Indemnitee unless the Indemnitee shall request that such selection be made by the Board of Directors. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. If it is so determined that Indemnitee is entitled to indemnification, payment to the Indemnitee shall be made within ten (10) days after such determination.

(e) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.

3. Expense Advances.

(a) Obligation to Make Expense Advances. Upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor by the Company, the Company shall make Expense Advances to Indemnitee. Expense Advances shall be made without regard to Indemnitee’s ability to repay the Expense Advances. Expense Advances shall be made without regard to Indemnitee’s ultimate entitlement to indemnification under this Agreement unless and until the matter of entitlement has been finally adjudicated by court order or judgment from which no further right of appeal exists. As set forth in Section 4(d) of this Agreement, the Company’s obligation to pay Expense Advances shall terminate upon a conviction, plea of nolo contendere or its equivalent.

(b) Form of Undertaking. Any written undertaking by the Indemnitee to repay any Expense Advances hereunder shall be unsecured and no interest shall be charged thereon.

(c) Determination of Reasonable Expense Advances. The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.

4. Procedures for Indemnification and Expense Advances.

(a) Timing of Payments. All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by Delaware law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than thirty (30) days after such written demand by Indemnitee is presented to the Company; unless the Reviewing Party has given a written opinion to the Company that Indemnittee is not entitled to indemnification under applicable law.

(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee’s right to be indemnified or Indemnitee’s right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Secretary of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Indemnitee’s failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement, except to the extent that the Company is adversely affected by such failure. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

(c) Right of Indemnitee to Bring Suit. If Indemnitee is not paid in full by the Company within thirty (30) days after a written notice has been received by the Company, the Indemnitee may, at any time within the year following the thirty (30) days of notice, bring suit in any court in the State of California or the State of Delaware against the Company to recover the unpaid amount of the Expenses and, if successful in whole or in part, the Indemnitee shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action that the Indemnitee has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Company to indemnify the Indemnitee for the amount claimed. The burden of proving such a defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, Independent Legal Counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Company (including its Board of Directors, Independent Legal Counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(d) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law; provided, however, that the Company’s obligation to pay Expense Advances shall terminate upon a conviction, plea of nolo contendere or its equivalent. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

(e) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.

(f) Selection of Counsel. In the event the Company shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; provided, that (i) Indemnitee shall have the right to employ Indemnitee’s separate counsel in any such Claim at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee’s separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. In addition, if there exists a potential, but not an actual, conflict of interest between the Company and Indemnitee, the actual and reasonable legal fees and expenses incurred by Indemnitee for separate counsel retained by Indemnitee to monitor the Claim (so that such counsel may assume Indemnitee’s defense if the conflict of interest between the Company and Indemnitee becomes an actual conflict of interest) shall be deemed to be Expenses that are subject to indemnification hereunder. The existence of an actual or potential conflict of interest, and whether such conflict may be waived, shall be determined pursuant to the rules of attorney professional conduct and applicable law.

(g) Payment Directions. To the extent payments are required to be made hereunder, the Company shall, in accordance with Indemnitee’s request (but without duplication), (i) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses.

(h) Interest on Unpaid Amounts. If any payment to be made by the Company to Indemnitee hereunder is delayed by more than ninety (90) days from the date the duly prepared request for such payment is received by the Company, interest shall be paid by the Company to Indemnitee at the legal rate under Delaware law for amounts which the Company indemnifies or is obligated to indemnify for the period commencing with the date on which Indemnitee actually incurs such Expense or pays such judgment, fine or amount in settlement and ending with the date on which such payment is made to Indemnitee by the Company.

5. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by Delaware law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, the Company’s Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 10(a) hereof.

(b) Nonexclusivity. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise; provided, however, that this Agreement shall supersede any prior indemnification agreement between the Company and Indemnittee. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity.

6. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company’s Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.

7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

9. Liability Insurance; Tail Coverage. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. In the event of a Change in Control or the Company’s becoming insolvent (including being placed into receivership or entering the federal bankruptcy process and the like), the Company shall maintain in force any and all insurance policies then maintained by the Company in providing insurance (directors’ and officers’ liability, fiduciary, employment practices or otherwise) in respect of Indemnitee, for a period of six (6) years thereafter.

10. Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Excluded Action or Omissions. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law.

(b) Claims Initiated by Indemnitee. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or cross-claim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company’s Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be.

(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous.

(d) Certain Exchange Act Claims. To indemnify Indemnitee in connection with any Claim for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any similar successor statute or any similar provisions of state statutory law or common law, or (ii) any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); provided, however, that to the fullest extent permitted by applicable law and to the extent Indemnitee is successful on the merits or otherwise with respect to any such Claim, the Expenses actually and reasonably incurred by Indemnitee in connection with any such Claim shall be deemed to be Expenses that are subject to indemnification hereunder.

(e) Settlement of Claims.

(1) The Company shall not be liable to indemnify Indemnittee under this Agreement or otherwise for any amounts paid in settlement of any proceeding effected without the Company’s written consent, such consent not to be unreasonably withheld; provided, however, that if a Change of Control has occurred (other than a Change of Control approved by a majority of the directors on the Board who were directors immediately prior to such Change of Control), the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if Independent Legal Counsel has approved the settlement. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company’s liability hereunder shall not be excused if participation in the proceeding by the Company was barred by this Agreement.

(2) The Company shall not be required to obtain the consent of Indemnitee for the settlement of any Claim that the Company has undertaken to defend if the Company assumes full and sole responsibility for each such settlement; provided, however, that the Company shall be required to obtain Indemnitee’s prior written approval, which shall not be unreasonably withheld, before entering into any settlement that (1) does not grant Indemnitee a complete release of liability, (2) would impose any penalty or limitation on Indemnitee, or (3) would admit any liability or misconduct by Indemnitee.

11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company’s request. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

13. Expenses Incurred in Action Relating to Enforcement or Interpretation. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys’ fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous.

14. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.

16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by Delaware law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

17. Choice of Law. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

18. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver, except as specifically provided herein.

20. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. The parties understand and agree that any prior agreement between the Company and Indemnitee concerning indemnification is superseded in its entirety by this Agreement and is null and void and of no further force or effect.

21. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities.

22. Contribution.

(a) If the indemnification provided in Section 2 is unavailable in whole or in part and may not be paid to Indemnitee for any reason other than those set forth in Section 10, then with respect to any Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such Claim), to the fullest extent permitted by applicable law, the Company, in lieu of indemnifying Indemnitee, shall pay, in the first instance, the entire Expense incurred by Indemnitee in connection with the Claim without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.

(b) With respect to a Claim brought against directors, officers, employees or agents of the Company (other than Indemnitee), to the fullest extent permitted by applicable law, the Company shall indemnify Indemnitee from any contribution sought by any such persons (other than Indemnitee) who may be jointly liable with Indemnitee, to the same extent Indemnitee would have been entitled to such indemnification under this Agreement if such Claim had been brought against Indemnitee.

23. Company Position. The Company shall be precluded from asserting, in any proceeding brought for purposes of establishing, enforcing or interpreting any right to indemnification under this Agreement, that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.

24. No Imputation. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company or the Company itself shall not be imputed to Indemnitee for purposes of determining any rights under this Agreement.

25. Determination of Good Faith. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based (a) on the records or books of account, including financial statements, of the Company or such other enterprise for which Indemnitee has served at the Company’s request (collectively referred to in this Section as the “Company’), or (b) on information supplied to Indemnitee by the officers of the Company in the course of their duties, or (c) on the advice of legal counsel for the Company or its Board of Directors or any committee thereof, or (d) on information or records given or reports made to the Company by an independent certified public accountant or by an appraiser, investment banker, compensation consultant, or other expert selected with reasonable care by the Company or its Board of Directors or any committee thereof. The provisions of this Section shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct. Whether or not the provisions of this Section are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company.

* * *

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.

ZIPREALTY, INC.

By:
Name:	J. Patrick Lashinsky
Title:	Chief Executive Officer and President
Address:	2000 Powell Street, Suite 300 Emeryville, California 94608

AGREED TO AND ACCEPTED:

INDEMNITEE

(Print Name)

(Signature)

(Address)

(Address)

EX-31.1

Exhibit 31.1

CERTIFICATION

I, J. Patrick Lashinsky, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZipRealty, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2010	By:	/s/    J. Patrick Lashinsky
		J. Patrick Lashinsky
		Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Charles C. Baker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZipRealty, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2010	By:	/s/    Charles C. Baker
		Charles C. Baker
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Patrick Lashinsky, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ZipRealty, Inc. on Form 10-Q for the three months ended June 30, 2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of ZipRealty, Inc.

Date: August 4, 2010	By:	/s/    J. Patrick Lashinsky
		J. Patrick Lashinsky
		Chief Executive Officer and President

A signed original of this written statement required by Section 906 has been provided by ZipRealty, Inc. and will be retained by ZipRealty, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles C. Baker, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of ZipRealty, Inc. on Form 10-Q for the three months ended June 30, 2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of ZipRealty, Inc.

Date: August 4, 2010	By:	/s/    Charles C. Baker
		Charles C. Baker
		Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided by ZipRealty, Inc. and will be retained by ZipRealty, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.