SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

COSTAR GROUP, INC.

Payment of Filing Fee (Check the appropriate box):

      x No fee required.

      o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

      (1) Title of each class of securities to which transaction applies:

      (2) Aggregate number of securities to which transaction applies:

	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

      (4) Proposed maximum aggregate value of transaction:

      (5) Total fee paid:

	o	Fee paid previously with preliminary materials:

	o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

      (1) Amount Previously Paid:

      (2) Form, Schedule or Registration Statement No.:

      (3) Filing Party:

      (4) Date Filed:

May 1, 2002

Dear Stockholder:

      You are cordially invited to attend the 2002 Annual Meeting of Stockholders of CoStar Group, Inc., to be held at 11:00 a.m. on Tuesday, June 18, 2002 at 2 Bethesda Metro Center, Bethesda, Maryland 20814.

      At the Annual Meeting, you will be asked to elect six directors, to ratify the appointment of Ernst & Young LLP as the Company’s independent public auditors for 2002 and to approve an amendment to the CoStar Group, Inc. 1998 Stock Incentive Plan. The accompanying Notice of 2002 Annual Meeting of Stockholders and Proxy Statement describe these matters.

      The Board of Directors recommends that stockholders vote in favor of each of these proposals.

      Whether or not you plan to attend the meeting in person, please return your executed proxy card in the enclosed postage prepaid and addressed envelope, vote over the Internet, or vote over the phone, and your shares will be voted in accordance with your wishes. Please review the instructions on the proxy card regarding each of these voting options.

	Sincerely,
	ANDREW C. FLORANCE
	President and Chief Executive Officer

COSTAR GROUP, INC.

May 1, 2002

NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS

       The 2002 Annual Meeting of Stockholders (the “Annual Meeting”) of CoStar Group, Inc. (“we” or the “Company”) will be held at 2 Bethesda Metro Center, Bethesda, Maryland 20814, at 11:00 a.m. on Tuesday, June 18, 2002, for the following purposes:

	1.	To elect six directors to hold office until the next Annual Meeting of Stockholders, or until their respective successors are elected and qualified;
	2.	To ratify the appointment of Ernst & Young LLP as the Company’s independent public auditors for 2002;
	3.	To approve an amendment to the CoStar Group, Inc. 1998 Stock Incentive Plan; and
	4.	To transact any other business properly presented before the Annual Meeting.

      The Board of Directors has fixed Thursday, April 25, 2002 as the record date for determining stockholders entitled to receive notice of and to vote at the Annual Meeting (or any adjournment or postponement of it). Only stockholders of record at the close of business on that date are entitled to notice of and to vote at the Annual Meeting.

      WE INVITE YOU TO ATTEND THE ANNUAL MEETING IN PERSON, BUT WHETHER OR NOT YOU EXPECT TO ATTEND, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED, VOTE OVER THE INTERNET, OR VOTE OVER THE PHONE AS PROMPTLY AS POSSIBLE.

	By Order of the Board of Directors
	CARLA J. GARRETT
	Secretary

COSTAR GROUP, INC.

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

      The Board of Directors of CoStar Group, Inc. (“we” or the “Company”) solicits your proxy for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 11:00 a.m. on Tuesday, June 18, 2002, at 2 Bethesda Metro Center, Bethesda, Maryland 20814, and at any adjournment or postponement of the Annual Meeting.

      Our headquarters are located at 2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814. We are mailing this Proxy Statement and the accompanying proxy card to our eligible stockholders on or about May 1, 2002.

OUTSTANDING SECURITIES, VOTING RIGHTS AND QUORUM

      At the close of business on the record date, Thursday April 25, 2002, we had 15,727,383 shares of common stock outstanding and entitled to vote at the Annual Meeting. Each outstanding share of common stock is entitled to one vote on each proposal.

      The presence at the Annual Meeting, in person or by proxy, of a majority of the outstanding shares as of the record date constitutes a quorum (the minimum number of shares required to take action) for the meeting. Both abstentions and broker non-votes will be counted as shares present for purposes of obtaining a quorum, but will be disregarded in calculating the total votes on each of the proposals.

      The required vote and the calculation method for each of the matters scheduled for consideration at the Annual Meeting are as follows:

      Item 1 — Election of Directors. Each outstanding share of common stock is entitled to cast one vote for up to six nominees. The six nominees who receive the most votes will be elected as directors.

      Item 2 — Ratification of the Appointment of Independent Public Auditors. For stockholders to approve this proposal, the number of votes cast in favor must exceed the number of votes cast against.

      Item 3 — Approval of Amendment to the CoStar Group, Inc. 1998 Stock Incentive Plan. For stockholders to approve this proposal, the number of votes cast in favor must exceed the number of votes cast against.

PROXY VOTING AND REVOCATION

      If you have Internet access, you may submit your proxy from any location in the world by following the “Vote by Internet” instructions on the proxy card. If you live in the United States or Canada, you may submit your proxy by following the “Vote by Phone” instructions on the proxy card. You may also vote by signing your proxy card, or if your shares are held in street name, the voting instruction card included by your broker or nominee, and mailing it in the enclosed, postage prepaid and addressed envelope. If you properly complete and execute your proxy card and return it, vote over the Internet, or vote over the phone before the Annual Meeting:

	•	Your shares will be voted in accordance with your instructions.
	•	For any items for which you do not provide instructions, your shares will be voted “FOR” the item, as recommended by the Board of Directors.

      You may revoke your proxy at any time before it is voted by:

	•	delivering to the Corporate Secretary written notice that you are revoking your proxy;
	•	submitting a properly-executed proxy bearing a later date; or
	•	attending the Annual Meeting and voting in person. (If you are not the owner of record, but rather hold your shares through a broker or bank, you should take appropriate steps to obtain a legal proxy from the owner of record if you wish to vote at the Annual Meeting.)

ATTENDING THE MEETING

      Only stockholders, their proxy holders, and our invited guests may attend the meeting. If you intend to attend the Annual Meeting, please mark your proxy card accordingly. Beneficial owners whose ownership is registered under another party’s name and who plan to attend the meeting in person should obtain an admission ticket in advance by sending written requests, along with proof of share ownership, such as a bank or brokerage firm account statement, to: Mark A. Klionsky, Senior Vice President of Marketing and Corporate Communications, CoStar Group, Inc., 2 Bethesda Metro Center, Tenth Floor, Bethesda, Maryland 20814. Beneficial owners who do not present valid admission tickets at the Annual Meeting or who have not pre-registered will be admitted only upon verification of share ownership, such as a bank or brokerage firm account statement and photo identification, at the registration counter at the meeting.

ITEM 1

ELECTION OF DIRECTORS

      The Board has fixed the number of directors constituting the Board at six. The Board has nominated five of the current directors for re-election. John Simon, who currently serves as a Director, will leave that office when his successor has been elected. The Board has nominated Christopher J. Nassetta to replace Mr. Simon. The persons named as proxy holders on the proxy card will vote your shares FOR each of the six nominees unless you instruct otherwise on your proxy card.

      All of our directors will serve until the next Annual Meeting of Stockholders or until their successors are elected and qualified. If any of the nominees should become unable to serve prior to the Annual Meeting, proxies that do not withhold authority to vote for directors may be voted for any other nominee or nominees selected by the Board unless the Board votes to reduce the size of the Board to the actual number of nominees. In no event may proxies be voted for a greater number of persons than the number of nominees named. Information about each of the nominees appears below.

Nominees for the Board of Directors

      Michael R. Klein has been the Chairman of our Board of Directors since he and Mr. Florance founded the Company in 1987. He has been a partner of the law firm of Wilmer, Cutler & Pickering since 1974. Mr. Klein serves as a director (and a member of the executive committee) of Perini Corporation, and as a director of SRA International, Inc. and Precept, Inc. Mr. Klein is 60 years old.

      Andrew C. Florance is also one of our founders and has served as our President and as a director since 1987 and as our Chief Executive Officer since 1995. Prior to founding the Company, Mr. Florance held primary responsibility for developing the first generation of software products for Federal Filings, an SEC Form 13-D tracking service, which was later acquired by Dow Jones. Mr. Florance was a co-founder of a commercial real estate information trade association (REI-NEX) and served on its board from 1993 to 1996. Mr. Florance is 38 years old. Mr. Florance received his B.A. in economics from Princeton University.

      David Bonderman is principal of Texas Pacific Group and an indirect general partner of TPG Partners I, L.P. and TPG Partners II, L.P. Mr. Bonderman currently serves on the boards of directors of Continental Airlines, Inc., Ducati Motor Holding S.p.A., Denbury Resources, Inc., ProQuest Company, Ryanair Holdings, plc, Washington Mutual, Inc., Oxford Health Plans, Inc., Magellan Health Services, Inc., ON Semiconductor Corporation, Seagate Technology, Inc., J. Crew Group, Inc. and Paradyne Networks, Inc. Mr. Bonderman serves as a member of the compensation committees of Ducati Motor Holding S.p.A.,

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      Warren H. Haber has been, for more than twenty-five years, Chairman of the Board and Chief Executive of Founders Equity, Inc. and its affiliates, private investment concerns engaged in the business of identifying businesses for acquisition in principal transactions and managing such businesses for their own accounts. Mr. Haber currently serves on the board of directors of Warnex Ltd. and Fiber Optic One Ltd. He has served as one of our directors since 1995. Mr. Haber is 61 years old.

      Josiah O. Low III has been since August 1, 2001 a Venture Partner of Catterton Partners IV L.P. Prior to that, Mr. Low worked for 16 years at the investment-banking firm of Credit Suisse First Boston (formerly Donaldson, Lufkin & Jenrette), where he most recently served as a Managing Director/ Senior Advisor. Prior to joining Credit Suisse First Boston in 1985, Mr. Low worked at Merrill Lynch, Pierce, Fenner & Smith and was a founding Managing Director of the Merrill Lynch Capital Market Group in 1977. He serves on the board of directors of Centex Development Co. Mr. Low has served on our Board of Directors since 1999. Mr. Low is 62 years old.

      Christopher J. Nassetta has been the President and Chief Executive Officer of Host Marriott Corporation since May 2000. Mr. Nassetta joined Host Marriott in 1995 as Executive Vice President and was elected the Chief Operating Officer in 1997. Prior to joining Host Marriott, Mr. Nassetta served as President of Bailey Realty Corporation from 1991 until 1995, and he had previously served as Chief Development Officer and in various other positions with The Oliver Carr Company from 1984 through 1991. Mr. Nassetta serves on the board of directors of Host Marriott. He also serves on the board of trustees and the compensation committee of Prime Group Realty Trust and as a member of the McIntire School of Commerce Advisory Board for the University of Virginia. Mr. Nassetta, who is 39 years old, has not previously served on our Board of Directors.

      THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THESE NOMINEES.

ITEM 2

RATIFICATION OF THE APPOINTMENT

      The Audit Committee recommended, and the Board approved, the appointment of Ernst & Young LLP as independent public auditors for the Company for 2002. The Board would like stockholders to ratify this appointment, even though ratification is not legally necessary. If stockholders do not ratify this appointment, the Board may reconsider such appointment.

      Ernst & Young LLP has served as independent auditors for the Company, its subsidiaries, and its predecessors since 1994. A representative from Ernst & Young LLP will attend the annual meeting, may make a statement, and will be available to respond to appropriate questions.

      The table below sets forth the fees that Ernst & Young LLP billed the Company for the audit of the Company’s financial statements for the fiscal year ended December 31, 2001 and review of financial statements for quarterly periods within that fiscal year, and all other fees Ernst & Young LLP has billed the Company for services rendered during the fiscal year ended December 31, 2001:

      Ernst & Young LLP did not provide any financial information systems design and implementation services to the Company for the fiscal year ended December 31, 2001.

      THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFYING THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC AUDITORS.

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ITEM 3

APPROVAL OF AMENDMENT TO OUR 1998 STOCK INCENTIVE PLAN

      The Board of Directors has adopted, subject to stockholder approval, an amendment to the CoStar Group, Inc. 1998 Stock Incentive Plan (the “Plan”). This amendment modifies the automatic grant of options awarded to individuals serving on the Company’s Board of Directors.

      The Plan currently provides that at the first meeting of the Board immediately following each annual meeting of stockholders, each non-employee director serving on the Board of Directors receives an annual automatic grant of options to purchase 1,000 shares of common stock of the Company. These options vest and become exercisable in full one year from the date of grant, as long as such director is still serving on our Board of Directors on such vesting date.

      We are asking our stockholders to approve an amendment to the Plan so that we can increase the number of options automatically granted annually to non-employee directors serving on the Board of Directors, so that we can begin providing automatic grants of options to the Chairman of the Board of Directors, and so that we can begin providing automatic grants of options to the Chairmen of each of our Board Committees.

      Under the amendment to the Plan, at the first Board meeting after each annual meeting of stockholders, the Chairman of the Board of Directors and each non-employee director serving on the Board of Directors will receive an automatic grant of options to purchase 5,000 shares of common stock of the Company. These options will have an exercise price equal to the Fair Market Value (as defined in the Plan) of the common stock on the date of grant, and one-fourth of the option will vest and become exercisable on each anniversary of the date of grant, as long as such director is still serving on our Board of Directors on such vesting date.

      In addition, the amendment to the Plan provides that at the first Board meeting after each annual meeting of stockholders, the Chairman of each Board committee of the Company will receive an automatic grant of options to purchase 1,000 shares of common stock of the Company. These options will have an exercise price equal to the Fair Market Value of the common stock on the date of grant, and one-fourth of the option will vest and become exercisable on each anniversary of the date of grant, as long as such director is still serving on our Board of Directors on such vesting date.

      We believe that the amendment to the automatic grant feature is in the best interests of the Company and its stockholders for several reasons. First, providing more options to Board members will help us attract and retain outstanding and highly skilled individuals to serve on our Company’s Board of Directors, which is critical to the success of our business. Second, extending the vesting of options to four years from one year requires directors to continue their service on the Board for at least four years before they can exercise all of their options. Third, automatically granting options to the Chairmen of each committee of the Board provides an incentive for a Board member to serve as a Chairman of a Board committee.

      Should the amendment to the Plan not be approved by our stockholders, the current provisions in the Plan with respect to automatic grants of options to non-employee directors shall remain in effect.

Material Terms of the Plan, as Amended

      The following is a summary of the material terms of the Plan, as amended. A copy of the Plan is available to any stockholder upon written request.

      Our Board of Directors adopted the Plan before our initial public offering, and our stockholders approved it in June 1998. The purpose of the Plan is to advance the best interests of the Company and its subsidiaries by providing employees, officers and directors with an additional incentive to contribute to the growth and success of the Company by increasing their proprietary interest in the Company. The Plan also provides the Company with an additional tool to attract, reward and retain executives and critical employees and to compensate directors for their time spent serving on the Board. Additionally, granting key employees and directors stock options and restricted stock under the Plan closely aligns the interests of directors and key employees with the interests of the Company’s stockholders.

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      Shares Reserved for Options. Currently 3,750,000 shares of our common stock are reserved for issuance under the Plan. If any award granted under the Plan expires, is canceled or terminates for any reason, the shares of common stock issuable under that award will again be available for the granting of new awards (but will be counted against that calendar year’s limit on the number of shares that can be granted to a given individual).

      Eligible Participants. Each officer, director and employee of the Company and its subsidiaries is eligible to receive awards under the Plan. As of April 1, 2002, we had 823 eligible participants.

      Administrator. The Compensation Committee of the Board of Directors administers the Plan (the “Administrator”). Subject to provisions of the Plan, the Administrator may decide:

	•	the participants to receive awards;
	•	the terms of any awards;
	•	the schedule of exercisability or vesting of awards;
	•	the time and conditions for expiration of awards; and
	•	the form of payment due upon exercise of an award.

      Discretionary Awards. The plan permits three types of discretionary awards: stock grants, incentive stock options within the meaning of Section 422 of the Internal Revenue Code (ISOs) and non-qualified stock options (NSOs).

      Automatic Grants. Under the proposed amendment to the Plan, at the first Board meeting after each annual meeting of stockholders, the Chairman of the Board of Directors and each non-employee director serving on the Board of Directors will receive an automatic grant of options to purchase 5,000 shares of common stock of the Company. These options will have an exercise price equal to the Fair Market Value of the common stock on the date of grant, and one-fourth of the option will vest and become exercisable on each anniversary of the date of grant, as long as such director is still serving on our Board of Directors on such vesting date.

      The amendment to the Plan also provides that at the first Board meeting after each annual meeting of stockholders, the Chairman of each Board committee of the Company will receive an automatic grant of options to purchase 1,000 shares of common stock of the Company. These options will have an exercise price equal to the Fair Market Value of the common stock on the date of grant, and one-fourth of the option will vest and become exercisable on each anniversary of the date of grant, as long as such director is still serving on our Board of Directors on such vesting date.

      Exercise Price. ISO’s and NSO’s awarded under the Plan may not have an exercise price less than 100% of the Fair Market Value of the Company’s common stock on the date of grant; provided, however, if an ISO is awarded to someone covered by Sections 422(b)(6) and 424(d) of the Internal Revenue Code (as a more-than-10%-stock-owner), the exercise price of the option must be at least 110% of the Fair Market Value of the common stock on the date of grant. Individuals awarded restricted stock under the Plan will either pay the par value for the shares granted or receive common stock held by the Company as treasury stock.

      Limitations. The Plan limits grants to any one eligible participant during a calendar year to 400,000 shares. The maximum term of options granted under the Plan is ten years (or five years in the case of an ISO granted to a more than 10% stockholder). In cases of death, termination of employment and disability, unless otherwise provided in the award agreement, vested options will expire (i) twelve months after the participant’s death, (ii) ninety days after the participant’s employment or service as a director terminates, or (iii) in the case of disability, the earlier of (A) the first anniversary of termination of employment or (B) thirty days after the participant ceases to have a disability; provided, however, that vested options may not be exercised after the expiration of the maximum ten-year term.

      Effect of a Change of Control. Upon a “change of control” as defined in the Plan, all of our outstanding unexercisable options and stock grants under the Plan immediately become exercisable. Upon a “substantial

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      Amendments. The Board may amend, suspend or terminate the Plan at any time, without the consent of the participants or their beneficiaries, provided that an amendment may not deprive any participant or beneficiary of any previously declared grant, modify the terms and conditions of a grant so as to adversely affect a participant without such participant’s consent, or terminate or adversely affect any right or obligation under any outstanding grant without the participant’s consent.

      Transferability. Unless approved by the Administrator, awards may not be transferred other than by will or by the laws of descent and distribution.

      Termination. Unless terminated sooner by the Board of Directors, the Plan will terminate on May 8, 2008.

      Tax Treatment. An optionee generally will not be taxed when an option is granted under the Plan. When an optionee exercises a NSO, the optionee generally will have compensation equal to the amount by which the then fair market value of the stock exceeds the option exercise price. The Company generally will receive a federal income tax deduction equal to the amount of compensation income recognized by the optionee. The optionee’s tax basis will be the fair market value of the stock on the date of exercise, and any gain or loss on a subsequent sale or other taxable disposition of the shares generally will be capital gain or loss.

      An optionee holding an ISO who complies with the applicable holding periods before disposing of the stock (a “qualifying disposition”) acquired upon exercise of the incentive option will generally qualify for favorable tax treatment, and in such case the Company generally will not receive a tax deduction. A qualifying disposition will be deemed to have occurred if the underlying shares are sold or otherwise disposed of after the later of one year from the date of exercise of the ISO and two years after the date the Company granted the ISO. Upon a qualifying disposition, the optionee will recognize long-term capital gain or loss equal to the difference between the sales price and the exercise price of the ISO. An optionee holding an ISO may, however, be subject to an alternative minimum tax when an ISO is exercised. If the optionee holding an ISO does not make a qualifying disposition of the shares, the rules applicable to NSOs generally will apply to both the optionee and the Company.

      The income tax consequences of a stock grant depend upon whether the grantee makes an election under section 83(b) of the Code to be taxed upon grant. To make the election, a grantee must file the statement required under section 83(b) with the Internal Revenue Service no later than 30 days after the grant of the shares. Once made, the election is irrevocable.

      If the grantee does not make the section 83(b) election, the award of the stock grant generally is not a taxable event. Rather, recognition of taxable income is postponed until any restrictions on the shares lapse — in other words, when the grantee vests in the shares. At that time, the grantee will recognize ordinary income equal to the fair market value of the shares at that time, and that amount will be the grantee’s tax basis in those shares. The Company will receive a corresponding income tax deduction. Any gain or loss on a subsequent sale or other taxable disposition of the shares generally will be capital gain or loss to the grantee.

      If the grantee makes the section 83(b) election, the grantee will recognize ordinary income at the time of grant of the shares equal to the fair market value of such shares on the date of the grant, and that amount will be the grantee’s tax basis in those shares. The Company will have a corresponding income tax deduction. If those shares are subsequently forfeited before the restrictions lapse, the grantee will not be entitled to any deduction on account thereof. Any gain or loss on a subsequent sale or other taxable disposition of the shares generally will be capital gain or loss to the grantee.

      Share Price. The closing price per share of the common stock on the Nasdaq Stock Market on April 25, 2002 was $24.899.

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Options and Restricted Stock Granted to Certain Individuals and Groups

      The following table sets forth the total amount of options and restricted stock granted, and not cancelled, under the Plan to the listed individuals and groups as of March 1, 2002:

Plan Shares Outstanding

      The following table sets forth information with respect to the Company’s equity compensation plans approved by security holders. The Company does not have any equity compensation plans not approved by security holders. The information is as of March 1, 2002.

New Plan Benefits

      Other than as set forth below, the benefits that will be received in the future under the Plan, as amended, by each participant are not determinable. If the amendment to the Plan is approved by our stockholders, at the first Board meeting after the Annual Meeting, each non-employee director and the Chairman of the Board will receive the annual automatic option grants discussed above. If the amendment to the Plan is not approved, at the first Board meeting after the Annual Meeting, each non-employee director will receive an automatic grant of options to purchase 1,000 shares of common stock.

      THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDMENT TO THE COSTAR GROUP, INC. 1998 STOCK INCENTIVE PLAN.

OTHER MATTERS

      We do not know of any other matter that will be presented for consideration at the Annual Meeting. If any other matter does properly come before the Annual Meeting, the proxy holders will, unless otherwise specified in the proxy, vote on it as they think best.

STOCKHOLDER PROPOSALS AND NOMINATIONS

      A stockholder who intends to introduce a proposal for consideration at our 2003 Annual Meeting of Stockholders may seek to have that proposal and a statement in support of the proposal included in our proxy

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      A stockholder may otherwise propose business for consideration or nominate persons for election to the Board, in compliance with federal proxy rules, applicable state law and other legal requirements and without seeking to have the proposal included in our proxy statement pursuant to Rule 14a-8. Our bylaws provide that any such proposals or nominations must be submitted to us no less than 60 nor more than 90 days before the first anniversary date of the preceding year’s annual meeting. Accordingly, stockholders who wish to nominate persons for election as directors or bring other proposals at the 2003 Annual Meeting must give notice of their intention in writing to our Corporate Secretary on or before April 19, 2003, but no sooner than March 20, 2003. The stockholder’s submission must include certain specified information concerning the proposal or nominee, as the case may be, and information as to the stockholder’s ownership of common stock. Proposals or nominations not meeting these requirements will not be entertained at the 2003 Annual Meeting.

ADDITIONAL INFORMATION

Board of Directors Meetings and Committees

      During 2001, the Board of Directors held three meetings and acted on two occasions by unanimous consent. The Board has Audit, Compensation and Nominating committees each composed of three members. All directors attended at least 75% of the meetings of the Board and the committees of which they were members, except that David Bonderman participated in 43% of the meetings of the Board and the committees of which he was a member.

      Audit Committee. The Audit Committee is composed of Warren H. Haber (Chairman), David Bonderman and Josiah O. Low III, each of who is an independent director under the listing standards of the National Association of Securities Dealers (“NASD”). During 2001, the Audit Committee met three times and acted on one occasion by unanimous consent. The Audit Committee consults with the Company’s independent auditors and with personnel from the Company’s financial staff with respect to corporate accounting, reporting and internal control practices. The Audit Committee operates under a written charter adopted by the Board of Directors and reviewed annually by the Audit Committee.

      Compensation Committee. The members of the Compensation Committee are Warren H. Haber (Chairman), David Bonderman and Michael R. Klein. The Compensation Committee makes recommendations concerning salaries and incentive compensation for our executive officers. In addition, the Board of Directors has designated the Compensation Committee as the Administrator of the Company’s 1998 Stock Incentive Plan. The Committee met one time in 2001 and acted on one occasion by unanimous written consent.

      Nominating Committee. The members of the Nominating Committee are Michael Klein (Chairman), Josiah Low III and John Simon. The Nominating Committee is responsible for screening and nominating candidates to serve on the Company’s Board of Directors and committees. The Nominating Committee will entertain nominees suggested by stockholders. Stockholders should mail the candidate’s name and qualifications to the Company, addressed to the attention of the Corporate Secretary. The Nominating Committee did not meet in 2001.

Report of the Audit Committee

      The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process.

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      In this context, the Audit Committee has reviewed and discussed with management and the independent auditors the audited consolidated financial statements for 2001. The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). In addition, the Audit Committee has received from the independent auditors the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed with them their independence from the Company and its management. The Audit Committee has also considered whether the independent auditors’ provision of non-audit services to the Company is compatible with the auditors’ independence.

      In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on SEC Form 10-K for the fiscal year ended December 31, 2001, for filing with the Securities and Exchange Commission.

	By the Audit Committee
	of the Board of Directors
	April 23, 2002
	Warren H. Haber, Chairman
	David Bonderman
	Josiah O. Low III

Compensation Committee Interlocks and Insider Participation

      Messrs. Bonderman and Haber are both non-employee directors, and Mr. Klein serves as the Chairman of the Board of the Company. During fiscal year 2001, none of the Company’s executive officers served as a director or compensation committee member of any entity with an executive officer or director who served as a director or compensation committee member of the Company.

Director Compensation

      Board Fees. Each director, other than the Chairman of the Board and any employee director, receives $15,000 annually as compensation for serving on the Company’s Board of Directors.

      Attendance Fees. Currently, each director, other than the Chairman of the Board and any employee director, receives $2,000 for each meeting of the Board of Directors attended in person or by telephone. Through September 2001, each non-employee director received $2,500 for each meeting of the Board of Directors attended in person or by telephone and $500 (or $1,000 in the case of the Chairman of a committee) for each meeting of a committee of the Board of Directors attended in person or by telephone.

      Chairman. The Chairman of the Board of Directors receives $120,000 annually as compensation for additional services that he is required to perform in his role as chairman of the Company.

      Option and Stock Grants. During 2001, each non-employee director received (i) a grant of options to purchase 1,000 shares of common stock of the Company at an exercise price of $17.97 per share, all of which will vest on the first anniversary of the date of grant, (ii) a grant of options to purchase 2,000 shares of common stock of the Company at an exercise price of $17.97 per share, one-fourth of which will vest on each anniversary of the date of grant, and (iii) a grant of 1,000 shares of restricted stock of the Company, one-fourth of which will vest on each anniversary of the date of grant. The Compensation Committee has resolved that all unvested stock options and stock grants of Mr. Simon shall vest as though his service on the Board continued through the end of 2002.

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      During 2001, the Chairman of the Board of Directors received (i) a grant of options to purchase 3,000 shares of common stock of the Company at an exercise price of $17.97 per share, one-fourth of which will vest on each anniversary of the date of grant, and (ii) a grant of 1,000 shares of restricted stock, one-fourth of which will vest on each anniversary of the date of grant.

      During 2001, Warren Haber, as the Chairman of each of the Audit and Compensation committees received a grant of options to purchase 2,000 shares of common stock of the Company at an exercise price of $17.97 per share, one-fourth of which will vest on each anniversary of the date of grant.

      Upon stockholder approval of the amendment to the Plan, at the first Board meeting after each annual meeting of stockholders, the Chairman of the Board of Directors and each non-employee director serving on the Board of Directors will receive an automatic grant of options to purchase 5,000 shares of common stock of the Company. These options will have an exercise price equal to the Fair Market Value of the common stock on the date of grant, and one-fourth will vest and become exercisable on each anniversary of the date of grant, as long as such director is still serving on our Board of Directors on such vesting date.

      Additionally, the proposed amendment to the Plan provides that at the first Board meeting after each annual meeting of stockholders, the Chairman of each committee of the Company will receive an automatic grant of options to purchase 1,000 shares of common stock of the Company. These options will have an exercise price equal to the Fair Market Value of the common stock on the date of grant, and one-fourth will vest on each anniversary of the date of grant, as long as such director is still serving on the Company’s Board of Directors on such vesting date.

      Expenses. Each director is entitled to reimbursement of his or her expenses for serving as a member of our Board, including for attending each meeting of the Board of Directors and each meeting of any committee.

Executive Officers and Key Employees

      The following table lists our executive officers and key employees:

**	Includes years of service with acquired companies.

      Information about Mr. Florance appears above under “Item 1 — Election of Directors.” Information about each of the other individuals appears below.

      Lawrence J. Dressel, our Chief Operating Officer, joined us in September 2000. Mr. Dressel is responsible for the day-to-day management of CoStar operations, sales, marketing, product development and customer service. From January 1999 to September 2000, Mr. Dressel was Chief Operating Officer of Interealty.com, a provider of information systems, services and software applications to residential Multiple Listing Services and real estate professionals. Before joining Interealty, from January 1998 to January 1999, Mr. Dressel was Senior Vice President at The Fairchild Company, where he oversaw a division that manufactured capital equipment

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      Frank A. Carchedi, our Chief Financial Officer and Treasurer, joined us in May 1997 from ITC Learning Corporation, a publicly-held publisher and distributor of multi-media training products, where he had been Vice President, Treasurer and Chief Financial Officer since 1995. Prior to that, Mr. Carchedi was with Ernst & Young, LLP for ten years, most recently as a consultant in the firm’s New York Merger and Acquisitions Group and its Entrepreneurial Services Group in Washington, D.C. He received a B.S. in accounting from Wake Forest University.

      David M. Schaffel, our Chief Information Officer, has been with us since 1989. Mr. Schaffel is responsible for the design, development, and maintenance of our software services, products and any new services, as well as internal corporate software systems and IT infrastructure. From 1987 until joining us, Mr. Schaffel was president of Biscayne Technical Services, Inc., where he developed a logistics tracking application for the United States Air Force. Mr. Schaffel received a M.S. in operations research/statistics from the University of Miami and a B.S. in business from the University of Florida.

      Craig S. Farrington, the Vice President of CoStar COMPS®, is in charge of our CoStar COMPS® product. Mr. Farrington joined us upon the acquisition of COMPS.COM, Inc. in February 2000 and from February 2000 until December 2001 served as the Chief Operating Officer of our former Comps, Inc. subsidiary. Prior to that, Mr. Farrington served as Vice President of Product Marketing and Development for COMPS.COM, Inc. since September 1996, and held various positions with COMPS.COM since 1983. Mr. Farrington received his B.A. in business and economics from Westmont College.

      Michael D. Arabe, our Senior Vice President of Customer Service and Support, joined us upon the acquisition of COMPS.COM, Inc. in February 2000. Mr. Arabe became Vice President of Customer Service and Support in November 2000. From February 2000 until that time, he was responsible for sales of CoStar COMPS®. Mr. Arabe joined COMPS.COM in 1989 and held a variety of positions in senior management, most recently as Senior Vice President of Sales. Mr. Arabe received a B.S. in economics from Louisiana State University.

      Carla J. Garrett, our General Counsel and Secretary, joined us in June 1999. Prior to joining CoStar, Ms. Garrett was at Sullivan & Cromwell, a New York based law firm, where she had been a corporate and securities attorney since 1996. Prior to joining Sullivan & Cromwell, she was an associate with Wilson Sonsini Goodrich & Rosati, a Palo Alto based law firm, where she practiced corporate law and advised technology companies. Ms. Garrett received a B.A. in mathematics from Vanderbilt University and her J.D. from Stanford University.

      Mark A. Klionsky, our Senior Vice President of Marketing and Corporate Communications, joined us in May 2000. Mr. Klionsky is responsible for implementing the Company’s marketing strategy and oversees the Company’s corporate communications. Prior to joining the Company, from 1981 until 2000, Mr. Klionsky was with Miller Freeman, Inc., the U.S. subsidiary of United News & Media, plc, where he held a variety of corporate positions, most recently Senior Vice President. Additionally, in 1987 Mr. Klionsky helped launch Commercial Property News, which was published by Miller Freeman, and from 1994 until 2000 served as Group Publisher of Commercial Property News. He received a B.A. in communications from Rowan College.

      Mark Policinski, our Vice President of Research, joined us in September 2000. Mr. Policinski oversees research for tenant information. Prior to joining the Company, from 1987 to 2000, Mr. Policinski was with Brown Publishing Company, a privately held company comprised of 40 community newspapers, where he was most recently President and CEO. He received a B.S. in education/political science and economics from Indiana University and a Master of Arts in economics from Western Kentucky University.

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      Dean L. Violagis, our Vice President of Research, joined us in 1989. Mr. Violagis is responsible for our CoStar Property and CoStar Exchange research department, of which he has been a manager since 1989. Mr. Violagis received a B.A. in real estate finance from American University.

Stock Ownership Information

      The following table provides certain information regarding the beneficial ownership of our common stock as of April 1, 2002 by:

	•	our Chief Executive Officer and President, each of our four most highly compensated executive officers who were serving as executive officers on December 31, 2001, and one additional individual whose employment terminated during 2001 (whom we refer to collectively in this proxy statement as the “named executive officers”);
	•	each of our directors and nominees to be directors;
	•	each person we know to be the beneficial owner of more than 5% of the outstanding common stock; and
	•	all of our current executive officers and directors as a group.

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	(3)	Includes 401,854 shares issuable upon options exercisable within 60 days of April 1, 2002.
	(4)	Includes 22,500 shares issuable upon options exercisable within 60 days of April 1, 2002.
	(5)	Includes 52,500 shares issuable upon options exercisable within 60 days of April 1, 2002.
	(6)	Includes 66,500 shares issuable upon options exercisable within 60 days of April 1, 2002.
	(7)	Includes 15,000 shares issuable upon options exercisable within 60 days of April 1, 2002.
	(8)	Includes 2,000 shares issuable upon options exercisable within 60 days of April 1, 2002.
	(9)	Includes 6,000 shares held by Mr. Haber’s spouse and excludes 20,000 shares held by Mr. Haber’s adult son for which Mr. Haber disclaims beneficial ownership. Also includes 2,000 shares issuable upon options exercisable within 60 days of April 1, 2002.

(10)	Includes 2,000 shares issuable upon options exercisable within 60 days of April 1, 2002.
(11)	Includes 2,000 shares issuable upon options exercisable within 60 days of April 1, 2002. Excludes all shares held by Allen & Company Incorporated (of which Mr. Simon is a Managing Director) and certain of its other officers and affiliates; Mr. Simon disclaims beneficial ownership of such shares. Mr. Simon’s address is c/o Allen & Company Incorporated, 711 Fifth Avenue, New York, New York 10022.
(12)	Mr. Place resigned from the Company effective July 2001. To the knowledge of the Company, Mr. Place does not own any shares of the Company’s stock.
(13)	According to Schedule 13G/ A filed on February 14, 2002, Capital Guardian Trust Company (“CGT”) beneficially owns 2,116,500 shares of common stock of the Company. Based solely on this Schedule 13G/ A, CGT has sole voting power with respect to 1,616,800 of such shares and has sole dispositive power with respect to all 2,116,500 of such shares. Further, based solely on this Schedule 13G/ A, Capital Group International, Inc. (“CGI”) is the parent holding company of CGT and may be deemed to beneficially own such shares, and both CGT and CGI disclaim any beneficial ownership of such shares. The address of both CGT and CGI is 11100 Santa Monica Blvd., Los Angeles, CA 90025.
(14)	According to a Schedule 13G/ A filed on February 14, 2002, Kern Capital Management, LLC (“KCM”) beneficially owns 1,089,600 shares of common stock of the Company. Based solely on this Schedule 13G/ A, KCM has sole voting power with respect to 1,039,400 of such shares and has sole dispositive power with respect to all 1,089,600 of such shares. Further, based solely on this Schedule 13G/ A, Robert E. Kern, Jr. and David G. Kern are controlling members of KCM and may be deemed to beneficially own such shares, and both Robert E. Kern, Jr. and David G. Kern disclaim any beneficial ownership of such shares. The address of KCM is 114 West 47th Street, Suite 1926, New York, NY 10036.
(15)	According to a Schedule 13G/ A filed on February 1, 2002, Zurich Scudder Investments, Inc. (“Zurich”) beneficially owns 1,044,100 shares of common stock of the Company. Based solely on this Schedule 13G/ A, Zurich has sole voting power with respect to 719,988 of such shares, has shared voting power with respect to 17,412 of such shares and has sole dispositive power with respect to all 1,044,100 shares. The address of Zurich is 345 Park Avenue, New York, New York 10154.
(16)	According to a Schedule 13G filed on March 8, 2002, Brown Investment Advisory & Trust Company (“BIATC”) and its wholly owned subsidiary, Brown Investment Advisory Incorporated (“BAI”), beneficially own 795,348 shares of common stock of the Company. Based solely on this Schedule 13G, BIATC beneficially owns 218,105 of such shares and has sole voting and dispositive power with respect to all of such shares. Based solely on this Schedule 13G, BAI beneficially owns 577,243 of such shares and has sole voting and dispositive power with respect to all of such shares. The address of both BIATC and BAI is 19 South Street, Baltimore, Maryland 21202.
(17)	Includes 566,354 shares issuable upon options exercisable within 60 days of April 1, 2002.

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Executive Compensation

      The following table provides the annual salary, bonuses, and all other compensation awards and payouts to our named executive officers for 1999 through 2001.

SUMMARY COMPENSATION TABLE

	(1)	Represents bonus paid in 2001 for performance in 2000. As of March 31, 2002, the executive’s annual bonus for 2001 had not been granted.
	(2)	Represents 401(k) contributions made by the Company in the amount of $9,841, plus life insurance premiums paid by the Company for the benefit of Mr. Florance in the amount of $1,552.
	(3)	Represents bonus paid in 2000 for performance in 1999. As of March 31, 2001, the executive’s annual bonus for 2000 had not been granted.
	(4)	Represents 401(k) contributions made by the Company in the amount of $9,788, plus life insurance premiums paid by the Company for the benefit of Mr. Florance in the amount of $440.
	(5)	Represents 401(k) contributions made by the Company in the amount of $4,865, plus life insurance premiums paid by the Company for the benefit of Mr. Florance in the amount of $440.
	(6)	Represents 401(k) contributions made by the Company.
	(7)	Mr. Dressel joined us in September 2000. On an annualized basis, his base salary was $250,000 per year in 2000.
	(8)	The executive’s annual bonus for 2000 was paid in 2001.
	(9)	Mr. Farrington joined us in February 2000. On an annualized basis, his base salary was $130,000 per year in 2000.

(10)	Mr. Place resigned from the Company effective July, 2001.
(11)	Represents bonus paid in 2001 for performance in 2000 and 2001.
(12)	Represents $136,102 of severance pay, $10,200 of 401(k) contributions made by the Company and $1,360 of COBRA payments made by the Company.
(13)	Mr. Place joined us in May 2000. On an annualized basis, his base salary was $280,000 per year in 2000.
(14)	Represents signing bonus.

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Employment Agreements

      We have employment agreements with the following executive officers, Messrs. Florance, Dressel, Carchedi and Schaffel, and have employment terms with Mr. Farrington. Our employment agreements with Messrs. Florance, Carchedi and Schaffel became effective as of January 1, 1998. Mr. Dressel’s employment agreement became effective on September 25, 2000. Mr. Farrington’s employment terms became effective as of February 18, 2000. Each entitles the executive to a specified base salary, a bonus award up to a specified percentage of base compensation based upon achievement of performance objectives, and an award of stock options vesting over time. The agreements also generally provide that the executive may participate in any insurance, medical, disability or pension plan generally made available to our senior executive officers.

      The employment agreements for Messrs. Dressel, Carchedi and Schaffel are for initial terms of two years and the employment agreement for Mr. Florance is for an initial term of three years, and all are automatically renewable for successive one-year terms unless the executive or we terminate the agreement. Mr. Farrington has at-will employment terms. The employment agreements for Messrs. Florance, Dressel, Carchedi and Schaffel contain covenants not to compete with us for the two years immediately following termination.

      The employment agreements for Messrs. Florance, Dressel, Carchedi and Schaffel generally provide that, if we terminate the executive’s employment without cause (which include “changes of control” of the Company under certain circumstances), the executive is entitled to certain severance benefits as follows. If we terminate Mr. Florance without cause or if he terminates his agreement for good cause, he is entitled to his base salary for the greater of one year or whatever period remains under the agreement, his bonus for the year in which the termination occurred, the immediate vesting of all of his stock options, and a gross-up payment to cover any taxes assessed under Section 4999 of the Internal Revenue Code. If we terminate Messrs. Carchedi or Schaffel without cause, each is entitled to his base salary for the greater of six months or whatever period remains under the agreement, to a prorated share of his bonus for the year in which termination occurred, and to the immediate vesting of all stock options due to vest within the following twelve months. If we terminate Mr. Dressel without cause, he is entitled to his base salary for a period of twelve months. Mr. Farrington is not entitled to any severance benefits if he is terminated without cause.

      The following table gives specific economic terms of our arrangements with our executive officers as of December 31, 2001.

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Option Grants

      The following table provides certain information about grants of stock options to our named executive officers during 2001.

OPTION/ SAR GRANTS IN LAST FISCAL YEAR

(1)	The options were granted on April 17, 2001 and have an exercise price equal to the fair market value of the Company’s common stock on the grant date. The options vest and become exercisable in four equal installments on each of April 17, 2002, April 17, 2003, April 17, 2004, and April 17, 2005.
(2)	The grant date present value is computed using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 100%, dividend yield of 0%, risk-free interest rate of 5.5%, and expected life of 5 years. These assumptions are not a forecast of future stock price performance or volatility or of future dividend policy. There is no assurance that the value received by an executive will be at or near the value estimated by the Black-Scholes model. The actual value of options will depend on the market value of the Company’s common stock on the dates upon which the options are exercised.

Option Exercises and Fiscal Year-End Values

      The following table provides certain information regarding stock option exercises in fiscal year 2001, and unexercised options held as of December 31, 2001, by the named executive officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

(1)	Calculated based on the amount by which the fair market value of the underlying security (assumed to be equal to its year-end closing price of $24.01) exceeds the option exercise price.
(2)	On August 2, 2001, Mr. Place exercised options to acquire 3,900 shares of common stock at an exercise price of $23.875 per share and sold those shares the same day for $27.875 per share.

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Compensation Committee Report On Executive Compensation

     Compensation Philosophy and Review

      The compensation philosophy of the Company is to provide a competitive total compensation package so that the Company can attract, retain, and motivate talented employees and executives. The Company also believes in maximizing value for stockholders by linking compensation to individual achievement of agreed goals as they relate to overall corporate performance. It also strives, as much as possible, to align the Company’s human resource strategy with its high-growth business strategy.

      In determining compensation levels for 1998 and beyond, the Company commissioned a third-party consultant to perform a special study with respect to the base salary, total annual cash compensation, and long-term incentive compensation of similarly situated officers within its peer group. The peer group consists of companies that are in the specialized industry of electronic information technology, are high-growth companies, and are of a size comparable to the Company’s.

      The Company’s Compensation Committee believes that compensation for the Company’s executives should be competitive in order to encourage and reward superior performance.

     Elements of Executive Officer Compensation

      The Company’s executive compensation consists primarily of base salary, annual cash bonuses, the award of stock options, and health insurance and similar benefits. The Company has employment arrangements with each of its executive officers that entitles the executive to a specified base salary, a bonus award up to a specified percentage of base compensation based upon achievement of performance objectives, and a competitive award of stock options vesting over time. The compensation of executive officers is reviewed on an annual basis.

     Chief Executive Officer Compensation

      In establishing the salary and bonus for Mr. Florance, our Chief Executive Officer and President, the Committee relied on its strong belief that Mr. Florance, as Chief Executive Officer, significantly and directly influences the Company’s overall performance. Accordingly, the Committee sought to achieve the following objectives: (i) establish a base salary competitive with that paid to other chief executive officers of high growth companies in the peer group; (ii) reward Mr. Florance for superior performance in connection with his contribution to the Company; and (iii) reward Mr. Florance for outstanding corporate performance by the Company for the fiscal year. Based on these factors, in 2001 the Committee set Mr. Florance’s salary at $350,000 and paid Mr. Florance a bonus of $300,000. In addition, in 2001 Mr. Florance received an option to purchase 50,000 shares of the Company’s common stock at an exercise price of $18.06 per share, the Fair Market Value of the common stock on the date of grant, of which one-fourth will vest on each anniversary of the date of grant. The Committee believes that granting options to Mr. Florance is important to align Mr. Florance’s interest with the interests of the Company’s stockholders.

     Base Salaries

      Salary levels of the Company’s senior executives are reviewed annually, and may be adjusted to reflect a senior executive’s individual responsibilities and performance, as well as the Company’s corporate performance. The Compensation Committee also considers salaries paid to executive officers of the peer group in determining base salary levels. The Compensation Committee believes that base salaries should be generally competitive with high growth companies in the peer group.

     Annual Incentive Programs

      The Compensation Committee administers an annual incentive plan for senior level executives, under which these executives may receive a cash bonus based on individual and corporate performance. The bonuses range from 0% to 100% of base salary and are based on the executive’s employment agreement or employment terms with the Company. In setting these ranges, the Compensation Committee considered the annual incentive awards offered by members of the peer group and set competitive annual incentive awards for superior performance. The Compensation Committee considers the executive’s individual performance,

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     Long-Term Incentive Plans

      The Compensation Committee believes that granting stock options to executive officers is critical to the Company’s success because these awards play a vital role in attracting, retaining and rewarding executive officers of the Company. The Committee believes that options are also important in motivating executive officers to achieve the Company’s goals.

      Each executive officer is eligible to receive stock options under the CoStar Group, Inc. 1998 Stock Incentive Plan. The Compensation Committee generally awards stock options to each executive officer when he or she joins the Company. Thereafter, the Compensation Committee, in its discretion, makes periodic grants to reward or retain executive officers and to provide incentives for future performance. Although executive officers may receive stock options based on the Company’s financial performance, as well as on his or her individual performance, there is no established formula or criteria for grants under the Plan, and options may be granted on a subjective basis at intervals determined by the Compensation Committee.

     Employment Agreements

      Our employment agreements with Messrs. Florance, Carchedi and Schaffel became effective as of January 1, 1998, and our employment agreement with Mr. Dressel became effective as of September 25, 2000. The employment agreements for Messrs. Dressel, Carchedi and Schaffel are for initial terms of two years and the employment agreement for Mr. Florance is for an initial term of three years, and all are automatically renewable for successive one-year terms unless the executive or we terminate the agreement. Mr. Farrington has at-will employment terms. The employment agreements for Messrs. Florance, Dressel, Carchedi, and Schaffel contain covenants not to compete with us for the two years immediately following termination.

      The employment agreements for Messrs. Florance, Dressel, Carchedi and Schaffel generally provide that, if we terminate the executive’s employment without cause (which include “changes of control” of the Company under certain circumstances), the executive is entitled to certain severance benefits as follows. If we terminate Mr. Florance without cause or if he terminates his agreement for good cause, he is entitled to his base salary for the greater of one year or whatever period remains under the agreement, his bonus for the year in which the termination occurred, the immediate vesting of all of his stock options, and a gross-up payment to cover any taxes assessed under Section 4999 of the Internal Revenue Code. If we terminate Messrs. Carchedi or Schaffel without cause, each is entitled to his base salary for the greater of six months or whatever period remains under the agreement, to a prorated share of his bonus for the year in which termination occurred, and to the immediate vesting of all stock options due to vest within the following twelve months. If we terminate Mr. Dressel without cause, he is entitled to his base salary for a period of twelve months. Mr. Farrington is not entitled to any severance benefits if he is terminated without cause.

     Policy on Deductibility of Compensation

      Section 162(m) of the Internal Revenue Code disallows the deduction of compensation by a company to its Chief Executive Officer and any of its four most highly compensated executive officers that is in excess of $1 million. Compensation that is considered “performance-based” is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by the stockholders. The Compensation Committee will continue to monitor total compensation and, should the 162(m) limitation become an issue, take the measures that they deem appropriate.

	By the Compensation Committee of the Board of Directors April 23, 2002 Warren H. Haber, Chairman David Bonderman Michael R. Klein

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Stock Price Performance Graph

      The stock performance graph below shows how an initial investment of $100 in our common stock would have compared to:

	•	An equal investment in the S&P 500 Index.
	•	An equal investment in the S&P Computers (Software) Index.

      The comparison covers the period beginning July 1, 1998, the first day of public trading of our common stock, and ending on December 31, 2001, and assumes the reinvestment of any dividends. You should note that this performance is historical and is not necessarily indicative of future price performance.

Certain Relationships and Related Transactions

      Other than as described under “Compensation Committee Interlocks and Insider Participation,” since January 1, 2001 none of our executive officers or directors has engaged in or had a direct or indirect interest in any transactions with us that are required to be disclosed.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires that our directors and executive officers, and anyone who owns more than 10% of our common stock, file with the Securities and Exchange Commission reports of initial ownership and reports of changes in ownership of our common stock, and to furnish us with copies of those reports. Based solely on a review of the reports furnished to us, we believe that during 2001, our directors, executive officers, and 10% stockholders complied with these requirements.

Other Information

      We have included a copy of our Annual Report for the year ended December 31, 2001 with this Proxy Statement. You may obtain a copy of our annual report on Form 10-K, including the financial statements and financial statement schedules, without charge by sending a written request to Mark A. Klionsky, Senior

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      This proxy is solicited on behalf of the Board of Directors. The Company will bear all expenses in connection with the Annual Meeting and this proxy solicitation. We have retained Innisfree M&A Incorporated to assist in distribution of these proxy materials and soliciting proxy voting instructions, at an estimated cost not to exceed $7,500 plus reasonable expenses. They may solicit proxies in person, by telephone, by mail, telegram, facsimile, or other electronic or other means, and will request that brokerage houses, banks, and other custodians forward proxy material to beneficial owners of our common stock. We will reimburse brokerage houses, banks, and other custodians for their reasonable expenses for forwarding these materials to beneficial owners. American Stock Transfer and Trust Company will act as proxy tabulator.

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Appendix A

COSTAR GROUP, INC.

B-1

B-2

		Common Stock covered by the Option; provided, however, that if the Administrator decides to grant an ISO to someone covered by Sections 422(b)(6) and 424(d) (as a more-than-10%-stock-owner), the Exercise Price of the Option must be at least 110% of the Fair Market Value (on the Date of Grant).
		The Administrator may satisfy any state law requirements regarding adequate consideration for Stock Grants by (i) issuing Common Stock held as treasury stock or (ii) charging the recipients at least the par value for the shares covered by the Stock Grant. The Administrator may designate that a recipient may satisfy (ii) either by direct payments or by the Administrator’s withholding from other payments due to the recipient.
Fair Market Value		Fair Market Value of a share of Common Stock for purposes of the Plan will be determined as follows:

B-3

B-4

B-5

		Expiration section make an Award exercisable that has not otherwise become exercisable.
AGREEMENT AWARD		Option Agreements will set forth the terms of each Option and will include such terms and conditions, consistent with the Plan, as the Administrator may determine are necessary or advisable. To the extent the agreement is inconsistent with the Plan, the Plan will govern. The Option Agreements may contain special rules. The Administrator may, but is not required to, issue agreements for Stock Grants.
STOCK SUBJECT TO PLAN		Except as adjusted below under Corporate Changes, the aggregate number of shares of Common Stock that may be issued under the Awards (whether ISOs, NQSOs, or Stock Grants) may not exceed 3,750,000 shares and the maximum number of shares that may be granted under Awards for a single individual in a calendar year may not exceed 400,000 shares. (The individual maximum applies only to Awards first made under this Plan and not to Awards made in substitution of a prior employer’s options or other incentives, except as Code Section 162(m) otherwise requires.) The Common Stock will come from either authorized but unissued shares or from previously issued shares that the Company reacquires, including shares it purchases on the open market. If any Award expires, is canceled, or terminates for any other reason, the shares of Common Stock available under that Award will again be available for the granting of new Awards (but will be counted against that calendar year’s limit for a given individual).
		No adjustment will be made for a dividend or other right for which the record date precedes the date of exercise.
		The participant will have no rights of a stockholder with respect to the shares of stock subject to an Award except to the extent that the Company has issued certificates for, or otherwise confirmed ownership of, such shares upon the exercise of the Award.
		The Company will not issue fractional shares pursuant to the exercise of an Award, but the Administrator may, in its discretion, direct the Company to make a cash payment in lieu of fractional shares.
PERSON WHO MAY EXERCISE		During the participant’s lifetime, only the participant or his duly appointed guardian or personal representative may exercise the Awards. After his death, his personal representative or any other person authorized under a will or under the laws of descent and distribution may exercise any then exercisable portion of an Award. If someone other than the original recipient seeks to exercise any portion of an Award, the Administrator may request such proof as it may consider necessary or appropriate of the person’s right to exercise the Award.
ADJUSTMENTS UPON CHANGES IN CAPITAL STOCK		Subject to any required action by the Company (which it shall promptly take) or its stockholders, and subject to the provisions of applicable corporate law, if, after the Date of Grant of an Award,

B-6

B-7

	entity (other than any affiliate of the Company as defined in Rule 144(a)(1) under the Securities Act) owning 100% of the combined voting power of all classes of stock of the Company.

B-8

B-9

		former participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan, nor shall such individual be personally liable because of any contract or other instrument he executes in such other capacity. The Company will indemnify and hold harmless each director, employee, or agent of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been or will be delegated, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Board’s approval) arising out of any act or omission to act concerning this Plan unless arising out of such person’s own fraud or bad faith.
NO EMPLOYMENT CONTRACT		Nothing contained in this Plan constitutes an employment contract between the Company and the participants. The Plan does not give any participant any right to be retained in the Company’s employ, nor does it enlarge or diminish the Company’s right to terminate the participant’s employment.
APPLICABLE LAW		The laws of the State of Delaware (other than its choice of law provisions) govern this Plan and its interpretation.
DURATION OF PLAN		Unless the Board extends the Plan’s term, the Administrator may not grant Awards after May 8, 2008. The Plan will then terminate but will continue to govern unexercised and unexpired Awards.

B-10

APPENDIX B

COSTAR GROUP, INC.

Annual Meeting of Stockholders – June 18, 2002

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY

     The undersigned stockholder of CoStar Group, Inc., a Delaware corporation (the “Company”), hereby acknowledges receipt of the Notice of 2002 Annual Meeting of Stockholders and Proxy Statement, each dated May 1, 2002, and the 2001 Annual Report, hereby revokes any proxy or proxies previously given and hereby appoints Michael R. Klein, Andrew C. Florance and Frank A. Carchedi, or any of them, with full power to each of substitution on behalf and in the name of the undersigned, as the proxies and attorneys-in-fact to vote and otherwise represent all of the shares registered in the name of the undersigned at the 2002 Annual Meeting of Stockholders of the Company (the “Annual Meeting”) to be held at 2 Bethesda Metro Center, Bethesda, Maryland 20814, at 11:00 a.m. local time on Tuesday, June 18, 2002, and any adjournment or postponement thereof, with the same effect as if the undersigned were present and voting such shares, on the matters and in the manner set forth on the reverse side of this Proxy card.

     THIS PROXY, WHEN PROPERLY EXECUTED AND TIMELY DELIVERED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS CONTRARY DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES LISTED IN THE ACCOMPANYING PROXY STATEMENT, “FOR” RATIFYING THE APPOINTMENT OF THE COMPANY’S INDEPENDENT PUBLIC AUDITORS FOR 2002, “FOR” APPROVING THE AMENDMENT TO THE COMPANY’S 1998 STOCK INCENTIVE PLAN, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES AS TO OTHER MATTERS.

(Continued and to be signed and dated on the reverse side.)

Please mark, sign, date and return this card promptly
using the enclosed return envelope.

Annual Meeting of Stockholders
COSTAR GROUP, INC.

June 18, 2002

â Please Detach and Mail in the Envelope Provided â

/X/ Please mark your
       votes as in this example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
EACH OF THE PROPOSALS.

(1)  Proposal to elect the following persons as directors of the Company.     FOR ALL                      WITHHOLD ALL /           /                                /           /

Nominees:

Michael R. Klein Andrew C. Florance David Bonderman Warren H. Haber Josiah O. Low III Christopher J. Nassetta

The shares represented by this proxy will be voted in accordance with the specification made. If no specification is made, the shares represented by this proxy will be voted FOR each of the above persons and proposals, and for or against such other matters as may properly come before the meeting as the proxy holders in their discretion deem advisable.

I plan to attend the meeting: Yes ______No ______

PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE COMPLETE, SIGN, DATE AND RETURN EACH CARD.

Signature(s) ______________________________________________________ Dated:____________ , 2002
                                                                               Title if appropriate