Zillow Stock Falling After National Association Of Realtors Decision | The Economic Ninja

Hey, everybody, economic ninja here. I hope you’re doing well. We’re going to talk about Zillow. This is out of CNN Business, and it’s entitled, the story is entitled why Zillow is worried about America’s housing market shakeup. They are caring more about their bottom line than the actual housing market because honestly, what happens during a real estate crash? Well, real say prices come down, but velocity, it slows down, picks up, slows down a little bit, and then it really ultimately picks up because the Federal Reserve steps in and lowers rates.

So that shouldn’t have Zillow worried. But really, this national association of realtors decision that the lawsuit went through, it’s been finalized. There’s been a judgment. Everything’s going on right now with that. And it looks to be like a lot of real estate agents jobs are going to be eliminated. And that’s how Zillow gets a lot of their revenue from charging real estate agents to advertise for them. And so let’s dive into this story and talk about it.

It says, since the founding nearly two decades ago, Zillow has revolutionized the way Americans buy, rent, sell and fantasize about housing in the US. But a settlement that breaks the grip of powerful real estate agents could trigger a range of problems for the platform already suffering from declining traffic in an increasingly competitive housing market. Now, if you remember, we reported on this a couple of years ago when Zillow had that really big botched deal where they were investing in real estate and their algorithm, which most people went by most of the public.

When I was working with clients as a real estate agent, it was the zestimate that really told them what their house value was worth. And it was a really dangerous thing because the zestimate is what really put in people’s minds their values. And it was an algorithm, right? And that algorithm actually went astray for Zillow themselves when they started to invest in real estate and found that they had paid too much for homes and could not offload them.

So they’ve had all kinds of issues. But to think that their popularity grew so big, so fast that people would treat that as gospel. They said, hey, the zestimates have worth this much. This is what I want for the house. It was just a mind blowing time. Well, it says here that the company’s stock dropped nearly 13% since Friday’s $418,000,000 settlement between the National association of Realtors and groups of home sellers, which ended the standard 6% for realtors.

In a sign that investors fear the settlement could have seismic effects through the housing industry, changing everything from how Americans pay to buy and sell homes to the increase of those in the industry and even the technology underpinning it. You know what’s really interesting? During these times, everybody’s freaking out in the real estate world. Everything’s going to be fine. This little shake up, a lot of agents go, I would never sell homes for less than that.

Yeah, you will. And if you don’t, someone else is going to. I use the analogy of firefighters. When I went through fire academy, what? Jeso 27, 26 years ago, something like that, they had a figure that 90 was it. 97% of the nation’s firefighters at the time were volunteer, and only about three or 4% of the nation’s firefighters were full time in big cities. Now that number has changed because of out of control money printing by governments.

So governments have funded a lot of this through grants and bonds and measures and help from the federal government. Right. And so there’s a lot more paid firefighters now. But the point being is that that’s a job that anybody would do. They liked doing it. They got paid pretty much nothing around the country to risk their lives to help other people. And it’s the same way with really any job at a certain point, job pay gets so bloated.

There’s some kind of industry shakeup in this situation. It’s real estate commissions. And what will happen is a lot of people can leave. There are going to be a lot of people in this economic crash that can’t really, because what job are they going to go to? And then someone’s going to step in and take the lower amount. That’s just how it’s going to work. There’s going to be a lot of really neat negotiating that happens over the next couple of years for selling real estate and for taking care of buyers in the real estate transactions.

And I’ll give you an example. Think about this. You want to go sell your house, and now you go find a selling agent. And they go, I’m only going to charge you 3%. And you’re like, that’s great. And then here comes a buyer without an agent. And the buyer is like, I don’t want to pay an agent. I’ll go through you and you’re a selling agent. And if the selling agent puts their nose up at the thought of taking care of the entire transaction, what are you more than likely to do? As a matter of fact, I’d like to hear it.

What are you more than likely to do if your real estate agent is working for 3%, here’s a buyer that has a loan, is qualified for a mortgage, wants to buy your house, they don’t want to pay an agent. What are you going to tell that agent do? Probably more than likely to take care of it, right? Just handle it. And it’s going to be interesting to see this dynamic shake out.

And it’s going to be really interesting to see companies like Remax, like Prudential, and all these big real estate brokerages that have built themselves up over time based on the fact that they’re definitely getting 3% on one side of that commission, or at least two and a half percent to have their revenue cut in half. That’s going to be very interesting. And you’re going to see a lot of companies like Exp or actually definitely like assist is selling those companies, those discount brokerages really pick up, hey, somebody from Indiana.

People from Indiana. All right, here we go. So it says, Zillow made this point itself in its annual report last month when the company warned that if agent commissions are meaningfully impacted, it could reduce the marketing budgets of real estate partners or reduce the number of real estate partners participating in the industry, which could adversely affect our financial condition and results of operations. What he’s saying nicely is we’re going to have less people, real estate agents that are willing to pay us for advertising because there’s going to be this culling in the market.

A year ago, I put out a course called home seller pro and the reason, and I’m not here to sell it, there’s no links to it down below. But the reason why I did it was because I kept beating my head against a wall with the way that other agents listed homes. I loved it as an investor because there are agents that did horrible jobs. They took horrible photos.

They didn’t put complete descriptions in the MLS listing of the home. They didn’t have all the boxes checked. You’d get the hot sheet and you’re like, are you kidding? Did a child do this? It wasn’t complete, right? The marketing was piss poor. Well, we were always able to take advantage of those deals because the agents didn’t do their job and it just blew me away. When you would see, you’re thinking, this is such an amazing house.

It’s going 50 or 60,000 under market right now because it wasn’t marketed properly. How in the heck did the owners of this home find these agents? And I’d always drill down. I’d always figure out a way of finding out. And nine times out of ten, it was a friend or family member. And you’re like, not every agent does a good job. I look at all the things that I do wrong and have done wrong in my career and look at how I can make it better.

But what shocks me the most about real estate agents is how if they drive a g wagon, people instantly assume they know everything. It really does impress me. There was this gentleman and it bugged the snot out of me. And he started in my area back in the mid 90s, late 90s, sorry. He was a brand new agent in the late 90s when I was looking at real estate, getting into it.

And he would wear a suit. He was brand new, he’d wear a suit. He had the nice car. He took those glamorous photos of him in front of a winery sipping a glass of wine kind of thing, and it would just bug the snot out of me. And I didn’t realize back then how well it was going to work. And he positioned himself as the top real estate agent for the rich and famous and brand new.

Zero experience. But he knew marketing, right? Well, now, Zillow understands marketing, and that’s how they get all of their money. And they’re starting to freak out because half of their agents are leaving right now. Fast forward ten years and this guy knew his stuff. Why? Because he got so many listings. He was thrown through the fire and he became an amazing agent. Right. But in the beginning, how he got his listings was by looking different than everybody else.

And real estate agents are constantly competing for more attention. More. And it’s interesting now that we have social media, an agent really has no excuse on how to get out there in front of their community and be different. Now, going back to the Zillow story, because I think this is really interesting, because I think that you could see Zillow in a serious situation as the real estate market continues to go down in this next year because they are leveraged and you’re seeing their stock go down.

If their stock keeps falling, they’re going to have some big issues. Now, it says here, and we’re going to go over how Zillow makes money. Despite the problems, Zillow still leads in the market because there’s other companies out there, right? Redfin and others with data on well over 160,000,000 US homes. Its residential revenue has outperformed the real estate industry average for six consecutive quarters. Still, it’s a down market.

Zillow reported that it outperformed the residential real estate industry by twelve percentage points in 2023. Total revenue industry wide declined by 17% from the prior year, while Zillow’s fell only 5%. Now, this is what I want to focus on. You’ll notice right here. Still, it’s a down market is exactly what the story says. See, the acknowledgment that the market has turned down is now pretty widely known. And the reason why is because sale volume has fallen off a cliff last year and a half, two years.

This is exactly what happened in 2004 and 2005. And I’ve said this so many times before, a real estate downturn takes quite some time. Why? Because it has to filter through all the states and all the people, and then everybody runs to the door and panics. That panic moment is already beginning because when you go around the country and you look at asking prices, they’re starting out really strong and they have to back down 20, 30, 40, maybe even $50,000, depending on the price of the house, before they get a bite.

So it’s like casting a rod, your fishing line out into the lake, you know where the fish is. You cast that line way out past it, meaning you throw the price out there and you see first, is there any other fish that are going to go grab it the second that bait hits the water and they get excited. No. So you put your high price out there like, hey, my neighbor sold his.

Then you start reeling it in and you start lowering that price. And as that bait passes a fish and he’s like, all right, it’s more opportunity. I could just go for it. It’s pretty much right in front of my face, and the fish grabs it. It’s the same thing in real estate. The only difference is after a certain point, after you keep catching fish in the same spot, what do you end up doing? Other anglers are sitting around watching this.

They start to cast in the same spot, talking about price, hope that makes sense to everybody. But then we’ve got that downturn, and that’s what’s really exciting. This, quite frankly, is one of the greatest things I’ve ever seen, because this is so much bigger than 2004, 2005, because the feds got their back up against the wall with inflation. We did not have stated inflation this high, and it’s way higher, obviously, than what the government numbers are.

But you have to see what’s really happening behind the scenes, and that is the government’s having a hard time selling its debt, especially to other countries. So they’re flooding the markets with money. And it’s not hitting your pocket. So if it’s not hitting your pocket, what’s it doing with your neighbor’s pocket or the neighbor farther down the street? Everyone’s hurting right now. Everyone’s feeling the pinch. We’re starting to see people liquidate their toys right now.

What’s next after toys? Second homes. I saw this in Lake Havasu, where a lot of people had second homes. I had a rental down there, but second homes were pretty prevalent from people in California. When the market turned in 2006, 2007, we started to see second homes hitting the market because people were selling off their toys, their sandrails and all that kind of stuff. Weren’t able to get enough money, they started selling their homes, and that just increased that market activity.

Meaning there’s more inventory now. This spring, you’re going to see a really big bump nationwide in inventory. And what’s even better than that, it’s not just people selling their second homes. You’ve got Lennar, toll brothers, all these massive companies like Centex that have all these brand new homes coming online. You look at Nevada, Texas, they have a glut of homes. They overbuilt. The proof that they have a glut of homes is all of the incentives that they’re offering, like buying down your rate.

I went into a toll brothers office the other day, and they were offering to buy down your rate plus give you $40,000 off, or, sorry, not $40,000 off. They wanted to give you $40,000 in upgrades because they still have to be able to keep their subcontractors busy. It’s an amazing time to be alive. If you’re getting ready for this, you’re going to be blessed. You’re going to have an awesome opportunity to grow wealth in the next few years.

Thank you so much for watching. The economic ninja is out. Bye. .

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