Friday Update November 5, 2021
Oh boy I am going to just shit all over Zillow on this blog. A long overdue, like 7 year old rank disgusting shit just in time to celebrate my favorite tech company's failure. I want to make it clear that when I say all the hurtful, awful, sincerely terrible things about this company that I am not speaking about the licensed component of it. Zillow as a real estate brokerage I'm sure has some wonderful agents that run their business above par and well. I'm not even being sarcastic. But the unlicensed component of Zillow, which makes up the bulk of it, is about to get upper decked. Just to be 100% clear, #fuckzillow.
First and foremost this week a different set of Turds spoke and said nothing. The Fed came out and said they're going to taper their mortgage backed securities purchases by 5 Billion dollars a month and their Treasury Bond purchases by 10 Billion dollars a month. This is an adjustment to their minimum monthly purchases and has no bearing on much they will actually buy. There is no limit, just a minimum. The announcement they made on Wednesday was literally a non even and interest rates reflected it as they finished the week roughly 15 BPS lower than last week. 1.45% ish. The Fed talks about tapering, about raising rates eventually and the market once again calls bullshit. Good for borrowers!
I'm gonna call it a trend now. 523 Single Family homes on the market today, down 46 from last week and trending lower. This is to be expected because the next 2 months in America are all about eating, drinking, arguing with family and stressing about holiday travel. Expect dwindling inventory into the new year followed by a glut of new year's resolutions that may include moving.
Median sales price finished October right around $440,000 on over 1,500 sales showing no real dip in pricing. Maybe November into December we see a bit of a dip, maybe, but it's not the crash we're all hoping for. The market is still pretty competitive. Not 30 offers deep on most listings competitive like in the Spring, but still very fast and competitive. Sellers 100% still have the upper hand and will continue to until the supply/demand situation changes.
Now for Zillow. I can not even tell you how happy this week made me. I know it's pretty petty to hate on a "competitor" so much but they're not a competitor. They're a parasite.
Quick recap on who founded Zillow and why. The company was founded in 2006 by Rich Barton, Lloyd Frink, Spencer Rascoff and others. These dudes armed with Microsoft money came in hot and heavy off the successes of Expedia.com and hotwire.com. These nerds basically eliminated the need for travel agents by making it easy to book hotels, rental cars and flights online. Then the mission shifted to getting rid of real estate agents by making buying a house as easy as buying a plane ticket. Cause you know, apples to apples and stuff.
You guys all know the website and I don't need to tell you about it. But the back end is kind of interesting. You see Zillow and other websites get their active listings directly from local Realtor boards. Like for example our local board submits a feed to Zillow, so does Denver's, so does Pueblo's, so do most of them around the country. By spending an unreal amount of money paying all of these boards for data Zillow was able to create a shitty version of what some agents have been dreaming of, a single MLS. You can jump on Zillow and surf houses in Florida, then Colorado, then any other place you want to window shop houses. This sounds pretty awesome right?
It would be so cool if the data being pulled was complete, accurate and in context. But it isn't. So you have the public being fed this partial information as facts. In the last several years I can not even tell you how many times I've heard someone say "well Zillow says it's worth x" and "I saw on Zillow that...". Zillow uses some proprietary and terrible algorithm to determine and publish a value of all the real estate in the United States. We're going to come back to this point here shortly but before that let me tell you how easy that number is to manipulate.
Over the years I've been fortunate enough to get a few listings. I noticed that sometimes, pretty often even, the Zestimate was significantly different from the listing price we we're going in at. Sometimes it was pretty close, but other times it would be off by like 45%. On my best days I get paid 3% so let's just say 45% is a lot.
I knew that if I listed a property that had a $240,001 Zestimate for $354,900 that within exactly 48 hours of hitting Zillow the Zestimate would change to something remarkably similar to what I, the Realtor guy, thought it was worth. I've had properties like the above example that would adjust the Zestimate to $349,901. My bad seller! I screwed the pooch on that last dollar for you.
Every listing I take I do so with the intention of providing my seller with a relatively quick sale for the highest amount possible. But what if I was bad at pulling comps and significantly overpriced my listings? That's right, that would feed Zillow bad data and drive their algorithm up. What if that algorithm is also being used to predict the future and takes its own predictions into account months and years down the line? That's when it gets really funny!
Most of you guys know that for the last several years the housing market nationwide has been going B-A-N-A-N-A-S. We've seen double digit appreciation across most markets year after year for close to a decade. So Zillow decided to get in on the action of accumulating wealth by owning real estate instead of just milking agents for money. Woah woah let me touch on that first.
So for years listing agents would sit down at dining room tables and talk to sellers about their houses. Listing agreements would get signed, agents would market the properties on the MLS and then in time that MLS feed began to get syndicated to Zillow. The website would then put agent headshots and phone numbers next to all the pictures of houses for sale and the public would click on those agents or call them making themselves into "leads". You see there is an organic way of generating business where you demonstrate value to your clients to the best of your ability and they in turn refer you to their friends and family. It's worked for always. And then you have Zillow where all that matters is your spend.
Zillow back in the day, and this did change recently, would basically sell shares of zip codes to agents. Let's say in 80920 there are 100,000 impressions per month meaning 100k people browsing the Realtor generated data that Zillow paid our local board for. The amount of traffic per zip code would determine the price agents paid to appear across the listings in that zip code. From what I remember back in the day before I learned how to do real estate is that 25% of lower end zip codes would run like $1,200 a month and zip codes with higher price points and higher traffic could easily cost north of $2,000 a month for just a share of it. So we have like 25 zip codes in El Paso County, and like a bunch of thirsty agents, so you can kind of see how the website was able to make a killing off the very people that were generating the data to begin with. I fucking hate Zillow by the way.
In 2008 Zillow got themselves an inactive real estate license in the State of Colorado. This also is called putting your license on ice and is basically just used a place holder. This is 2008 mind you, not a great time for real estate sales and a better time to develop a website probably.
From then onward Zillow collected I have no idea how incredibly much money from the very people they intend to destroy, the agents! Realtors would fork over thousands, tens, hundreds of thousands of dollars every year just to...I'm going to skip the part where I talk about the egos in this business. Zillow made a killing, they had money to invest.
So now armed with a literal boatload of cash and the world's most accurate and reliable Sega Genesis of home value prediction Zillow decided to enter the market as an I-buyer. The idea is you click on some link online when you're drunk late at night to see what your home is worth and then some 22 year old little coked out sales monster calls you for the next 6 weeks asking when you're moving out. Just kidding, the idea was to make it convenient to sell a house, without all the showings, and most importantly without the hassle of having to talk to any of those shady Realtors.
So they start buying houses, a little at first, and then in earnest through 2020 and going into 2021. And being the Realtor guy that I am, curious and filled with hatred for the company, I start looking into their transactions. And what I see kind of baffles me. The company consistently overpays for real estate. In pulling comps every single week I now stumble across houses that Zillow bought where they paid 30-60k more for the house than it's worth.
For several months I saw on linkedin that Zillow was trying to hire a "renovation estimator". Apparently they had this problem nationwide because the contractors that ended up working for Zillow we're not friendly to them like some of the contractors we work with regularly. You know why? Because #fuckzillow, but really though because of loyalty.
So then I start having all these conversations this year about why should I list with you when Zillow said they'll pay like 10% more than that? And I was like you're right, you shouldn't, you should take their money and run and let them be stuck with the house.
And now the part that has made my week and turned my short on Zillow stock very profitable. Not only did they sell enough houses at a loss to lose, wait for it, $550,000,000 (million) so far on their house flipping venture. Not only are they now stuck with 7,000 houses that they will sell for a further loss to whatever corporate buyer wants another 7,000 rentals. But now they are going to leave the house flipping game completely.
Their stock peaked earlier this year at over $210 a share, and finished this week at below $70. They are fucking terrible at real estate and mediocre at providing the same data feed that your agent can provide you with for free without all the ads.
So in summary guys, Zillow the real estate brokerage if they continue to exist after this fiasco is as good as any other brokerage. Their agents are probably super good and hard working people. (We're hiring if you're looking). But the unlicensed portion of the company, the part feeding you questionable data and making predictions for the market off it is just not good. You know who knows your market better than anyone? The agents that work in it every single day.
You don't have to hire me. I'm an abrasive, blunt potentially toxic human being. There are other agents all around me here locally that know this market better than any algorithm. They can smell the cat piss, they can see the shoddy work, they can feel the crumbling foundations and sense to domestic issues going on next door. Good agents can never be replaced with a formula because real estate is not linear like that.
On a closing note to this very long rant for all my agent friends can you do me a favor? Can you please stop paying the parasite and focus on your clients instead? Please?