stock price performance
In the hours after the shocking news of the settlement broke, residential real estate stocks soared like a roller coaster.
Like other publicly traded securities companies, Zillow Group’s stock price fell, dropping 13.4% on the day of the NAR settlement announcement. The only company that stood out was KoStar Group, whose stock rose 8% on the day NAR’s results were released.
The discrepancy in stock performance was the latest in an ongoing battle between Zillow and Homes.com for supremacy as the home listing portal.
Analysts and industry experts attribute the difference in stock performance to the mismatch between Zillow and Homes.com’s business models. While Zillow is primarily known for selling buyer agent leads through its Premier Agent program, Homes.com promotes a “Your Listing, Your Lead” model focused on seller agents. I am.
In a note issued March 15 after news of the NAR settlement broke, analysts at the investment bank said: KBW “Companies expected to be most adversely affected include those with buyer-agent commission-driven models,” they wrote.
“While structural changes could ultimately be positive for real estate portals in general, we believe CoStar (CSGP) Homes.com realtor.com) faces short-term disruption risks with potential business model shifts,” KBW analysts added.
In an earlier memo, KBW also mentioned CoStar as the “biggest beneficiary” of the changing buyer agent landscape.
In October 2023, before the start of the Sitzer/Barnett Commission case trial, CoStar CEO Andy Florance said: housing wire The only way companies like Zillow and Realtor.com could continue to succeed in the buy-side lead model was if NAR’s participation rules were maintained.
“If seller brokers didn’t have to work with buyer brokers who were hired on a contract through a lead call center, they wouldn’t work with them,” Florance said. “If the buyer-broker commission rule is repealed, the portal revenue model will definitely be abolished.
“We chose not to take advantage of buyer-broker rules from day one because we thought it was a better business model. We believe this will be a more profitable business model.”
Koster and Florence did not wish to share further thoughts on the news of NAR’s settlement agreement.
different opinions
While Florance and KBW’s analysts may believe CoStar and Homes.com have a chance to come out on top, other industry analysts and experts say the competition is much more likely than some predict. I think it may not be as thorough as it seems.
Real trend consulting Co-founder and industry veteran Steve Murray said the terms of the NAR settlement, which states that commission and collaboration offers will no longer be allowed to be disclosed on the MLS, will be good for all listing portals. I believe.
“If I was marketing for a seller who wanted to offer co-brokerage commissions, I would definitely still use Homes.com, Zillow and Realtor.com.” said Murray.
Soham Bhonsle, Analyst BTIG, shared similar thoughts. “If you’re arguing that the MLS is suddenly going to go away, or that there’s going to be no buyer agent and there’s going to be a seller agent basically doing both sides of the transaction, I still don’t think so.” How would that affect stock prices? I don’t know if there are any. Because in this scenario, Zillow also stands to win. If both parties become the de facto MLS, all portals will be given authority. ”
Despite his optimism about Zillow, Bhonsle said that depending on the real estate industry’s reaction to the terms of NAR’s settlement (currently awaiting final court approval), the giant company’s business practices will acknowledged that some changes may have to be made.
“There’s no question there’s going to be a handoff between where Zillow’s business model is today and where it needs to get to. But there’s no question that they haven’t yet built a product similar to Homes. I’d be surprised if that were the case.” .com would be competing for that listing business. But I don’t know what’s really changing here and what’s driving all the demand for Homes.com. ”
As Bhonsle suggested, Zillow is already working on diversifying its business, including offering customized solutions for dealerships. In June 2023, the company Exhibition showcase by Screening time+an AI-powered “super listing” designed to help listing agents present their brand and properties in a unique way.
stevens Analyst John Campbell said this is the part of Zillow’s business that investors should focus on.
“If you’re saying commission rates are going to get compressed to the point where it becomes an issue, other parts of the business are going to get stronger, like paid listings and paid inclusion models, and I don’t know what that’s doing.” Listing Sell-side monetization with Showcase,” Campbell said.
Improved transparency
While Campbell believes Zillow will continue to build IT tools and services for sell-side agents, he also feels the company can leverage its buy-side business model for future success. Under the terms of NAR’s settlement agreement, agents are required to enter into a buyer representation agreement in order to work with buyers.
“While Zillow and some of the other portals generate hundreds of millions of leads a year, they only made 4 million transactions last year, which means there are probably many consumers with low intentions to not transact at all. It also means someone might not make a deal. I got 10 leads to 10 different agents, but they only bought one house.” Mr. Campbell said.
“Buyer representation agreements will change the game. Lead flow will decrease significantly, but conversion rates will increase, thereby increasing the price of leads.”
Additionally, Zillow is rolling out its changes. premier agent In these markets, Zillow narrows down its pool of premier agents and only charges agents a lead fee if the deal closes successfully.
“For those of us who have been following Zillow for as long as we have (over 15 years now), we have seen many evolutions in business models for Zillow and the real estate market, but one thing remains the same: Yes, and that’s something that Zillow has always had a strong technology presence with agents,” said analyst Daniel L. Cournos. benchmark companyI wrote in a memo dated March 18th.
“If the business model evolves again, I think it’s reasonable to think that Zillow will create another set of tools that can at least help with retention in the worst-case scenario, or even increase wallet share, especially if the MLS itself The best-case scenario is if it becomes unavailable to the same extent.”
Meanwhile, Zillow said it is too early to determine how changes caused by NAR’s potential settlement terms will impact the market.
“We’re clear that buyers and sellers qualify as independent agents and that brokerage fees are fair, transparent and negotiable,” a Zillow spokesperson said in an email. “More transparency in real estate is a good thing. This is Zillow’s founding principle and something we have always championed.
“To that end, we also believe everyone should have easy, free and equal access to all available housing listings and information, including how to pay agent fees. I will continue advocate We believe in the best interests of our consumers, which also benefits our agents and the industry as a whole. ”
Realtor.com did not wish to contribute to this article, saying it does not comment on third-party settlements.
“Realtor.com welcomes consumer transparency and remains committed to supporting agents on both sides of the transaction,” a company spokesperson said in an email. “We believe that consumers need both a listing agent and a buyer agent, and that both are important in advising and protecting the interests of consumers.”
