Quiver Quantitative - A Missouri jury delivered a significant judgment against the real estate sector, ruling that the National Association of Realtors (NAR) engaged in a collusion scheme to maintain elevated brokerage commissions. As a result, damages of approximately $1.8 billion were awarded. This case is just one of several recent lawsuits scrutinizing the compensation system for real estate agents. Typically, home sellers are liable for a commission ranging from 5% to 6% of the sale price, which is divided between the selling and buying agents. Amidst these legal challenges, there's potential for the federal government to overhaul commission-sharing, a mainstay in real estate transactions for years.
The latest verdict doesn't influence the U.S. Justice Department's (DOJ) perspective directly. However, it illuminates issues central to a lawsuit dubbed "Sitzer/Burnett." Signaling heightened vigilance, the DOJ has also made its presence felt in a Massachusetts lawsuit concerning traditional commission procedures. Amid these events, Zillow (NASDAQ:Z) Group Inc.'s stock declined by 6.9% on Tuesday, marking its most significant drop since June 2022. Though Zillow's primary revenue stream doesn't emanate from commission, it does provide marketing services to purchasing agents. Notably, the share price has plummeted over 80% since its zenith in February 2021 during the housing boom induced by the pandemic.
While Zillow (ZG), Compass (COMP)., and Redfin (RDFN). all experienced share value declines on Tuesday, none were directly implicated in the Missouri lawsuit. Instead, the legal action targeted the NAR, Keller Williams, and Berkshire Hathaway (NYSE:BRKa)'s (BRK.B) HomeServices of America. Two other brokerages, Re/Max and Anywhere Real Estate Inc., previously settled, agreeing to hefty payments and disassociation from the NAR. Post-verdict, both HomeServices and NAR expressed intentions to appeal, emphasizing potential future challenges for both buyers and sellers in the real estate market.
The accumulation of these cases predominantly targets a commission system exclusive to the U.S., perceived as costlier for consumers compared to models in nations like Australia and the UK. The most significant peril to the industry might emerge if the DOJ endeavors to completely dismantle the commission-sharing model. Although the Trump administration initiated an investigation into this sector, the Biden administration has expanded antitrust investigations beyond traditional spheres, signaling the possibility of deeper scrutiny and challenges ahead.
This article was originally published on Quiver Quantitative