Real Estate Services
02 Nov 2023
Real estate services firms get pummeled following Missouri ruling
At the heart of the case was a National Association of Realtors (NAR) rule that requires sellers to make a blanket offer of compensation to buyers’ agents for the ability to have their homes listed on the Multiple Listing Service, or MLS. In other words, if you want to sell your home expeditiously, plan on paying your 6% commission, with the understanding that half of the fee will go to the buyers’ agent. Home sellers generated a class-action lawsuit (well, let’s face it, legal firms fomented the case to generate their own income) in an effort to dismantle that rule. A jury in the Western District court of Missouri agreed with them, ruling that the NAR and residential brokerages were in collusion to maintain the fee structure. While it will take years for the case to wind its way through the legal system, investors wasted no time in dumping their real estate services holdings. Digital real estate broker Redfin (RDFN $5), for example, saw its share price drop double digits on the ruling. Shares of Zillow Group (Z $34), an Internet-based real estate company, fell by about 7%, their biggest one-day decline since the summer of 2022. Cloud-based real estate software provider Compass Inc (COMP $2) saw its shares hit a 52-week-low of $1.81 before rebounding slightly. As could be fully expected within the current climate, the US Department of Justice is reportedly considering its own lawsuit to dismantle the lucrative real estate commission structure within the country. Arguing that home sellers in most other countries face fees of around 2%, the department finds the systemic scheme to be archaic and harmful to consumers. While the DoJ and the FTC have a embarrassing loss record with respect to their adjudicated cases over the past several years, this one could gain traction. In an interesting twist, the department settled a case with the NAR during the Trump administration which forced the organization to increase price transparency. The Biden DoJ, however, walked away from that agreement, wanting the ability to pursue tougher penalties in a wider case. A federal judge ruled this past January that the DoJ cannot simply walk away from its settlement. No matter what shakes out, with mortgage rates floating around 16-year highs and a dearth of homes on the market, this was the last thing realtors wanted on their plate. The Real Estate Operations industry is ranked in the bottom five of all industries right now (239 out of 251), as the segment has a lot more to be concerned with right now beyond this legal action. We would not be tempted to do any bottom fishing here.