Share prices for Zillow and Redfin took a major hit yesterday after a jury ruled that brokerages and The National Association of Realtors (NAR) were guilty of illegally inflating their agents' commissions.
A Kansas City jury found that the NAR, HomeServicesofAmerica and Keller Willams were all guilty of colluding to inflate high commission rates in violation of the ethical bindings of the NAR's Clear Cooperation Rule, which states that "the public marketing of a listing indicates that the MLS participant has concluded that cooperation with other MLS participants is in their client’s best interests."
This rule requires listing agents to make the same offer to buyer agents about how much commission they will receive when closing the sale of a house. In the US, this typically sits between 5-6%, with half going to the buying agent.
But an 11-day trial found that the NAR, HomeServicesofAmerica and Keller Willams knowingly broke antitrust rules to maintain high commission.
The jury found that plaintiffs had been forced to pay more for real estate brokerage services when selling their homes than if the conspiracy hadn't existed.
The judgment now opens the door to follow-up lawsuits in different states (this court case is in Missouri only) after the jury found that the conspiracy "had the purpose or effect of raising, inflating, or stabilizing broker commission rates paid by home sellers."
Anywhere Real Estate and RE/MAX were named as defendants in the original lawsuit filed in 2019, but both brokerages settled for a combined $139M while also agreeing to update their business practices
They were the lucky ones. The remaining defendants will now pay damages of $1.78Bn dollars—which will be trebled to $5.3Bn under US law.
A spokesperson for the NAR said the trade group will be appealing the jury’s verdict and will also ask the court to reduce damages, while Keller Williams and HomeServices have released similar statements.
HomeServices has predicted that the verdict will actually have a detrimental impact on homebuyers in the future:
"Today’s decision means that buyers will face even more obstacles in an already challenging real estate market and sellers will have a harder time realizing the value of their homes.
"It could also force homebuyers to forgo professional help during what is likely the most complex and consequential financial transaction they’ll make in their lifetime.
"Cooperative compensation helps ensure millions of people realize the American dream of homeownership with the help of real estate professionals."
Keller Williams, meanwhile, is adamant that key evidence was barred from admission and will appeal:
"We are disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that cooperative compensation is permitted under Missouri law.
"This is not the end. Keller Williams followed the law regarding cooperative compensation and stands by the evidence presented on the 100-year-old practice of sellers’ agents offering commissions to other agents who help market and sell homes. Looking forward, we will consider all options as we assess the verdict and trial record, including avenues of appeal."
It meant yesterday turned into a bad day for Zillow, and particularly Redfin.
Zillow shares dipped 7% and Redfin's 10%, while fellow publicly traded companies Compass and Anywhere Real Estate also took single-digit hits.
The hits happened simultaneously, with Zillow dropping to a low of $34.87 per share at 2pm...
Zillow share prices, Google Finance
While Redfin's stock tumbled to its lowest price since January 2023:
Redfin share prices, Google Finance
But why are the portals taking a share price hit when they're not listed as defendants in the case? The short answer is that they are part of the MLS which—for as long as this trial is ongoing—is now in limbo.
Judge Stephen Bough has the power to ban the Clear Cooperation Policy entirely, or otherwise force reform onto the industry to ensure this kind of collusion doesn't happen again, which would have major ramifications for portals like Zillow and Redfin.
This trial isn't finished yet, and yesterday's share price dips are as valuable a guidance as any that the industry has taken a very quick transition into a state of flux—and it's out of their hands on what happens next.
Indeed, attorney Michael Ketchmark filed a new, 50-page class action lawsuit against seven defendants—Compass, eXp World Holdings, Redfin, Weichert Realtors, United Real Estate, Howard Hanna Real Estate, Douglas Elliman, and the National Association of Realtors—within minutes of the jury's decision.
The case echoes the Sitzer/Burnett suit in challenging the practice of having home sellers pay sales commissions to buyers’ agents, which the plaintiffs allege violates the Sherman Antitrust Act.
Watch this space, it could get ugly.