In a significant industry development, the National Association of Realtors (NAR) reached a $418 million settlement to resolve multiple lawsuits, triggering a seismic shift in the real estate landscape.
The proposed changes, set to be implemented by mid-July 2024 pending court approval, would revolutionize how agent commissions were negotiated. This presented both challenges and opportunities for online real estate platforms.
Related: Major NAR Settlement In Real Estate Litigation: Are Commissions About To Get A Lot Lower?
JPMorgan analysts Dae K Lee, CFA and Doug Anmuth shared their takeaways and insights in a research note.
Implications for Online Real Estate Platforms
According to Lee, the settlement introduced pivotal modifications, notably ending the practice of seller's agents determining compensation for buyer's agents and mandating written agreements between MLS participants and buyers. While this move opened up negotiations on buy-side agent commissions, it also raised uncertainties regarding the future dynamics of the industry.
Online real estate giants such as Zillow Group Inc (NASDAQ:Z) (NASDAQ:ZG) and Redfin Corp (NASDAQ:RDFN), heavily reliant on buy-side commissions, face potential revenue and profit headwinds.
Zillow's revenue structure, with 48% attributed to buy-side transactions, and Redfin's exposure of approximately 45%, underscored the significance of the impending changes. However, innovative business models and tech-driven strategies could mitigate the impact, particularly for platforms focusing on high-quality and efficient agents.
Online Real Estate Platforms Remain Well-Positioned
Despite the anticipated short-term challenges, Lee saw online real estate platforms well-positioned to capitalize on emerging opportunities. With robust engagement metrics and a relentless pursuit of technological innovations, platforms like Zillow, Redfin, Opendoor Technologies Inc (NASDAQ:OPEN), and Offerpad Solutions Inc (NYSE:OPAD) are poised to weather the storm and emerge stronger on the other side.
Lee noted the settlement might present near-term challenges for key players in the online real estate sector, but it also eliminated a significant regulatory overhang.
Zillow, with its leading market position and robust margins, emerged as a favored choice within the industry. As the dust settles, the industry's response to the settlement and its subsequent adaptation to the new regulatory landscape will shape the future trajectory of online real estate platforms.
Price Action: On Monday at publication, Zillow shares were trading up by 0.96% at $48.17 while Redfin shares were lower by 4.99% at $5.17. Opendoor shares were up 10.11% at $2.94 while Offerpad shares were down 1.73% at $7.96.
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