© Reuters. FILE PHOTO: A man looks at advertisements for luxury apartments and homes in the window of a Douglas Elliman Real Estate sales business in Manhattan’s upper east side neighborhood in New York City, New York, U.S. October 19, 2021. REUTERS/Mike Segar/File
By Chibuike Oguh and Jonathan Stempel
NEW YORK (Reuters) -Shares of Douglas Elliman, Compass and eXp World Holdings (NASDAQ:) closed lower on Wednesday after the companies were sued for allegedly conspiring to artificially inflate their commissions from home sales.
The proposed class action was filed on Tuesday in Kansas City, Missouri, just hours after a jury there found the National Association of Realtors and other brokerages, including Berkshire Hathaway (NYSE:)’s HomeServices of America, liable to pay $1.78 billion in damages for similar commission practices.
Damages in that first case could be tripled under federal antitrust law to more than $5.3 billion.
The verdict could upend decades-old practices that have allowed real estate agents to boost commissions by forcing sellers to pay commissions to buyers’ real estate brokers. Home sellers complained that this model suppressed competition.
Shares of the new defendants fell between 0.3% and 7.3% on Wednesday. Redfin (NASDAQ:), also a defendant in the lawsuit, rebounded from earlier losses and finished up 0.7%.
Both lawsuits were filed in the U.S. District Court in Western Missouri by the same lawyer. The first action was brought on behalf of sellers of more than 260,000 homes in Missouri, Kansas and Illinois between 2015 and 2022. Tuesday’s lawsuit is on behalf of sellers nationwide.
A spokesperson for eXp said the company was still studying the complaint, adding: “We are committed to upholding fair and transparent practices compliant with law and we already have mechanisms and a plan in place that enables buyers and sellers to negotiate commissions.”
Representatives of Compass and Douglas Elliman declined to comment. A Redfin spokesperson declined to comment, referring questions to a previously published statement by CEO Glenn Kelman saying that the lawsuit will “ensure major change” to the industry given the size of the award even though “years of appeal” lay ahead.
BTIG analyst Soham Bhonsle in an investor note said the fact that Douglas Elliman, Redfin, Compass and eXp were being sued by the same lawyers was a negative for their stocks.
Shares of Re/Max and Anywhere Real Estate, two other brokerages that had initially been defendants in the first lawsuit but settled prior to trial, finished up 5.4% and down 3.9%, respectively, on Wednesday. Both had fallen on Tuesday despite their earlier settlements.
Zillow (NASDAQ:) shares initially fell 0.33% after brokerage Jefferies cut its price target, citing the impact of Tuesday’s verdict. Zillow stock ended 0.7% higher on Wednesday following a 7% drop the previous day. While Zillow is not a defendant in either lawsuit, Jefferies said Tuesday’s verdict “increases the chances of a ban on commission sharing and Zillow having to pivot the business model.”
A Zillow spokesperson said: “Homebuyers need agents who work only in their best interests. Part of that is making sure consumers are well-informed of agent fees, who is paying them and their right to negotiate them, while also ensuring agents are paid fairly for their valuable work. Zillow is in a strong position and will always focus on serving the needs of consumers.”
On Tuesday, representatives of NAR and HomeServices said they planned to appeal.
Read the full article here
