(Bloomberg) — Zillow Group Inc. and other real estate stocks plunged after a Missouri jury struck a fresh blow against the battered industry, finding that the National Association of Realtors colluded to maintain high brokerage commissions.
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The jury awarded nearly $1.8 billion in damages in the case, one of several recent lawsuits concerning how real estate agents are paid. The Justice Department is also scrutinizing the commission-sharing system, which typically puts home sellers on the hook for a 5% to 6% cut of the sale price, split between their agent and the representative for the buyer.
Read more: US Realtors’ Lucrative Fee System Faces Mounting Antitrust Risk
In a worst-case scenario for the industry, the federal government could seek to ban sharing commissions, which would upend how real estate agents have done business for decades. That would be especially bad news at a moment when the US real estate is largely frozen, with mortgage rates approaching 8% and existing home sales nearing lows not seen since the foreclosure crisis.
The verdict Tuesday doesn’t directly affect the Justice Department’s stance, but the lawsuit, known as “Sitzer/Burnett,” revolves around the same set of issues. The DOJ also recently injected itself into a Massachusetts case related to the traditional commissions system, signaling that the watchdog is paying attention, according to analysts at Stephens Inc.
Stocks Drop
Shares of Zillow fell 6.9% Tuesday, the biggest decline since June 2022. While the company doesn’t rely on commission income directly, its core business is selling marketing services to buyers’ agents. The stock has dropped more than 80% from its peak in February 2021, when it was riding the pandemic housing boom.
Brokerage shares also sank Tuesday, with Compass Inc. falling 6.2% and Redfin Corp. dropping 5.7%.
None of those companies were named in the lawsuit, which was filed in Kansas City, Missouri, against the Realtors association, Keller Williams and Berkshire Hathaway’s HomeServices of America.
Two other brokerages, Re/Max and Anywhere Real Estate Inc., settled with plaintiffs earlier this year, agreeing to pay $55 million and $83.5 million, respectively, and to no longer require agents to belong to NAR.
In separate statements, HomeServices and NAR said they intend to appeal, while Keller Williams said that it would also consider that option.
“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,” HomeServices said. “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.”
In addition the Missouri case, plaintiffs in Illinois, where a trial is expected to start early next year, are seeking as much as $40 billion in another private class-action lawsuit against the NAR.
System Challenge
Taken together, the cases are a challenge to a commission system that is largely unique to the US and seen as more expensive for consumers than in countries such as Australia and the UK. Still, the bigger threat to the industry would be a case brought by the Justice Department to dismantle the commission-sharing structure altogether.
The DOJ started investigating the real estate industry under the Trump administration, and NAR agreed to measures, including increased price transparency, to settle the case. Biden officials in 2021 pulled out of that agreement, saying they wanted the ability to pursue future antitrust claims against the group.
A federal judge in January said the DOJ is still bound by that settlement. The department is appealing that decision, as the Biden administration expands antitrust scrutiny outside traditional areas.
“While most industry followers are tuned into the class action suits, we think that potential DOJ involvement, at some stage, could create a whole new set of challenges,” analysts at Stephens said.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
