Zillow, Redfin Among Real-Estate Stocks Falling After NAR Settlement

Stocks of a number of real-estate companies such as Zillow (Z), Redfin (RDFN), and Compass (COMP) fell Friday after the National Association of Realtors (NAR) announced a $418 million settlement that could have significant impacts on the U.S. residential real-estate industry.

If the settlement is approved in court, the NAR would pay the $418 million over the next four years to recent home sellers across the country due to changes in how home sales would operate going forward.

The settlement would resolve litigation accusing the industry of colluding to keep commission rates for real-estate agents high, and change how transactions are negotiated, by no longer requiring a home sale listing to include information about how much a buyers’ agent would be paid.

When a jury ruled against the NAR, HomeServices of America, and Keller Williams in one such case last October, analysts predicted that the ruling could mean changes were coming to the structure of compensation in the industry.

If the inclusion of a buyer’s agent’s fee in a listing was banned, it “would cause negotiations about buyer agent commissions to occur when an offer is presented, since there would no longer be an avenue to communicate splits up front,” Jefferies analyst John Colantuoni wrote in an Oct. 2023 note. “This would eliminate the seller’s incentive to compensate buyer agents, which would force them to seek compensation directly. Shifting the burden of payment to buyers would likely meaningfully reduce their use of agents given most already struggle to cover closing costs.”

Those changes could mean drastically reduced revenue for buyer agents and fewer realtors in the industry, which could in turn reduce revenue for companies that rely on a busy real-estate market like Zillow, Compass, Redfin, and others.

As of about 3:20 p.m. ET Friday, Zillow shares were down 14.1% and Compass was off 14.2%, while Redfin was down 6%.