Impact of Recent Real Estate Commission Changes: A Closer Look

In a significant development, Compass (COMP) has agreed to a $57.5 million settlement related to antitrust claims concerning real estate commissions. This comes on the heels of the National Association of Realtors (NAR) agreeing to a $418 million settlement in a lawsuit alleging the industry conspired to inflate agent fees.

The NAR settlement, which essentially decouples buyer and seller agent fees, is seen as a win for consumers. It is expected to create transparency around commission structures, ultimately lowering costs. US Realtor commissions, typically ranging from 5% to 6% since the 1950s, are among the highest globally, with the total commission pool estimated at $100 billion nationally.

For buyers, the changes could lead to substantial declines in fees or the option to bypass using agents entirely, a practice uncommon in most countries where buyer agent usage averages 33% compared to nearly 90% in the US.

Homebuilders, who typically paid the buyer agent’s commission, stand to benefit significantly from the shift in broker fees. This change could be a major boost for builder margins, as commissions have been a significant drag on their profitability.

The reduction in commissions could also drive demand for new homes, potentially leading to lower home prices for consumers. Homebuilder stocks, including Lennar (LEN), Toll Brothers (TOL), and PulteGroup (PHM), have already rallied to record highs this year, partly fueled by the NAR settlement and expectations for Fed rate cuts.

However, major brokerages like Zillow (Z), Redfin (RDFN), and Compass (COMP) have seen their shares decline as investors fear the impact of changes to agent fees. Analysts caution that the full impact of the shift in cost structure may not be fully priced in at current levels.

Despite the challenges for some listing platforms, there are opportunities for growth. Platforms that help sellers advertise their listings, such as CoStar Group (CSGP), could see increased demand as more buyers opt to do their house hunting themselves. CoStar shares rallied 8% after the NAR settlement was announced and are up 12% year to date.