On Tuesday, shares of the real estate digital brokerage platforms Redfin (NASDAQ:RDFN), Opendoor (NASDAQ:OPEN), Compass (NYSE:COMP), and Zillow Group (NASDAQ:ZG) declined 5.7%, 9.1%, 6.1%, and 6.9%, respectively. This decline follows a Missouri jury’s decision against the National Association of Realtors (NAR) and other major residential brokerages in the Midwest. The judge found them guilty of conspiring to maintain high commissions.
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Interestingly, the above companies were not involved in the lawsuit. The defendants in the class action lawsuit were the NAR along with Midwestern brokerages Keller Williams and Berkshire Hathaway (NYSE: BRK.A) HomeServices of America. However, the possibility of major brokerage firms reducing commissions and therefore becoming more competitive for RDFN, OPEN, COMP, and ZG resulted in share price declines.
Brief About the Lawsuit
The class action lawsuit is focused on the less transparent split of brokerage fees and commissions. To make it clearer, when a home is sold, one has to incur a broker’s fee, which is divided between the buyer’s and seller’s brokers. However, this lawsuit claims that the way these fees are handled may not be clear or fair.
The plaintiffs have asked the judge to alter how real estate brokerages operate, including possibly stopping the need for cooperative compensation. Depending on the court’s decision, home sellers may be relieved of covering the costs of both the listing and buying brokers’ commissions.
Which Real Estate Stock is Best?
The real estate industry is battling with a slowdown due to high mortgage rates, increased home prices, and tight housing inventory. As per data provided by the NAR, existing home sales declined for the third consecutive month year-over-year, with all four major U.S. regions witnessing a fall.
Among the four real estate stocks mentioned above, Zillow, Berkshire, and Compass have a Moderate Buy consensus rating on TipRanks. Nevertheless, Wall Street analysts see plenty of upside potential in all five stocks.
