Redfin (RDFN) Risk Analysis

We have integrated artificial intelligence ("AI") technologies in many of our tools and features available on our website and in the tools that our agents use in their daily activities. For example, we may use AI technologies to estimate home values, scale frequently performed tasks, or answer customer questions. We may continue to integrate these technologies in new offerings. Notwithstanding the use of AI on our website and with certain agent activities, we've yet to utilize AI within our financial reporting or internal control over financial reporting functions. Given that AI is a rapidly developing technology that is in its early stages of business use, it presents a number of operational, compliance and reputational risks. AI algorithms are currently known to sometimes produce unexpected results and behave in unpredictable ways (e.g., "hallucinatory behavior") that can generate irrelevant, nonsensical, fictitious, deficient, offensive or factually incorrect content and results, which if incorporated into our platform, may result in reputational harm to us and our agents and be damaging to our brand. Additionally, content, analyses or recommendations that are based on AI might be found to be biased, discriminatory or harmful. Data sets from which Large Language Models learn are at risk of poisoning or manipulation by bad actors, resulting in offensive or undesired output. Similarly, the data set could contain copyrighted material resulting in infringing output. AI output might present ethical concerns or violate current and future laws and regulations, including licensing laws and a variety of federal and state fair lending laws and regulations such as the Fair Housing Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, and the prohibition against engaging in Unfair, Deceptive, or Abusive Acts or Practices pursuant to the Dodd-Frank act. We expect that there will continue to be new laws or regulations concerning the use of AI technology, which might be burdensome for us to comply with and may limit our ability to offer or enhance our existing tools and features or new offerings based on AI technology. Further, the use of AI technology involves complexities and requires specialized expertise. We may not be able to attract and retain top talent to support our AI technology initiatives. If any of the operational, compliance or reputational risks were to materialize, our business and results of operations may be adversely affected.

We are currently subject to a variety of, and may in the future become subject to additional, federal, state, and local laws. The laws include, but are not limited to, those relating to real estate, brokerage, title, mortgage, advertising, privacy, competition, and consumer protection, labor and employment, and intellectual property. These laws and their related regulations may evolve frequently and may be inconsistent from one jurisdiction to another. Additionally, certain of these laws and regulations were created for traditional real estate brokerages, and it may be unclear how they affect us given our business model that is unlike traditional brokerages or certain of our services that historically have not been offered by traditional brokerages. These laws can be costly for us to comply with or enforce. Additionally, if we are unable to comply with and become liable for violations of these laws, or if courts or regulatory bodies provide unfavorable interpretations of existing regulations, our operations in affected markets may become prohibitively expensive, consume significant amounts of management's time, or need to be discontinued.

The real estate industry faces significant pressure from private lawsuits and investigations by the Department of Justice (the "DOJ") into antitrust issues. In April 2019, the National Association of REALTORS ("NAR") and certain brokerages and franchisors (including Realogy Holdings Corp., HomeServices of America, Inc. RE/MAX, and Keller Williams Realty, Inc.) were named as defendants in a class action complaint in federal district court for the Western District of Missouri alleging a conspiracy to violate federal antitrust laws by, among other things, requiring residential property sellers in Missouri to pay inflated commission fees to buyer brokers (the "NAR Class Action"). On October 31, 2023, a jury found NAR and various of its co-defendants liable and awarded plaintiffs nearly $1.8 billion in damages (an award that was subject to trebling). Class action suits raising similar claims are already pending in this and other jurisdictions and the outcome of the NAR Class Action may result in additional such actions being filed. Redfin has been named as one of several defendants in similar putative class action suits as described under the caption "Lawsuits Alleging Antitrust Violations" above under Item 8, Note 7: Commitments and Contingencies. On May 3, 2024, we entered into a settlement term sheet (the "Proposed Settlement") and on June 26, 2024, we executed a settlement agreement (the "Settlement Agreement") to resolve, on a nationwide basis, all claims asserted in two of those lawsuits pending in the United States District Court for the Western District of Missouri (the "Gibson Action" and the "Umpa Action" each as defined under Item 8, Note 7). The Settlement Agreement resolves all claims in those two lawsuits and similar claims on behalf of home sellers (including those who sold and bought a home) (subject to opt-outs and objections) on a nationwide basis against Redfin (the "Claims") and releases Redfin, its subsidiaries, and its employees and contractors from the Claims. Neither the Proposed Settlement nor the Settlement Agreement include any admissions of liability. Under the Settlement Agreement, Redfin paid $9.3 million (the "Settlement Amount") into a qualified settlement fund on August 26, 2024. The Settlement Amount is included in other current assets and accrued and other liabilities in our consolidated balance sheets as of December 31, 2024. In the first quarter of 2024, we recorded the Settlement Amount to general and administrative in our consolidated statements of comprehensive loss. Redfin also agreed to implement or continue certain practices outlined in the Settlement Agreement. On July 15, 2024, the United States District Court for the Western District of Missouri issued an Order Granting Preliminary Approval of the Settlement Agreement and the court entered an Order granting final approval of the Settlement Agreement on November 4, 2024. On December 3, 2024, a member of the proposed settlement class filed a notice of appeal, appealing the court's order granting final approval of the Settlement Agreement. On December 16, 2024, additional members of the settlement class separately appealed. The appeals are currently pending before the United States Court of Appeals for the Eighth Circuit. The district court's order granting final approval of the Settlement Agreement may be overturned by the United States Court of Appeals for the Eighth Circuit and, if so, we may be forced to continue litigating the Gibson Action and Umpa Action, as well as other similar class action suits. Defending against class action litigation is costly, may divert time and money away from our operations, and imposes a significant burden on management and employees. Also, the results of any such litigation or investigation cannot be predicted with certainty, and any negative outcome could result in payments of substantial monetary damages or fines, and/or undesirable changes to our operations or business practices, and accordingly, our business, financial condition, or results of operations could be materially and adversely affected. On March 15, 2024, NAR entered a settlement agreement to resolve on a class-wide basis the claims against NAR in the NAR Class Action. In addition to a monetary payment of $418 million, NAR agreed to change certain business practices, including changes to cooperative compensation and buyer agreements. The NAR settlement agreement: (1) prohibits NAR and REALTOR MLSs from requiring that listing brokers or sellers make offers of compensation to buyer brokers or other buyer representatives; (2) prohibits NAR, REALTOR MLSs and MLS participants from making an offer of compensation on the MLS; and (3) requires all REALTOR MLS participants to enter into a written buyer agreement specifying compensation before taking a buyer on tour. The NAR settlement received preliminary court approval on April 23, 2024 and final court approval on November 27, 2024. Several notices of appeal have been filed, appealing the court's order granting final approval of the NAR settlement. The matter is currently pending before the United States Court of Appeals for the Eighth Circuit. These revised NAR rules and practices went into effect on August 17, 2024. The revised NAR rules and practices may require changes to our business model, including changes to agent and broker compensation and how we meet home buyers. Without mandated commission sharing, for example, we may see the introduction of hourly or a la carte services. Or, if buyers now compensate brokers, they may be more likely to contact listing agents directly, which could drive down dual agent broker commissions. Home lending rules and norms do not currently allow buyers to include buyer's agent compensation in the balance of a home loan, which may impair the ability of homebuyers to pay their agent fees when purchasing a home. The amended rules and regulations requiring us to get a buyer agreement signed before we take a home buyer on a first tour may dissuade buyers from hiring Redfin, thereby reducing the fees we receive from our agents. These and other shifts in the model for agent and broker compensation could significantly change the brokerage landscape overall and may adversely affect our financial condition and results of operations. In addition, given that these matters remain subject to appeal, it is possible that the revised rules and practices may be subject to additional changes in the future, including the potential that they may be rolled back in whole or in part. In addition to the NAR Class Action and various similar private actions already pending, beginning in 2018, the DOJ began investigating NAR for violations of the federal antitrust laws. The DOJ and NAR appeared to reach a resolution in November 2020, resulting in the filing of a Complaint and Proposed Consent Judgment pursuant to which NAR agreed to adopt certain rule changes, such as increased disclosure of commission offers. The DOJ has since sought to continue its investigation of NAR, and on April 5, 2024, a federal appeals court decided that the DOJ could reopen its investigation. On October 10, 2024, NAR filed a petition for writ of certiorari, asking the Supreme Court of the United States to review the federal appeals court's decision. On January 13, 2025, the Supreme Court of the United States denied NAR's petition for certiorari. The DOJ may expand its investigations into the practices of individual local REALTOR associations or MLSs. This could result in further changes to industry standards or brokerage operations in some or all of our markets. It is uncertain what effect, if any, the resumption of the DOJ's investigation could have on the larger real estate industry, including any further government enforcement action, private litigation, or settlement that may result therefrom.

We process, transmit, and store personal information to provide services to our customers and as an employer. As a result, we are subject to certain contractual terms, as well as federal, state, and foreign laws and regulations designed to protect personal information. While we take measures to protect the security and privacy of this information, it is possible that our security controls over personal data and other practices we follow may not prevent the unauthorized access to, or the unintended release of, personal information. If such unauthorized access or unintended release occurred, we could suffer significant damage to our brand and reputation, customers could lose confidence in the security and reliability of our services, and we could incur significant costs to address and fix these security incidents. These incidents could also lead to lawsuits and regulatory investigations and enforcement actions.

Third-party actors have attempted in the past, and may attempt in the future, to conduct fraudulent activity by engaging with our customers by, for example, posting fake real estate and rental listings on our sites, including our Redfin Rental Tools platform, and attempting to solicit personal information or money from customers, and by engaging with our employees by, for example, making fake requests for transfer of funds or sensitive information. We make a large number of wire transfers in connection with loan and real estate closings and process sensitive personal data in connection with these transactions. Though we have sophisticated fraud detection processes and have taken other measures to identify fraudulent activity on our mobile applications, websites and internal systems, we may not be able to detect and prevent all such activity. Similarly, the third parties we use to effectuate these transactions may fail to maintain adequate controls or systems to detect and prevent fraudulent activity. Persistent or pervasive fraudulent activity may cause customers and business partners to lose trust in us and decrease or terminate their usage of our services, or could result in financial loss and harm our business.