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shares of jirou group (NASDAQ:Z)(NASDAQ:ZG) Shares fell 13.5% on Friday after the National Association of Realtors (NAR) agreed to settle a series of lawsuits brought by home sellers alleging the industry conspired to raise commissions.
The move is likely to pave the way for lower brokerage commissions on real estate sales, which could potentially curb one of Zillow’s revenue streams.
About NAR’s historic settlement
In a press release today, NAR announced an agreement to resolve all outstanding litigation against the organization and its members in exchange for a payment of $418 million over approximately four years. NAR continues to deny wrongdoing.
NAR also agreed to implement new Multiple Listing Service (MLS) rules that prohibit the offer of broker compensation on the MLS, but through consultation with real estate professionals, consumers will be able to offer broker compensation outside of the MLS. It is likely that this will remain an option that can be pursued. In addition, NAR will enact new rules that will require MLS participants working with buyers to enter into written contracts with buyers.
In other words, this will make it much easier for homebuyers to negotiate commissions with their own agents, potentially leading more buyers to abandon the use of agents altogether.
Of course, this will have an impact on Zillow, as this development will very likely reduce the commission rates that real estate agents can collect for their services, and, as a result, real estate agents motivated to maintain active licenses. The number of businesses may decrease significantly.
What will Zillow investors do next?
While Zillow is working to expand into other areas of the real estate market, including mortgages, rentals and display advertising, nearly half (48%) of Zillow’s total revenue last quarter came from buy-side residential transactions. Among them, about 80% of Zillow’s Premier Agent program’s revenue came from buy-side transactions.
If this settlement and subsequent rule changes result in dramatic negative changes to real estate agent pay structures, which we note are scheduled to go into effect in July, that means Zillow has a long way to go. Suffice it to say, you may end up on the road.
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Steve Symington has no position in any stocks mentioned. The Motley Fool owns a position in and recommends Zillow Group. The Motley Fool has a disclosure policy.
Why Zillow Group Stock Is Falling Today was originally published by The Motley Fool
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