Changes to real estate commission structures are shaking up the industry, and home builders and consumers appear to be the winners.
Compass (COMP) agreed this week to pay $57.5 million to settle an antitrust lawsuit related to its fees. This is the first settlement announced by a major brokerage since the National Association of Realtors (NAR) agreed to pay $418 million as part of a lawsuit alleging the industry conspired to inflate brokerage fees.
Experts say the NAR settlement, which essentially separates agent fees for buyers and sellers, is a win-win for consumers because it creates transparency in how fees are set and paid, ultimately lowering costs. It states that there is.
“This is going to reshape the housing market in the most incredible way in over 50 years,” KBW analyst Ryan Tomasello said on Yahoo Finance Live (video above).
U.S. real estate agent commissions have ranged from 5% to 6% since the 1950s and are typically split 50-50 between the seller's and buyer's agents, with the home seller paying the entire fee.
Greater transparency makes it easier for buyers to negotiate fees and avoid using an agent altogether. Utilization of buyer agents is uncommon in most countries, averaging 33% compared to nearly 90% in the United States.
For buyers who decide to use an agent, commission costs are likely to be significantly lower, advocates say. Currently, commission rates in the United States are among the highest in the world. The fee for selling a $500,000 home in the US is about $25,000 to $30,000, compared to about $6,500 in the UK.
As a result, the current $100 billion nationwide fee pool could be cut to $70 billion, according to a KBW analysis.
read more: How to sell a house without using a real estate agent
'Big boost' for home builders
The changes resulting from the NAR settlement are a “huge boost” for homebuilders, who typically pay fees to buyer agents.
In a note to clients, Evercore ISI's Stephen Kim said agent fees are a “significant drag” on builders' profitability, and therefore “changes in agent fees would be a significant drag on builders' profits.” That's a plus,” he wrote.
“This will give an unfair advantage to large home builders who have their own sales force and robust online shopping environment. Buying a new home without a buying agent is better than buying an existing home. Much easier,” Kim wrote.
Homebuilding stocks are already rising as high mortgage rates continue to limit the supply of existing homes for sale. Lower fees could further boost demand, Jim Tobin, CEO of the National Association of Home Builders, told Yahoo Finance Live.
“As fees go down, we expect costs for builders to go down as well,” Tobin said. “That translates into lower home prices for consumers.”
Shares of Lennar (LEN), Toll Brothers (TOL), and Pulte Group (PHM) have soared to record highs this year, boosted not only by the NAR settlement but also by the prospect of Fed rate cuts. Toll Brothers rose about 25%, while Lennar and Pulte Group rose 12% and 14%, respectively.
Brokerage model 'at risk'
Home construction stocks have rallied over the past week, but investors are worried that changes in brokerage fees will make it more costly for major brokerages, leading to higher prices in Zillow (Z) and Redfin (RDFN). , I dumped the stock of Compass (COMP).
Analysts argue that changes in cost structure are only partially factored in at current levels and warn of downside risks going forward.
Morgan Stanley's Matt Kost wrote in a note to clients that while there is a “credible bull market with stable fee levels,” the stocks of Zillow, RE/MAX and Compass are “lower than the market's ability to drive material prices.” As long as this is fully factored in, further declines are possible.” Future commission rates will likely decline. ”
Kost highlighted that Compass is the intermediary most at risk, given that “nearly all of its revenue is dependent on brokerage commissions.”
However, the new changes do not imply doom and gloom for all listed platforms. In an environment where more buyers are doing their own home hunting, there is room for growth for platforms that help sellers advertise their properties.
KBW's Tomasello believes CoStar Group (CSGP) is a “winner” and a “key beneficiary” because it caters to distributors. This is something we expect other platforms to pursue.
“Real estate portals whose revenue models have historically relied more on the buy-side portion of this fee pool, [such as] “Companies like Zillow and Realtor.com may need to rethink their role in the housing market and shift their focus to the sales side in terms of advertising homes,” Tomasello said.
CoStar shares rose 8% after the NAR settlement was announced last Friday. The stock is up 12% since the beginning of the year.
sheena smith Anchor of Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Have a tip about a deal, merger, activist situation, or more? Email seanasmith@yahooinc.com.
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