Zillow Takes a Dive: Real Estate Commission Verdict Makes Waves in the Brokerage Game

Hold off browsing on that dream home in Jersey you were thinking about on Zillow for now.

Zillow Group Inc. and real estate stocks took a hit as a Missouri Verdict strikes a blow against the real estate industry, exposing collusion in brokerage commissions.

Don’t blame DJ Envy just yet though, A Missouri jury deemed that the National Association of Realtors, HomeServices of America, and Keller Williams colluded to inflate or maintain high commission rates.

The case resulted in an approximate $1.8 billion in damages awarded by the jury, marking one of several ongoing lawsuits regarding real estate agents’ payment structures.

The Justice Department is intensively examining the commission-sharing system, often holding home sellers accountable for a 5% to 6% share of the sale price, divided between their agent and the buyer’s representative.

In a potentially dire situation for the industry, the federal government might pursue a prohibition on commission-sharing, potentially revolutionizing the longstanding practices of real estate agents.

This development could be particularly challenging, occurring during a period of stagnation in the US real estate market, marked by soaring mortgage rates nearing 8% and existing home sales plummeting to levels reminiscent of the foreclosure crisis.

Shares of Zillow fell 6.9% Tuesday, the biggest decline since June 2022.

While the company doesn’t rely on commission income directly, its core business is selling marketing services to buyers’ agents. The stock has dropped more than 80% from its peak in February 2021, when it was riding the pandemic housing boom.

Experts think the recent ruling could bring big changes to the Participation Rule, which is a NAR requirement for seller agents to disclose the compensation being offered to buyer agents when they list through an MLS. The Participation Rule could soon get banned or turn optional.

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