CoStar: Homes.com Can Be a Beneficiary of a Potentially Industry-Upending Decision

Wide-moat-rated CoStar Group’s CSGP Homes.com business could be a beneficiary of the long-term implications of the jury decision in Sitzer/Burnett versus National Association of Realtors lawsuit. The jury in the class-action lawsuit found NAR and other co-defendants (which includes large brokerages) liable for around $1.8 billion in damages for keeping home-seller brokerage commissions artificially high. The plaintiffs in the case claimed that real estate commission rates for home sellers were inflated upward because of the industry structure where home sellers are required to pay commissions to realtors representing buyers. The result of this class-action lawsuit can potentially have a seismic impact on the buyer-side brokerage commission rule, which has been a fundamental feature of the residential brokerage industry in the U.S. for decades.

Real estate portals like Zillow and Realtor.com stand to lose the most from the impacts of this decision as they make most of their revenue by routing buyer leads to real estate agents that buy its advertising products. Since the lawsuit mainly targets the buyer-side brokerage commission, therefore it can have a significant impact on Zillow and Realtor.com. Homes.com should be largely unaffected from the direct implications of this lawsuit as it aims to monetize just one side of the transaction by selling advertisement products to enhance the exposure of seller listings on its platform. Overall, Homes.com can be a major beneficiary of the decision as its major competitors would be negatively affected. The shares of online residential platforms like Zillow and Redfin were down more than 5% after the jury decision came out whereas CoStar’s shares were trading higher by 4%.

Given the inherent uncertainty, we do not plan on making major changes to our future revenue forecasts for Homes.com but we will make changes if there is a material probability of change in industry structure with respect to buyer-side commissions.