Following legal settlements in two of the largest commission lawsuits, RE/MAX and Anywhere revealed their future direction to investors during their fourth-quarter earnings calls last month. Intel reads the tea leaves.
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The fourth-quarter earnings season is approaching, and investors are closely watching for signs that real estate companies’ performance in the final months of 2023 will be better or worse than expected.
But perhaps just as interesting to investors as the revenue numbers are the details about how brokerage firms are preparing agents for the new business landscape shaped by Sitzer | Burnett Judgment and Other Class Actions.
Intel reviewed earnings calls and financial documents to see how executives chart a path forward for Anywhere and RE/MAX, two publicly traded brokerage firms that have reached settlements requiring them to change business practices and pay nearly US$140 million in consolidated expenditures.
Keller Williams, a private company that is not required to disclose as much financial information as a public company, met its goals $70 million Settlement in February.
The settlements are still subject to court approval in May. But at the same time, the company’s statement to investors and analysts revealed that the industry is increasing educational resources for agents and emphasizing the importance of buyer’s agency agreements.
Early adoption of these measures by agents has had mixed results, the companies said. Real estate executives are reluctant to discuss alternative models for paying buyer’s agents — at least publicly.
Read Intel’s full analysis on the lessons investors are learning from Anywhere and RE/MAX leaders about the transition to a post-Sitzer landscape.
Outlook from anywhere
Even before Anywhere settled the class-action lawsuit and agreed to pay more than $80 million in the process, legal fees associated with the case put a strain on its budget.
Still, executives viewed the settlement as an achievement that would help mitigate risk for the company and its investors.
At Anywhere, most bills are not yet due. Here’s what else the company’s executives revealed to investors during its recent earnings call.
- Financial impact— In terms of legal fees, litigation costs have significantly eroded the company’s profits and free cash flow in 2023, but litigation-related payments have yet to have an impact on Anywhere’s bottom line. Chief Financial Officer Charlotte Simonelli said the company expects to make more than $100 million in payments through 2024 between complying with the class action outcome and dealing with legacy tax issues in California.
- The looming specter of the Justice Department— While Anywhere executives believe their settlement has mitigated some of the risks posed by the class action lawsuit, another risk has surfaced: the Justice Department’s try to ban The seller’s agent may not seek compensation from the buyer’s agent. Anywhere’s chief executive isn’t ready to talk about the issue — at least not publicly. “We will not speculate on anything related to the Department of Justice,” Ryan Scheider told investors. “We do believe we need fewer mandatory MLS rules in the world. We like the value agents provide and are always thinking through different strategic ways about how the market might develop.”
- Consumer awareness—— One thing investors and analysts will be very interested in this earnings season is whether public brokerage firms are taking steps to prepare agents for possible disruptive changes to their business models. But Anywhere executives believe that, at least for now, consumers don’t understand what’s happening in the industry. “I ask agents this question all the time: what are they hearing from their customers,” Schneider said. “I don’t think it’s really gotten into the water yet and caused any meaningful change.”
- Alternative Compensation Model—— Although Schneider said there has been little discussion of other compensation models — such as a flat-fee approach or other ways of compensating agents — there is still a sense of urgency to expand buyer agency agreements across the Anywhere brand network. “We are a big user of buyer agency agreements and we will expand that significantly,” Schneider said. “Part of the reason we’re doing this is because we’re making progress on solving the problem.”
Highlights of RE/MAX
At RE/MAX, the financial impact of settled commission litigation may be largely a thing of the past.
The company reported paying $55 million in the third quarter of 2023, a move that had a significant one-time impact on its bottom line.
Executives at the large brokerage network appear ready to turn the page. Here’s what they told investors and analysts as they pore over the final months of the year’s financials.
- Buyer’s Agency Agreement—— RE/MAX President Amy Lessinger told investors that the brokerage has provided educational resources to agents following the settlement. “At RE/MAX University,” Lessinger said, “we offer a service called an Accredited Buyer Representative Designation, which provides our agents with education on how to clearly communicate their value proposition.” Still, Lessinger Ge said the number of agents taking advantage of this educational resource has not yet been as high as they expected. “We anticipate that the need for this will increase as we grow,” she said. As for whether other commission models, such as flat-fee approaches, may gain momentum, Lessinger said it’s too early to tell.
- initiative– On the mortgage side, RE/MAX is in talks with government-affiliated housing agencies to explore potential ways to bring the buyer’s commission back into the mix through financing, Ward Morrison, head of RE/MAX’s mortgage business, said. “They’re talking to different groups — talking to Fannie Mae, Freddie Mac, FHA, the VA — to understand: Can we incorporate the buyer’s agent commission into the deal in some form or fashion? “
- New lawsuit – During the earnings call, an analyst noted that litigation related to commission challenges against RE/MAX and other real estate entities was also revealed. Chief Financial Officer Karri Callahan said “many” of the additional disclosures related to so-called copycat cases filed after the Oct. 31 Sitzer ruling, which were not expected to impact the business. “It’s important to note that our settlement does cover all claims by home sellers nationwide and relieves us of liability,” Callahan said. “So once May 9 comes, we’re going to be very excited about the (RE/MAX settlement) We are cautiously optimistic that these copycat cases will disappear and be incorporated.”
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