Elephant In The Room: What Brokerages Revealed About Commissions In Q4

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Fourth-quarter earnings season is in the books, and investors monitored real estate companies closely for signs of better- or worse-than-expected performance in the closing months of 2023.

But perhaps just as interesting to investors as the revenue numbers were details about how brokerages are preparing agents for a new business landscape shaped by the Sitzer | Burnett verdict and other class-action lawsuits.

Intel reviewed earnings calls and financial filings to see how executives are plotting the path forward at Anywhere and RE/MAX, two publicly traded brokerage companies that have already reached settlements that require them to alter their business practices and pony up nearly $140 million in combined payouts. 

Keller Williams, a privately owned company that is not required to disclose as much financial information as its publicly traded counterparts, reached its own $70 million settlement in February.

These settlement agreements are still pending court approval in May. But in the meantime, the company’s statements to investors and analysts shed more light on an industry that is ramping up its educational resources for agents and emphasizing the importance of buyer agency agreements. 

Early adoption of these initiatives by agents is mixed, the companies suggest. And real estate executives are reluctant to discuss alternative models for paying buyer’s agents — at least in public.

Read Intel’s full breakdown of what investors learned from Anywhere and RE/MAX leaders on the shift to a post-Sitzer landscape.

The outlook from Anywhere

Even before Anywhere reached its settlement related to the class-action lawsuits, agreeing to pay more than $80 million in the process, legal expenses related to the cases had placed some strain on its budget.

Still, the settlements were presented by executives as an achievement that helped mitigate risks for the company and its investors. 

At Anywhere, the bulk of the tab has yet to come due. Here’s what else the company’s executives told investors on its most recent earnings call.

• Financial impact — The cost of the litigation in terms of legal fees has substantially eaten into the company’s profits and free cash flow in 2023, but the payments related to the lawsuit have yet to make their imprint on Anywhere’s bottom line. Chief Financial Officer Charlotte Simonelli said the company anticipates dishing out more than $100 million in payments in 2024 between complying with the class-action outcome and a legacy California tax matter.
• The looming DOJ specter — Even as Anywhere executives believe their settlement has mitigated some of the risk from the class-action lawsuits, another risk has raised its head: the Department of Justice’s efforts to prohibit seller’s agents from making offers of compensation to buyer’s agents. And Anywhere’s CEO isn’t ready to talk about it — at least not publicly. “We’re not going to speculate on anything related to the DOJ,” Ryan Scheider told investors. “We do believe in the world that we need fewer mandatory MLS rules. We love the value agents provide and we are always thinking through different strategic ways that markets may evolve.”
• Consumer awareness — One thing investors and analysts took a keen interest in this earnings season was whether publicly traded brokerages were taking steps to prepare agents for potentially disruptive changes to their business model. But executives at Anywhere believe that — at least for now — consumers have yet to catch on to what’s happening in the industry. “I ask this question to agents all the time, which is: What are they hearing from their customers,” Schneider said. “I don’t think it has really gotten into the water in a way that has led to anything meaningfully changing yet.”
• Alternative compensation models — Even though Schneider said there has been little discussion of alternate compensation models — such as flat-fee approaches or other means of compensating agents — there has been a sense of urgency to expand buyer agency agreements throughout the Anywhere network of brands. “We’re big users of buyer agent agreements, and we’re going to be expanding that dramatically,” Schneider said. “And part of the reason we’re doing that is we got ahead on this settlement thing.”

Takeaways from RE/MAX

At RE/MAX, the financial impact of the settled commission lawsuits may be largely in the rearview mirror. 

The company reported making its $55 million payment 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 the investors and analysts poring over their financial numbers from the closing months of the year.

• Buyer agency agreements — RE/MAX President Amy Lessinger told investors that the brokerage has made educational resources available for agents in the wake of the settlement. “In RE/MAX University,” Lessinger said, “we offer something called the accredited buyer representative designation, which gives our agents education on exactly how to articulate their value proposition.” Still, Lessinger suggested that the number of agents taking advantage of this educational resource is not yet as high as they expect it will become. “We anticipate that there will be more demand for that as we move through,” she said. As for whether other commission models — such as a flat-fee approach — are likely to gain steam, Lessinger said it’s too early to say.
• Advocacy — On the mortgage side of the business, RE/MAX is talking with government-affiliated housing agencies to seek potential ways to tie buyer-side commissions back into the fold through financing, according to Ward Morrison, who leads RE/MAX’s mortgage efforts. “They’re talking to different groups — talking to Fannie, Freddie, FHA, VA — to understand: Can we potentially put the buyer’s agency commission into the transaction in some form or fashion?”
• New lawsuits — On the earnings call, one analyst noted that there were additional disclosures of lawsuits related to the commission challenge against RE/MAX and other real estate entities. Chief Financial Officer Karri Callahan said “a lot” of the additional disclosures relate to so-called copycat cases that were filed after the Oct. 31 verdict in the Sitzer case, and that they are not expected to affect the business. “Importantly to note, our settlement does cover and releases us on all claims for homesellers on a nationwide basis,” Callahan said. “So once May 9 gets here, we are cautiously optimistic about final approval [of the RE/MAX settlement]. And we expect those copycat cases would go away and be subsumed.”

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