Whatever's coming next, Rich Barton believes Zillow (ZG) can handle it.
Barton, co-founder and CEO, of the tech real-estate marketplace company, told analysts in February during the company’s fourth-quarter earnings call that Zillow was "monitoring the progress of numerous lawsuits facing several organizations within the industry."
The company reported adjusted earnings of 20 cents a share, beating the FactSet consensus of 12 cents a share. Revenue totaled $474 million, ahead of FactSet's call for $451.7 million.
"Zillow is not a named party in these suits," Barton said. "Regardless of the industry debates, Zillow is well-positioned for all weather due to our long history and future of technology innovation driving differentiated products and services.”
The National Association of Realtors was named in the suits Barton referred to, and last month the largest trade association in the U.S. announced an agreement that would end litigation of claims brought on behalf of home sellers related to broker commissions.
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Trade group settles case
The Sitzer/Burnett settlement requires the long-standing practice of paying real-estate agents to end this summer, as the NAR settled a long and bitter legal fight.
No longer will the seller necessarily pay 6% of the sale price to split between buyer and seller agents.
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Both sellers and buyers must negotiate separately the services agents have charged for 100 years or more. These include pre-screening properties, writing sales contracts, and the like.
The change will continue a trend of increasing costs and complications when buying or selling a home.
Under the terms of the agreement, NAR would pay $418 million over roughly four years.
NAR, which denied any wrongdoing, claimed the rules were introduced in the 1990s in response to demands for enhanced consumer protection and representation.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” NAR Interim CEO Nykia Wright said in a March 22 statement.
“While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances," she said. "It provides a path forward for our industry, which makes up nearly one-fifth of the American economy, and NAR.”
Shares of Zillow and other real estate companies, such as Redfin (RDFN) and Compass (COMP) tumbled after the announcement.
The situation got even dicer on April 5, when a federal appeals court ruled the U.S. Justice Department could reopen an investigation into the NAR’s residential real estate policies, more than three years after the group settled related government antitrust claims, according to Reuters.
The U.S. Court of Appeals for the D.C. Circuit overturned a lower judge’s decision last year, saying the DOJ had closed a probe in 2020 and could not revive it.
The panel said the government did not commit “to refrain from either opening a new investigation or reopening its closed investigation.”
Analyst sees entry point
The DOJ began investigating NAR rules in 2018 and closed the probe two years later. However, in 2021, it moved to reopen it, pointing to evidence of a “continuing threat of anticompetitive effects of NAR’s rules.”
The NAR said in a statement that “the government should be held to the terms of its contracts.” The group was evaluating its next steps.
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Analysts at Keefe, Bruyette & Woods said they believe that the DOJ will intervene in Sitzer/Burnett commission lawsuit after receiving the green light to reopen its investigation into the NAR, Housingwire reported.
The analysts wrote on April 7 that thanks to this “favorable judgment, the DOJ is now unconstrained from investigating NAR.”
The analysts said they believed the most likely path for the DOJ moving forward would be to file a statement of interest in the Sizer/Burnett suit, which they believe could occur in the next few weeks.
“While there has been some debate around whether the DOJ has already signed off on the NAR settlement behind the scenes, we do not believe that the agency has given its approval and that NAR was taking a chance in settling under the hope that the DOJ would not be permitted to intervene,” KBW wrote in its note.
All this drama might make some people think Zillow is in store for some rough times. However, Jefferies analyst John Colantuoni sees things differently.
The analyst elevated Zillow to his overall "Top Pick" among U.S. Internet coverage, replacing his earlier pick, DoorDash (DASH) .
Colantuoni, who has a buy rating and $75 price target on Zillow shares, contended that the pullback in the company’s stock following the NAR's proposed settlement creates a more attractive entry point given what it expects to be "no impact on fundamentals.”
In addition, the analyst noted that Zillow's planned product expansions and recent housing trends point to a material upside to consensus revenue expectations.
Colantuoni also said low variable costs should boost revenue.
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