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Commissions verdict casts a long shadow over Q3 earnings 

Zillow, Redfin and CoStar assured investors that they can withstand “massive disruption,” while others discussed efficiencies and even some avenues for growth.

November 10, 2023
4 minutes

Key points:

  • Execs addressed the Sitzer/Burnett verdict and the impact of expected changes to buyer agency on their business models.
  • While most companies focused on cost-cutting, CoStar called out investments it plans to make at the end of this year and into 2024.
  • Real, eXp and Redfin highlighted growth opportunities internationally and through shifts in revenue sharing, incentives and commission splits.

It's a wrap: Third-quarter earnings are in, and some common themes have emerged among real estate companies navigating the choppy waters of 2023.

A few of the hot topics and unifying trends coming out of earnings season included the recent Sitzer/Burnett verdict, cost-cutting, and ways to continue growing in a slow, low-inventory market.

The Sitzer/Burnett verdict is on everyone's mind

With many of the earnings reports coming after the Oct. 31 Sitzer/Burnett verdict, the investor calls were filled with questions and discussions about how the outcome of the case could impact the companies' business models and revenue.

Interest in the verdict was particularly high on the calls with Zillow and Redfin. Some have questioned whether Zillow's revenue model, which is supported by buyer agent advertising, can survive if buy-side compensation is no longer guaranteed. Former Zillow CEO Spencer Rascoff said in September that the company's model would be "incredibly challenged."

During CoStar's earnings call, which preceded the verdict, CEO Andy Florance made similar statements, asserting that — which doesn't make money from buyer agents — is better positioned than portals that do, like Zillow and Florence added that the potential changes to compensation were one factor behind the company's decision to invest more heavily in

But both Rich Barton, CEO of Zillow Group, and Glenn Kelman, CEO of Redfin, said their companies were ready for whatever disruption the verdict may bring.

Barton said he continues to support buyer agents and believes homebuyers should have their own representation. But however compensation changes play out, he said "Zillow is well positioned to thrive." 

Kelman said Redfin's decision to break ties with NAR last month and its customer focus give the company an advantage in the face of the "massive disruption" that may follow the verdict. 

Cutting expenses to stem losses

When speaking to investors, several CEOs discussed their progress toward becoming leaner and more efficient as home sales have slowed. 

Anywhere CEO Ryan Schneider noted that the company had reduced debt and realized $60 million in cost savings during what he described as a "rough year" for the industry. 

Compass said it was focused on leveraging technology to reduce expenses next year. "Given that 2024 could look a lot like 2023, we believe we should continue to drive more efficiencies in the business," Compass co-founder and CEO Robert Reffkin said during the earnings call, where he outlined the company's expense reduction program.

Several companies reporting net revenue losses, including Zillow, Redfin and Compass, noted that the losses were less deep than a year ago. And RE/MAX cut costs by cutting staff, laying off about 7% of its workforce in mid-August.

CoStar — which is betting big on its search portal — was one of the few companies that talked about making significant investments in the fourth quarter and into 2024.

Finding new avenues for growth

Efforts to spur growth stood out against a backdrop of declining revenue opportunities for many companies.

Redfin, Real and eXp are working to woo and retain agents by providing incentives that could increase agent pay. Redfin introduced Redfin Max in October, which aims to give agents a better commission split. Real modified its revenue share program in September to make it easier for agents to earn more money sooner, and eXp has rolled out incentive programs for agents and teams.

eXp also has its sights set on international growth, which CEO Glenn Kelman said was "the largest driver of future growth for the company." And it wasn't the only firm looking beyond borders — RE/MAX Holdings CEO Steve Joyce said the company is focusing on growing its Canadian agent count to offset losses in the U.S., and also "aggressively" pursuing growth opportunities through conversions, mergers and acquisitions.

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