Why you should consider shorting residential real estate brokerages.

If you have investments in ReMax, Realogy or Redfin, Zillow, etc., you should really be paying attention to a class action lawsuit the size of an asteroid, headed directly toward traditional 5 and 6 percent commissions.

In the US, the buyer agent’s fee comes from the homeowner’s pocket, and this arrangement creates antitrust issues in that buyer-agents hold their buyer hostage for the fee they want (2.5–3%), opposed to what the free market would dictate they are worth. If buyers paid their agent, it would reveal the agent’s true value.

The judge presiding over the National Association of Realtors class action lawsuit denied NAR’s attorneys motion to dismiss. The trial will be decided by a jury. As an industry insider, I know how much fraud goes on. I recently made a video that outlines how buyer-agents keep their buyer completely clueless when a deal falls apart because they aren’t happy with a fee less than 2.5%. When I list a home and offer anything less than 2.5% to the buyer-agent, I get angry voicemails, threats, others have had bricks thrown through their windows.

I can’t imagine any fair minded jury, after learning about NAR’s long record of antitrust run-ins with the DOJ, price fixing, and corruption, wouldn't feel pressed to believe that this fee arrangement is unfair and backwards.

There are two potential outcomes of this class action suit that will dramatically effect the residential real estate business; Zillow, Remax, Redfin, etc.
1. Damages: Around $18 billion dollars, x 3 under anti-trust laws = $54B in damages. Cohen Milstein isn’t going to settle with stakes this high, they don’t need to, whereas NAR, Realogy, ReMax, Keller Williams and Homeservices (separate from Berkshire) don’t have a few billion dollars laying around to make this go away. CM has collected hundreds of billions of dollars from big auto, pharma and oil. They can take this all the way to the Supreme Court — horrible PR for Realtors.
2. CM is seeking a permanent injunction against section 16 of the Clayton Act, that would ban homeowners from paying the buyer’s agent… Half the revenues for real estate brokerages everywhere up in flames, because buyers are not going to mortgage their Realtor’s 2.5% fee, ever. Again, therein lies the basis for this case; the buyer-agent fee doesn’t reflect the free market’s opinion of their worth, its inflated and fixed by virtue of the current exploitative arrangement.

Zillow may not be in the residential resales business, outside of their iBuying vertical (which is one way they are likely getting in front of this, see my other article What analysts don’t understand about Zillow offers) but currently about 70% of their stock is informed by their Premier Agent relationships. Agents pay big bucks for buyer leads, because they can count on a 2.5% commission to offset the costs. That would all go away.

This is a big short opportunity.

Keep up to date on the case below. I will publish more insights in the months to come.

https://www.courtlistener.com/docket/14624704/moehrl-v-the-national-association-of-realtors/