CoStar CEO: ‘We had zero involvement’ with commission lawsuits

Key Takeaways:

– CoStar Group had no involvement with the commission lawsuits in the real estate industry.
– CoStar’s stock rose after the verdict in the Sitzer/Burnett trial, but the company denies any connection to the lawsuit.
– CoStar’s business model, which provides free buyer leads to listing agents, was developed before the buyer broker rules were in question.
– CEO Andy Florance believes that most agents are not taking the commission lawsuits seriously enough.
– Florance predicts that the U.S. homebuying model will shift to one similar to other countries, where sellers do not pay buyer agents.
– He sees a silver lining for agents who do a mix of buyer and seller representation, as they may be able to retain higher commission rates.
– Florance expresses concern about the potential impact on Multiple Listing Services (MLSs) if the lawsuits lead to their elimination.


ANAHEIM, Calif. — Andy Florance, founder and CEO of CoStar Group, wants to set one thing straight: his company had nothing to do with the commission lawsuits now rocking the real estate world.

“We had zero involvement with that lawsuit. We learned about it from NAR long after it started,” Florance said in an interview with HousingWire at the National Association of Realtors NXT convention in Anaheim on Wednesday.

A report released by KBW before the verdict was announced in the Sitzer/Burnett trial identified CoStar as the “top beneficiary” of a change in the current buyer agent landscape because of their unique business model.

Once the verdict in that case was announced, CoStar stock shot up and the stock of competitors like Zillow and Redfin fell dramatically. But Florance is incredulous that people think CoStar had anything to do with that lawsuit or any others.

“We have 189,000 real estate clients who work with us. What moron would shoot themselves in the head by doing that?” Florance said. “We had nothing to do with it at all, period. Anyone who says we were funding that is lying. As a public company, we’re a pretty open book.”

CoStar owns, a home-search portal that has seen traffic skyrocket over the last year, recording 100 million unique visitors in September, putting them second only to Zillow.

Unlike other home-search portals, doesn’t sell homebuyer leads to buyer’s agents but provides them for free to the property’s listing agent. The company’s business model was developed before the buyer broker rules were in question, providing what Florance thinks is a better experience for the agent and the buyer.

“We went the route of not leveraging the buyer broker rules from day one because we thought it was a better business model,” Florance told HousingWire in October.

Florance said he took the commission lawsuits seriously from the start and was surprised other real estate leaders seemed to dismiss the threat to the industry. He thinks most agents still aren’t reckoning with the potential outcomes.

“Ninety-nine percent of agents aren’t thinking about it yet. The word ‘appeal’ is being said a lot. We hope folks are successful on appeal, but appeal is a thin rim. I think this is more likely the new reality,” Florance said.

That new reality will see the U.S. shift its homebuying model to something closer to the model used by the rest of the world, Florance said.

“If there is an outright ban on sellers paying buyer agents, it’s clear from research focus groups and what happens in other countries that we will not see homebuyers coming out of pocket to pay buyer agents,” Florance said.

But he does see a silver lining for agents.

“By and large, there’s no such thing as a buyer agent, because 85% are doing a material amount of seller representation, too. And the more senior you are in the industry, the more seller representation you do.”

Those agents doing a mix of both are likely to just retain more of the commission, Florance said.

“I think that history has shown, that if there is price pressure on commissions, it moves pretty slowly, like 5% to 10% a year. For the initial interim period, we’ll see a bunch of agents who are already established retaining higher commission rates for the same work.”

He added, “So some agents will be making the same amount working half as much, time-wise, or they’ll work the same hours but make twice as much. There are going to be agents that see their income double.”

The real risk, as Florance sees it, lies with the Multiple Listing Services (MLSs).

“The thing I worry about, is that the country does rely on the MLSs to function. It could seriously damage the country if we get rid of the MLSs because of these lawsuits. They are vital to the functioning of real estate — and they are important to our business too,” Florance said.

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