Largely in response to news regarding its ever-strengthening place within the real estate sales business, data from S&P Global Market Intelligence indicates that as of 3:54 p.m. ET Monday, Redfin (NASDAQ: RDFN) stock was up 11.4%.
More upside could be in store, too.
It's complicated
Last month, the National Association of Realtors (NAR) changed long-standing rules regarding agents' commissions, disclosure requirements, and use of the industry's internet listing technology. Intended to create more transparency for all parties involved in a sale, the move also posed the risk of lowering agents' net commissions. The new rules also proved particularly confusing to prospective buyers, who have generally not been responsible for paying any agent; that's typically been handled by the seller.
Now nearly one month into the new paradigm, almost everyone's figuring it out. As was widely expected, the key outcome has been lower overall commissions.
This new paradigm, however, is one that readily favors Redfin's existing business model of making it more cost-effective to buy or sell a home. That's the word from Redfin, anyway, which announced on Monday that its agents were seeing measurable benefit from the newly required commission flexibility.
Separately but simultaneously, Redfin also announced this morning that beginning in late October, some of its agents will be earning higher commissions. In addition to a commission split of up to 75%, most business expenses incurred by agents participating in its Redfin Next program will be covered by Redfin as well. The revamped compensation plan will likely grow Redfin's business by attracting agents and brokerages that have sought to continue doing business without the use of its increasingly popular listing platform.
That said, it would be shortsighted to presume recently falling interest rates -- and the promise of more interest rate cuts later this month -- don't play a role in Monday's rekindled bullishness from this stock.
Monday's move reflects the bigger-picture opportunity
It's difficult to deny that the real estate business isn't evolving in a way that favors Redfin -- namely, lower commissions are the new norm, and most house hunting is at least initially being done online. Given Redfin's well-established brand name and the fact that it's already discounting net commissions, it's better positioned than most rivals to capitalize on this shift.
More to the point, volatility-tolerant investors interested in this stock can reasonably expect more gains from here. Redfin's competitive edge in this new era of real estate agent commissions is being cemented into place. Falling mortgage rates simply add some urgency to the matter.
Should you invest $1,000 in Redfin right now?
Before you buy stock in Redfin, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Redfin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $630,099!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 9, 2024
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short November 2024 $13 calls on Redfin. The Motley Fool has a disclosure policy.
