Why Redfin Shares Soared Over 11% Monday

Largely in response to news of its increasingly solid footing in the real estate sales business, data from S&P Global Market Intelligence indicates that as of 3:54 p.m. ET Monday, Redfin (RDFN 12.03%) the stock rose 11.4%.

There could be even more perks in store.

It’s complicated

Last month, the National Association of Realtors (NAR) changed longstanding rules regarding agent commissions, disclosure requirements and the industry’s use of Internet listing technology. Intended to create more transparency for all parties involved in a sale, the move also posed the risk that agents’ net commissions would fall. The new rules also proved particularly confusing for potential buyers, who were generally not responsible for paying any agents; which is usually handled by the seller.

Now almost a month into the new paradigm, almost everyone is realizing it. As expected, the key result was lower overall commissions.

This new paradigm, however, is one that easily favors Redfin’s existing business model of making buying more profitable. or sell a house. That’s the word from Redfin, anyway, which announced Monday that its agents are seeing measurable benefits from the new fee flexibility required.

Separately, but simultaneously, Redfin also announced this morning that starting in late October, some of its agents will earn higher commissions. In addition to a split commission of up to 75%, most business expenses incurred by agents participating in the Redfin Next program will also be covered by Redfin. The revamped compensation plan will likely boost Redfin’s business by attracting agents and brokerages that have been looking to continue doing business without using its increasingly popular listing platform.

That said, it would be short-sighted to assume that the recent drop in interest rates — and the promise of more rate cuts later this month — doesn’t play a role in Monday’s bullish rekindling of the stock.

Monday’s move reflects the overall opportunity

It’s hard 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 done online, at least initially. Given Redfin’s well-established brand name and the fact that it is already reducing net commissions, it is better positioned than most rivals to capitalize on this shift.

Specifically, volatility-tolerant investors interested in this stock can reasonably expect more gains from here. Redfin’s competitive advantage in this new era of real estate agent commissions is solidified. Falling mortgage rates simply add some urgency to the problem.