Post-Verdict: Why the $1.8 Billion Judgment Against NAR and Others Is Excellent News for La Rosa Holdings

La Rosa Holdings CEO Joe La Rosa tells Hawk Point Media how this landmark case can steepen his company's already impressive growth trajectory

March 25, 2024 9:25 AM EDT | Source: Hawk Point Media Group.

Celebration, Florida--(Newsfile Corp. - March 25, 2024) - La Rosa Holdings Corp. (NASDAQ: LRHC) ("La Rosa" or the "Company"), a holding company for five agent-centric, technology-integrated, cloud-based, multi-service real estate segments, provides insight into why the $1.8 billion judgment levied in March against the National Association of Realtors (NAR) is potentially excellent news for his company, supporting the case that the company's innovative business model can usher in a new era in real estate transactions. Company CEO Joe La Rosa spoke with Hawk Point Media to share why this landmark decision, while an obstacle to many of his competitors, actually validates his company's business model and can be a catalyst for 2024 growth. The interview is printed in its entirety.

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Q. Joe, the October 2023 verdict against the NAR and the $1.8 billion judgment attached to it sent a strong message to those in the real estate sector that changes are needed. Based on your company's innovative, some say game-changing commissions model, you were apparently proactive in doing so. Can you explain what happened to rattle the sector?

A: Answering in simplest terms, a group of home sellers in Missouri sued the National Association of Realtors (NAR) and other real estate firms, arguing that they worked together to keep home sale commissions artificially high. The lawsuit claimed they did this based on an NAR rule requiring sellers to offer a fixed commission to agents before listing their homes on widely used real estate platforms like Zillow, for instance. The plaintiffs successfully argued that the rule limited competition and led to higher selling prices, which benefits the seller. The jury agreed.

They concluded that this rule limited competition and resulted in higher selling prices, which, again, is good for sellers and bad for buyers. They thought it was so egregious that they awarded $1.8 billion in damages to about 500,000 Missouri home sellers. They based that decision on arguing that without this rule, competition among agents by offering lower rates would level the playing field, more closely aligning it with practices in other countries where real estate commissions are lower.

Now, because it was an antitrust case, the NAR could have been exposed to a tripling of those damages, roughly $5.4 billion. They vowed to appeal, but news last week said that along with other defendants, they, too, settled the case, in essence, agreeing that parts of the system were broken. As a result, they will pay $418 million in damages and change some of their longstanding rules. Of course, that dollar amount gets added to the amount contributed by other defendants in the case.

Q. So, is this good news for La Rosa Holdings?

A: Absolutely, and here's why. Analysis of the verdict and the finality of the case suggests a rapid change in how real estate commissions are set, with estimates modeling for a roughly 30% cut in commissions paid, a significant reduction to the estimated $100 billion paid each year. In fairness, the decision affects everyone.

However, La Rosa recognized the disparity long ago, leading us to create a commission model that was more than fair to everyone, rewarding the buyer, the seller, and the agent through a simple-to-understand deal structure. Today, that model puts La Rosa at the forefront of the sector revolution, ahead of the competition, with a product that creates true transparency in real estate transactions like never before.

Q. Can you elaborate on that assessment?

A: Sure. La Rosa fosters a model that truly defines agent-centricity, creating multiple revenue streams for agents while providing the most value. We don't, and never did, believe that agents must share a minority of their commissions with other parties to make the sector work. Instead, we implemented a 100% commission model, less a very small facilitation fee, that provides the financial flexibility agents need, especially going forward in the birth of a changed sector.

Here's the other part- our technology model, if you will, is not just agent-centric focused. It's also consumer-centric, providing value to consumers, which was the most significant part of the complaints against NAR and others. The inherent flexibility of the La Rosa model is the value driver for all parties. For agents, it provides an optional revenue share model, allowing them to earn additional and passive income to make up for any losses due to lower commissions. In other words, our agents can be highly competitive without giving up a large chunk of their income.

In fact, motivated La Rosa agents leverage a platform to earn thousands more per transaction, which could double or even triple their annual income. That's not an exaggeration. It results from a well-designed and, now we know, timely business model and platform.

Q. Have you seen an impact on growth and agent attention?

A: We have, and I think it will increase significantly going forward. From a La Rosa company growth perspective, recent acquisitions have added to the 35 affiliate and franchise offices in California, Georgia, New York, Puerto Rico, South Carolina, and Florida. Post-IPO capital has allowed us to accelerate an ambitious acquisition strategy, evidenced by our announcing six since December 2023.

Still, we are in the early innings of growth and plan to add substantially to our asset portfolio this year. Keep in mind that we are pioneering a better way for ourselves, our affiliates, franchisees, and consumers to earn or keep a more significant share of a $113 trillion U.S. real estate market opportunity. So, as more agents get introduced, we expect business to ramp significantly, in part from accretive acquisitions that can make us a national brand.

Q. What's attracting new talent?

A: Foremost, La Rosa provides agents the tools to meet client demand in the digital age. We equip them with the technologies required to successfully battle intense competition and, more importantly, turn their business into a virtual one-stop shop by providing ancillary services like mortgage insurance and title services. And we don't just hand over a platform and send them on their way. We provide enormous support beyond that associated with buying and selling properties, including access to proprietary technology, ongoing training, and results-driven coaching from a La Rosa team equally committed to making its representatives deal-making leaders.

We don't just show that commitment; we prove it. La Rosa has earned considerable industry recognition and awards over the last several years, including being named as one of the Top 75 Residential Real Estate Firms in the United States by the National Association of Realtors and a "Top Work Place" by the Orlando Sentinel in the large business workplace category in 2022. Those accolades are certainly attracting top talent. But remember, we train our agents to be great. We aren't just acquiring the best of the best. We have the tools to turn an average sales agent into a great one, which I think is the primary value driver behind our recent growth surge.

Q. Can you provide an example of the La Rosa difference?

A: Of course. So, the most significant thing attracting agent growth is that our agents make more money. That's made possible by our business model, which departs from the traditional. Instead of earning, say, 30% commission to the broker, La Rosa pays 100%. Additionally, La Rosa agents get free education benefits, a proprietary training experience, and access to the latest technologies to drive sales.

Here's a more precise example. Assume a home sold for $350,000. A traditional brokerage would earn a 3% commission, or $10,500. From that, the split to the broker can be 30%, resulting in $3,150 for them and $7,350 for the agent. It totals much differently using the La Rosa model.

Using the same example, that same 3% still applies. However, in our model, there is no split to the broker. That means the entire $10,500 drops to the agent, providing nearly 43% more income to the agent ($10,500 instead of $7,350). Small fees, in the hundreds of dollars, are paid to us to take from that gross earnings. Still, even after those fee deductions, the agent is ahead by thousands comparably. La Rosa obviously benefits as well.

We get diversified revenue streams by earning a fee for agent-generated transactions and income from recurring monthly "dues." We generate additional income through La Rosa Property Management, which earns revenues from fees generated by property owners, rentals, and rent. We also make money from commercial real estate transactions, earning a 10% commission on those sales, a one-time fee upon signing franchise agreements, and monthly recurring revenues from annual membership costs, coaching, interest, late fees, and audits.

Q. Any final thoughts as you enter Q2 2024 and the changes to the sector?

A: I would say that while we had a great 2023, the best is yet to come. The finality of the landmark case can fuel that intent. Remember, La Rosa isn't a start-up. We generated revenues of over $26.2 million in FY2022, over 8% higher than the $24.1 million earned in FY2020. The six acquisitions made so far in 2024 put us on a path to report record revenues for fiscal year 2023 and accelerate from there this year.

Here's something else to consider, while the landmark case against NAR was a wake-up call to many, we were already wide awake and alert to a changing market. Leveraging that foresight positions us better than ever to deliver growth and increase shareholder value for our stakeholders. The NAR agreeing to pay out $418 million, and the other defendants adding to that, shows we are doing the right things at the right time. Remember, we weren't named a defendant. Instead, many in the sector are embracing our model.

Published with permission from Hawk Point media.

About La Rosa Holdings Corp.
La Rosa is a holding company for five agent-centric, technology-integrated, cloud-based, multi-service real estate segments. In addition to providing person-to-person residential and commercial real estate brokerage services to the public, the Company cross-sells ancillary technology-based products and services primarily to its sales agents and the sales agents associated with their franchisees. La Rosa's business is organized based on the services they provide internally to their agents and to the public, which are residential and commercial real estate brokerage, franchising, real estate brokerage education and coaching, and property management. La Rosa has 10 La Rosa corporate real estate brokerage offices located in Florida, 26 La Rosa franchised real estate brokerage offices in six states in the United States and Puerto Rico. The Company's real estate brokerage offices, both corporate and franchised, are staffed with more than 2,470 licensed real estate brokers and sales associates.

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Forward-Looking Statements

This press release contains forward-looking statements regarding the Company's current expectations that are subject to various risks and uncertainties. Such statements include statements regarding the Company's ability to grow its business and other statements that are not historical facts, including statements which may be accompanied by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Actual results could differ materially from those described in these forward-looking statements due to certain factors, including without limitation, the Company's ability to achieve profitable operations, customer acceptance of new services, the demand for the Company's services and the Company's customers' economic condition, the impact of competitive services and pricing, general economic conditions and other risk factors detailed in the Company's filings with the United States Securities and Exchange Commission (the "SEC"). You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the headings "Risk Factors" and elsewhere in documents that we file from time to time with the SEC. Forward-looking statements contained in this press release are made only as of the date of the this press release, and La Rosa does not undertake any responsibility to update any forward-looking statements in this release, except as may be required by applicable law. References and links to websites have been provided as a convenience, and the information contained on such websites is not incorporated by reference into this press release.

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