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Item 1A. Risk Factors

2026-08-04 compared with 2026-05-11 · 44 added, 17 removed, 67 unchanged (48% of the section changed)

The business, financial condition and operating results of the Company can be affected by a number of risks, whether currently known or unknown.

For a discussion of our potential risks and uncertainties, please see Part I, Item 1A.

Risk Factors of the 2025 Annual Report, which discussion is hereby incorporated by reference into Part II, Item 1A of this Quarterly Report.

For a discussion of our potential risks and uncertainties, please see Part I, Item 1A Risk Factors of the 2025 Annual Report, which discussion is hereby incorporated by reference into Part II, Item 1A of this Quarterly Report.

Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.

Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

Except for the modified risk factors related to legal compliance, new business lines, compensation plans, real estate professional attraction efforts, brokerage commission rate fluctuations, franchisee performance and arrangements, and the actions of independent real estate professionals set forth below, there have been no material changes to the Company’s risk factors as disclosed in the 2025 Annual Report.

The Company faces significant risk to its brand and revenue if it fails to maintain compliance with the law and regulations of federal, state, county and foreign governmental authorities, or private associations and governing boards.

Except for the modified risk factors set forth below, there have been no material changes to the Company’s risk factors as disclosed in the 2025 Annual Report.

The Company faces significant risk to its brand and revenue if it fails to maintain compliance with the law and regulations of federal, state, local and foreign governmental authorities, or private associations and governing boards.

The Company operates in a heavily regulated industry subject to complex, federal, state, provincial and local laws and regulations within the markets in which the Company operates and third-party organizations’ regulations, policies and bylaws governing the real estate business.

In general, the laws, rules and regulations that apply to the Company’s business practices include, without limitation, RESPA, the federal Fair Housing Act of 1968, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the Exchange Act and federal advertising and other laws, as well as comparable state statutes;

rules of trade organizations such as NAR, local MLSs and state and local Association of Realtors;

licensing requirements

and related obligations that could arise from the Company’s business practices relating to the provision of services other than real estate brokerage services, including without limitation, its mortgage lending services;

rules of trade organizations such as NAR, local Multiple Listing Service (MLS) systems and state and local Association of Realtors;

licensing requirements and related obligations that could arise from the Company’s business practices relating to the provision of services other than real estate brokerage services, including without limitation, its mortgage lending services;

privacy regulations relating to the Company’s use of personal information collected from the registered users of its websites;

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Moreover, under U.S.

franchise law, we are subject to federal regulations enforced by the FTC governing franchise offers and sales, as well as various regulations in states in which we operate, which may impose additional registration and disclosure requirements.

franchise law, we are subject to federal regulations enforced by the Federal Trade Commission (“FTC”) governing franchise offers and sales, as well as various regulations in states in which we operate, which may impose additional registration and disclosure requirements.

Furthermore, our ability to terminate or refuse renewal/transfer of franchise agreements may be restricted by state-specific “franchise relationship” or “business opportunity” laws.

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Similarly, the Company’s franchise business, while currently immaterial to its overall operations, introduces a distinct regulatory layer.

federal law, the Company is subject to regulations enforced by the Federal Trade Commission governing the offer and sale of franchises, including mandatory pre-sale disclosure obligations.

federal law, the Company is subject to regulations enforced by the FTC governing the offer and sale of franchises, including mandatory pre-sale disclosure obligations.

Additionally, various states in which the Company operates impose their own registration and disclosure requirements that must be satisfied before franchise offers or sales may be made in those jurisdictions.

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In addition, these laws, rules and regulations are subject to judicial and agency interpretation, and it might be determined that the Company’s agent compensation plans are not permitted to be offered to independent contractors.

In response to such limitations, the Company has, and may in the future be, required to modify its agent compensation practices in such markets.

In response to such limitations, the Company has been, and may in the future be, required to modify its agent compensation practices in such markets.

Separately, to the extent the Company operates franchise businesses, state-specific “franchise relationship” or “business opportunity” laws introduce analogous constraints on operational flexibility at the jurisdictional level.

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Likewise, our franchisees could experience similar issues, which could result in a decrease in royalty fees received by us, negatively affect franchisees’ perception of our value proposition, limit our ability to expand our franchise network, or require us to offer more advantageous financial arrangements to attract and retain franchisees.

Industry and regulatory changes, including recent revisions to National Association of Realtors (“NAR”) policies and standards, buyer-broker compensation practices, and the recent settlement resolving nationwide antitrust litigation against NAR and major brokerages, may increase compliance burdens for agents, raise operating costs, and impact the perceived value of the profession.

Industry and regulatory changes, including recent revisions to the NAR policies and standards, buyer-broker compensation practices, and the recent settlement resolving nationwide antitrust litigation against NAR and major brokerages, may increase compliance burdens for agents, raise operating costs, and impact the perceived value of the profession.

These developments could lead to higher attrition rates across the industry and at the Company, particularly among part-time agents or those with lower transaction volumes.

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In addition, volatility in the value of the Company’s stock or changes to the perceived value of its programs could negatively impact recruitment and retention.

If the Company is unable to attract, retain qualified agents and brokers, or to maintain their engagement with its model and programs, the Company’s business, financial condition, results of operations, and growth prospects could be materially and adversely affected.

If the Company is unable to attract and retain qualified agents and brokers, or to maintain their engagement with its model and programs, the Company’s business, financial condition, results of operations, and growth prospects could be materially and adversely affected.

Material decreases in the average brokerage commission rate, due to conditions beyond the Company’s control, could materially adversely affect its financial results.

There are many factors that contribute to average broker commission rates that are beyond the Company’s control.

Factors that can contribute to a material decrease in brokerage commissions include changes in regulation, litigation (including pending litigation and industry practice changes described elsewhere in this Annual Report), the rise of certain competitive brokerage or non-traditional competitor models, an increase in the popularity of discount brokers and agents, increased adoption of flat fees, commission models with more competitive rates, rebates or lower commission rates on transactions, as well as other competitive factors.

Factors that can contribute to a material decrease in brokerage commissions include changes in regulation, litigation (including pending litigation and industry practice changes described elsewhere in this Quarterly Report), the rise of certain competitive brokerage or non-traditional competitor models, an increase in the popularity of discount brokers and agents, increased adoption of flat fees, commission models with more competitive rates, rebates or lower commission rates on transactions, as well as other competitive factors.

For example, the Company competes with other brokerages that may have reduced operating margins and access to capital resources permitting them to prioritize market share over profits, as well as the growing popularity of non-traditional platforms such as listing aggregators, which may put additional pressure on the Company’s commissions and related costs.

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These risks extend to the Company’s franchise operations.

Because royalties received from the Company’s franchisees are calculated as a percentage of the franchisee’s gross sales commissions, the Company’s royalty revenues are directly exposed to the same commission rate pressures that affect its own brokerage operations.

Because royalties received from the Company’s franchisees are calculated as a percentage of the franchisee’s gross agent commissions, the Company’s royalty revenues are directly exposed to the same commission rate pressures that affect its own brokerage operations.

Any decline in franchisees’ gross commission income, or in the percentage of commissions they are able to collect, would generally result in a corresponding decline in the Company’s royalty revenues.

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The Company's franchise business, while currently immaterial, exposes it to risks tied to franchisee performance and the terms of its franchise arrangements that could adversely affect its financial results.

Prior to May 6, 2026, the Company has no prior material history operating a franchise business, and its franchise operations are currently immaterial to its overall financial results.

Prior to May 6, 2026, the Company had no prior material history operating a franchise business, and its franchise operations are currently immaterial to its overall financial results.

However, to the extent the franchise business grows, the Company's financial results will become increasingly influenced by the operational and financial performance of its franchisees.

Because certain franchise royalties may be calculated as a percentage of franchisees' gross sales commissions, the Company's royalty revenues are directly exposed to the same commission rate pressures, regulatory changes, and broader economic conditions that affect its own brokerage operations.

Because certain franchise royalties may be calculated as a percentage of franchisees' gross agent commissions, the Company's royalty revenues are directly exposed to the same commission rate pressures, regulatory changes, and broader economic conditions that affect its own brokerage operations.

If industry trends weaken, or if one or more franchisees becomes less competitive, experiences financial distress, or elects to leave the franchise system, royalty revenues could decline, which could adversely affect the Company's revenues and profitability.

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Actions of independent real estate professionals affiliated with the Company could materially and adversely affect the Company’s reputation and subject it to liability.

Actions of independent real estate professionals affiliated with the Company could materially and adversely affect the Company's reputation and subject it to liability.

The Company's operations rely on the performance of a large and geographically dispersed network of independent real estate professionals, including brokers, franchisees, and agents, over whom the Company has limited direct oversight and control.

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Furthermore, high-profile misconduct by any affiliated professional, even where the Company is not found directly liable, could negatively affect public perception of the Company and its ability to attract and retain agents, brokers, franchisees, and customers.

Certain provisions of our certificate of formation and bylaws could delay or prevent a change of control of the Company, which could deprive our shareholders of the opportunity to receive a premium for their shares.

Our certificate of formation authorizes our board of directors to issue shares of preferred stock in one or more series, and to fix the designations, powers, preferences and rights of each series, without further shareholder approval.

Our certificate of formation also does not permit cumulative voting in the election of directors.

Our bylaws provide that special meetings of shareholders may be called only by the board, the chairperson of the board, our Chief Executive Officer or president, or by holders of at least 50% of our outstanding voting stock, and our certificate of formation and bylaws require the written consent of holders of at least 55% of our outstanding capital stock for shareholders to act without a meeting.

Our bylaws also impose detailed advance notice requirements on shareholders wishing to nominate directors or bring other business before a meeting.

Each of these provisions could have the effect of delaying, deterring or preventing a change of control that our board of directors determines is not in the best interests of the Company and its shareholders, even if some or a majority of our shareholders might consider such a change of control to be beneficial, which could limit shareholders’ opportunity to receive a premium for their shares.

These provisions operate alongside, rather than through, Section 21.606 of the Texas Business Organizations Code (Texas’s default anti-takeover statute), our certificate of formation affirmatively elects not to be governed by Section 21.606 of the Texas Business Organizations Code (the “TBOC”), which would otherwise restrict certain business combinations with interested shareholders.

In addition, our bylaws and certificate of formation adopt a majority-outstanding vote (rather than supermajority) standard for the removal of directors and for shareholder approval of mergers, asset sales and dissolutions and adopted a majority-cast vote standard for the election of directors, which is generally less protective of incumbent management than provisions found in some other companies’ governing documents.

The overall effect of our organizational documents on any particular change-of-control transaction will depend on the specific facts and circumstances at the time.

The TBOC and our bylaws include provisions that may limit the venues in which certain shareholder claims may be brought and require that certain claims be resolved without a jury trial, impose an ownership threshold on derivative litigation, and provides for presumption of the business judgment rule each of which could make it more difficult or costly for shareholders to pursue claims against us.

Our bylaws provide that, unless we consent in writing to an alternative forum, the Texas Business Court (Eleventh Division), or specified Texas federal or state courts if the Business Court lacks jurisdiction, will be the exclusive forum for the following:

(a) any derivative action or proceeding brought on behalf of the Company;

(b) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director, shareholder, officer or other employee of the Company to the Company or the Company’s shareholders;

(c) any action asserting a claim against the Company or any current or former director, officer or other employee of the Company arising pursuant to any provision of the TBOC or the certificate of formation or the bylaws;

(d) any action asserting an “internal entity claim” (as defined in Section 2.115 of the TBOC);

or (e) any other action or proceeding in which the Texas Business Court has jurisdiction, subject to certain exceptions (each an “Internal Dispute”).

Except to the extent that the Company consents in writing, or a court of competent jurisdiction determines in a final and unappealable judgment, that an Internal Dispute is not subject to the sole and exclusive venue and forum or jurisdiction of the Business Court, a shareholder will not be permitted to litigate an Internal Dispute in federal court or in any state court other than the Business Court, and will not be able to avail itself of any potential advantages or procedural protections of such other forums (subject to the provisions of the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act discussed below).

Our bylaws separately provide that federal district courts will be

the exclusive forum for claims arising under the Securities Act or the Exchange Act.

Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock will be deemed to have notice of and to have consented to these provisions and our bylaws further include that any person or entity purchasing or otherwise acquiring or holding any interest in shares of stock of the Company shall be deemed to have irrevocably and unconditionally waived any right it may have to a trial by jury in any Internal Dispute.

This will prevent a shareholder from requesting that a jury decide disputed issues of fact and may discourage lawsuits against us and our directors, officers, other managerial officials, and other employees.

In addition, our bylaws prohibit a shareholder from instituting or maintaining a derivative proceeding on our behalf unless that shareholder beneficially owns at least 3% of our outstanding shares at the time the proceeding is instituted.

A similar ownership threshold provision based on this 2025 TBOC provision has already been challenged in court proceedings involving another Texas corporation and, although the federal district court found the provision enforceable in that case, its enforceability or governing documents containing its provisions could be subject to further challenges or interpretation.

The TBOC also permits corporations to request a court, at the start of a transaction (including a related party transaction) or inquiry into a derivative claim, to determine the independence and disinterestedness of directors serving on a special committee reviewing the transaction or directors or other individuals on panels reviewing derivative claims.

Subsequent challenges to independence or disinterestedness would require new facts.

In addition, Section 21.419 of the TBOC sets forth certain presumptions concerning compliance by directors and officers with respect to their duties to a corporation, including the duty of care and duty of loyalty.

Specifically, in taking or declining to take any action on any matters of a corporation’s business, Section 21.419, which applies to us, provides that a director or officer is presumed to have acted (i) in good faith, (ii) on an informed basis, (iii) in furtherance of the interests of the corporation and (iv) in obedience to the law and the corporation’s governing documents.

These provisions are described as codifying the “business judgment rule.” In order to succeed in a cause of action against a director or officer, the Company or a shareholder pursuing such an action must rebut one or more of the foregoing presumptions and prove with particularity the director or officer’s act or omission constituted a breach of duty as a director or officer and that such breach involved fraud, intentional misconduct, an ultra vires act or a knowing violation of law.

These provisions may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder finds favorable, may increase the cost of bringing a claim, may discourage lawsuits against us and our directors and officers, and may result in less favorable outcomes to shareholders than would result from a jury trial or from litigation in a forum other than the one designated in our bylaws and may result in shareholders and the company incurring additional costs or delays associated with resolving such actions, including in other jurisdictions.

Shareholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder as a result of these provisions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors