Shares of Re/Max sank Tuesday after Morgan Stanley warned the brokerage firm could be in for some rocky times ahead in the wake of a landmark ruling against realtors and brokerages. The National Association of Realtors and some large residential brokerages last week were found liable for $1.78 billion in damages for conspiring to keep commissions high. Re/Max had settled the case before trial for $55 million. Morgan Stanley thinks the ruling could increase the risk of further litigation and expensive settlements. The bank downgraded Re/Max to underweight from equal weight and slashed its price target to $9 per share from $19.50. The new forecast implies downside of 16%. “The risk of additional litigation and costly settlement has notably increased in our view and RMAX’s $90mn of cash on balance sheet may not be sufficient in a more adverse scenario,” analyst Ronald Kamdem wrote in a note Monday. Shares of Re/Max fell 10% on Tuesday. RMAX YTD mountain Re/Max’s year-to-date performance Kamdem also expects the ruling to weigh on Re/Max’s multiple throughout 2024 because of a potential appeals process and other ongoing litigation. Then there is the impact on commissions. Sellers typically pay 5% to 6% of the sale of a house to realtors, which is split between the listing and buyer’s agent. Kamden said there could be downward pressure on those commissions and he expects it to remain an overhang on the multiple of residential brokers. The brokerages typically take a slice of its agent’s earnings. “We see a potential negative impact to RMAX’s variable broker fees — typically ~1% of real estate commissions paid by customers — as well as the potential for greater broker attrition which would impact recurring franchise fees, annual dues, and other revenues,” Kamden noted. Shares of Re/Max have already lost more than 40% year to date. — CNBC’s Michael Bloom contributed reporting.