CNN

The 6% commission, a standard in home purchase transactions, no longer exists.

In a sweeping move expected to dramatically lower the costs of buying and selling a home, the National Association of Realtors announced a settlement Friday with home seller groups, agreeing to end landmark antitrust lawsuits by 418 million dollars in damages and abolishing rules on commissions.

The NAR, which represents more than 1 million real estate agents, also agreed to implement a series of new rules. One prohibits broker compensation from being included in listings posted to local centralized advertising portals, known as multiple listing services. Critics say real estate agents have led to more expensive properties being forced on customers. Another eliminates requirements that agents subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are viewed broadly in a local market. Another new rule requires buyer agents to enter into written agreements with their buyers.

The deal will essentially destroy the current business model for buying and selling homes, in which sellers pay both their agent and a buyer’s agent, which critics say has artificially inflated home prices.

By some estimates, real estate commissions are expected to decline by 25% to 50%, according to TD Cowen Insights. This opens up possibilities for alternative real estate sales models that already exist but do not yet have much market share, including fixed-fee and discount brokers.

Shares of homebuilders rose Friday afternoon after the news: Shares of Lennar rose 2.5%, shares of PulteGroup rose 0.7% and shares of Toll Brothers rose 1.8%.

For the average priced American home for sale – $417,000 – sellers pay more than $25,000 in real estate agent fees. These costs are passed on to the buyer, causing the price of homes in America to rise. According to TD Cowen Insights analysis, that fee could drop between $6,000 and $12,000.

“While the settlement will come at a significant cost, we believe the benefits it will bring to our industry are worth those costs,” NAR President Kevin Sears said in a statement.

In November, a federal jury in Missouri found that NAR and two brokers were liable for $1.8 billion in damages for conspiring to artificially inflate brokers’ commissions. Because it was an antitrust case, NAR faced potentially triple the damages: $5.4 billion.

The NAR had promised to appeal the case, but other brokers settled — and the NAR finally did so on Friday.

“NAR has worked diligently for years to resolve this lawsuit in a way that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR, in a statement. “It has always been our goal to preserve consumer choice and protect our members as best we can. This settlement achieves both goals.”

The NAR had required home sellers to include agent fees when posting an ad on a multiple listing service. While NAR has long said commissions are negotiable and that the structure has helped make homes more affordable for buyers, critics have long argued that the fees were expected and that home sellers felt they would lose buyers if they didn’t offer them .

Home sellers who have filed lawsuits against the NAR have argued that in a competitive market, the cost of the buyer’s agent commission should be paid by the buyer who received the service, not the seller. The sellers who filed the lawsuit against NAR and the brokers said buyers should be able to negotiate the fee with their broker, and the sellers should not be on the hook to pay it.

This settlement, which still needs to be approved by a judge, opens the door to a more competitive housing market. Real estate agents can now compete on a commission basis, allowing potential buyers to shop around for rates before committing to purchasing a home. Brokers could advertise their rates so that customers can choose cheaper brokers. The NAR did not set a proposed fee in its announcement.

This marks the biggest change in the housing market in a century, said Norm Miller, professor emeritus of real estate at the University of San Diego.

“I’ve been waiting 50 years for this,” Miller said.

While it is unclear what the future of the housing market will look like, Miller expects home purchases to pick up somewhat as costs for homebuyers drop dramatically.

“There are all kinds of models that we could see in the future, and no one knows what they are,” he said, suggesting that some agents, for example, charge a fee of $3,000 to sell a house, while others charge a will offer competitive commission.

The deal will bring sweeping reforms for millions of Americans, said Benjamin D. Brown, managing partner of Cohen Milstein Sellers & Toll and co-chair of its antitrust practice, which helped draft the settlement.

“For years, anti-competitive regulations in the real estate industry have financially harmed millions of Americans,” Brown said.

Individual sellers often feel powerless to negotiate a better deal for themselves, given the risk that offering lower commissions could cause agents to steer buyers to other properties, says Robert Braun, a partner in Cohen Milstein’s antitrust practice.

“For far too long, home sellers have had to deal with a system that many considered blatantly unfair. This class action and settlement provides justice for our customers and requires important changes that will help future home sellers,” Braun said.

Although most real estate agents are included in the settlement, brokerage HomeServices of America continues to fight the case in court, the NAR said.

The NAR said it had fought to get HomeServices of America agents included in the settlement, but said it was pleased that more than 1 million of its members had joined the agreement.

“Ultimately, continuing to litigate would have harmed members and their small businesses,” Wright said in a statement. “While there can be no perfect outcome, this agreement is the best outcome we can achieve under the circumstances.”

Miller said the settlement could lead to a mass exodus of brokers from the industry — possibly half of America’s roughly two million agents. But he said most agents make their money from the commissions, even if they only sell one house a year.

Lower costs mean that mediocre agents will likely leave the field, but top agents will bring in more business. “The good ones will definitely do better,” he said.

U.S. fees are significantly higher than abroad, Miller noted. In Israel, Singapore and the United Kingdom, brokers charge between 1% and 2% for the same thing brokers in the United States do.

The NAR has been fighting U.S. antitrust officials and lawsuits over alleged anti-competitive practices for years. But the November ruling marked the biggest setback yet for the association — and ultimately led to the demise of the rules that have long protected the compensation model.

The association is also under scrutiny by the U.S. Department of Justice, and it is unclear whether this settlement with sellers will impact government oversight of the brokerage industry.

The trade group has also faced serious leadership turmoil over the past year.

In January, former NAR President Tracy Kasper resigned after saying she received a threat to disclose a past personal, non-financial matter unless she jeopardized her position at NAR to take. Sears replaced Kasper earlier this year.

Kasper had just taken over the role in August 2023, after Kenny Parcell, the former president, resigned amid sexual harassment allegations first published by the New York Times. NAR employees reportedly said Parcell touched them inappropriately and sent lewd photos and text messages. In the Times article, Parcell denied the allegations.

In November 2023, NAR CEO Bob Goldberg also resigned and was replaced by Wright. Goldberg resigned two days after the $1.8 billion judgment against the NAR.

This story has been updated with additional reporting and context. It has also been updated to clarify the role of HomeServices of America’s lawsuit in the terms of the settlement.

Leave a Reply

Your email address will not be published. Required fields are marked *