In the early hours of Friday morning, the National Association of Realtors agreed to a global settlement agreement that will resolve several lawsuits against the trade group.
A group of Missouri home sellers sued NAR over its agent compensation policies, alleging that an NAR rule requiring home sellers to pay commissions to their agents and their buyers’ agents led to inflated fees and price fixing. The lawsuit also called into question another rule that requires agents to list homes in NAR-linked databases in order to sell them. In October, a jury agreed that both practices were anticompetitive, and a judge ordered at least $1.8 billion in damages.
More than a dozen copycat lawsuits followed, all accusing NAR of stifling competition and violating antitrust laws.
With the settlement agreement, NAR will pay $418 million in damages, but more importantly, it agreed to rewrite a number of rules that have long been central to the US housing industry. Here’s how things are changing, pending court approval.
House prices will decrease.
In the United States, most agents set a commission of 5 or 6 percent, paid by the seller. That means someone with a $1 million home should expect to spend up to $60,000 in real estate fees alone, with $30,000 going to their agent and $30,000 to the agent who brings in a buyer. Even for a home that costs $400,000 — close to the current median for homes in the United States — sellers still pay about $24,000 in commissions, a cost that is factored into the home’s final sales price.
With the settlement agreement, sellers’ agents will no longer be required to make commission offers to buyers’ agents, a practice called decoupling. This will save homeowners billions.
“Decoupling will allow for the removal and negotiation of supplies, lowering both home prices and overall consumer costs,” said Steve Brobeck, the retired executive director of the Consumer Federation of America. Mr. Brobeck said Americans spend about $100 billion a year on real estate commissions, and with the settlement, that number is expected to drop by at least $20 billion and as much as $50 billion.
Since commissions are tied to a home’s price, “Over time, both sellers and buyers will lower prices through negotiation and comparison shopping in a more price-transparent market,” he said.
The 6 percent commission will no longer be the norm.
The lawsuits alleged that NAR, and the brokerage firms that required their agents to be NAR members, had set rules that led to a standard industry-wide commission of 5 or 6 percent—one of the highest rates in the world. Without this guaranteed rate, agents will likely now be forced to lower their commissions to compete for business.
“US commissions are unlikely to fall to the level of the 1 or 2 percent interest rate in England, where only an agent and a solicitor are usually involved in a home sale. But they will certainly come down significantly, and commissions will also increasingly reflect the ability and efforts of sales reps,” Mr. Brobeck said in an email.
Steering — the practice of agents steering buyers to more expensive homes — will be less common.
Most databases where homes are listed for sale in the United States are limited to dues-paying members who belong to NAR, a dominance that has led to antitrust complaints against NAR
A NAR rule requires a listing agent, when posting a home in the database, to clearly state the amount of compensation a buying agent will receive if they bring in a buyer. This is a practice that critics say has long led to the “steering wheel,” in which buyers’ agents steer their clients to more expensive homes in an attempt to collect a larger commission check.
As part of the settlement, any fields displaying broker compensation will be completely eliminated, which will help deter the practice.
Around one million estate agents could leave the profession.
The number of real estate agents swelled during the pandemic, when mortgage rates plummeted and the housing market boomed. In 2020 and 2021, more than 156,000 people received their real estate licenses, and National Association of Realtors membership peaked at 1.6 million members in 2022.
Much of this growth was based on the idea of easy money.
But now many of these agents are struggling, and lowering commission rates will only do so increase pain. Half the agents in the country sell a house — or no houses not at all — last year. With the industry now staring at a massive overhaul, veteran agents predict that their less experienced peers will leave the field all together.
Some analysts predict a mass exodus. A widely reported report from investment banking firm Keefe, Bruyette & Woods plans 1 million agents to leave the field as common commissions disappear.
“Veteran agents have built strong relationships, established reputations and extensive networks. Younger real estate agents can struggle,” said Jen McDonald, who heads LPT Realty in Reno, Nev. and has spent 24 years in the industry. “Without an established reputation or strong customer bases, it will be difficult for them to retain customers or attract new ones.”