The sweeping Realtors’ commission settlement announced last week could resolve class-action lawsuits accusing the National Association of Realtors (NAR) of artificially driving up the cost of buying and selling homes under one of the world’s most lucrative commission structures. If a court approves the agreement, the influential trade group, whose membership peaked at 1.6 million realtors in 2022, will pay $418 million to compensate home sellers across the country. The organization will also scrap rules that have made sellers pay 5% to 6% commissions, split between buyers’ and sellers’ agents, on a home’s sale price.
A group of Missouri home sellers sued, arguing the fee system amounted to price fixing. A federal jury decided in October that the NAR and large brokerage firms had conspired to artificially inflate costs and awarded $1.8 billion in damages, which could have been tripled under antitrust law. Under the settlement, the NAR gets the damages reduced and resolves a flurry of copycat lawsuits, according to The Associated Press. In exchange, it gives up its right to appeal.
The NAR had defended its practices, saying commission rates are negotiated between consumers and their agents. “Ultimately, continuing to litigate would have hurt members and their small businesses,” said Nykia Wright, interim chief executive of NAR. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
What will the settlement do for consumers?
“This is a major win” for them, Ryan Tomasello, a real estate industry analyst with investment firm Keefe, Bruyette & Woods, said to USA Today. It will “add much needed transparency to the process for both sellers and buyers, particularly for buyers who historically have lacked the knowledge to be able to negotiate lower commissions.” The agreement might not change things dramatically right away because sellers are used to factoring in 6% fees — which amount to $12,000 on a $200,000 home — but Tomasello has predicted the settlement could eventually reduce the $100 billion Americans pay annually in real estate commissions by 30% as agencies lower fees to compete for business.
This “opens the door to a more competitive housing market,” said David Goldman and Anna Bahney at CNN. It will “effectively destroy the current homebuying and selling business model” by barring the NAR from including offers of compensation for brokers on its multiple listing service (MLS), the database where homes are posted. The old rule, critics say, has been “steering” buyers’ brokers to properties offering them the biggest payday. Eliminating that practice shifts “how Americans buy, search for, and purchase and sell their housing,” University of Wisconsin-Madison associate professor Max Besbris, author of a book, “Upsold,” that examines the link between housing prices and the real estate business, said to The New York Times. “It will absolutely transform the real estate industry. “
How will this affect brokers?
It could “push some real estate brokers out of business,” said Christine Romans and Rob Wile at NBC News. Keefe, Bruyette & Woods predicts one million agents could leave the industry as commissions shrink. Another rule that will go away required homebuyers to sign a deal with a broker before “they start working with one — something experts say would lead many homebuyers to forgo using brokers entirely.” Many brokers are probably ready to find another line of work. The promise of easy money during the pandemic housing market boom lured people into the industry, with more than 156,000 people acquiring their real estate licenses in 2020 and 2021. But half of all U.S. agents sold just one house — or none — in 2023, according to The New York Times.
The shockwaves also could hit companies like Redfin and fellow housing data aggregator Zillow, which relies heavily on advertising for buyers’ agents, according to The Washington Post. And the NAR itself is not entirely out of the woods. “Some industry executives are furious with the association’s top ranks for putting itself in a position where it was forced to negotiate a settlement from a position of weakness,” The Wall Street Journal reported. And the courtroom drama is not over for the industry: HomeServices of America, a subsidiary of Warren Buffett’s Berkshire Hathaway, is the last defendant in the Missouri case not to settle. HomeServices said in its annual report it plans to “vigorously appeal” the jury’s damage award.