A prominent real estate trade group has decided to eliminate long-standing policies that have influenced agent commissions, aiming to settle lawsuits alleging that these rules have led to artificially inflated costs for selling homes.
As part of the settlement announced on Friday, the National Association of Realtors also agreed to pay $418 million to provide compensation to home sellers nationwide.
Home sellers involved in multiple lawsuits against the NAR and several major brokerages claimed that the trade group’s regulations on homes listed for sale on its affiliated Multiple Listing Services unfairly increased agent commissions. They also argued that the rules encouraged agents representing buyers to avoid showing listings where the seller’s broker offered lower commission to the buyer’s agent.
Under the terms of the settlement, the NAR agreed to no longer mandate a broker advertising a home for sale on MLS to offer upfront compensation to a buyer’s agent. This change allows individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, with the requirement for the home seller’s broker to disclose any compensation arrangements.
Additionally, the trade group agreed to enforce written agreements between agents or others working with a homebuyer, ensuring that homebuyers are informed in advance about the charges for the services provided by their agent.
These rule changes, set to take effect in mid-July, mark a significant shift in how real estate agents have operated since the 1990s and could lead to negotiations for lower agent commissions by homebuyers and sellers.
Currently, agents working with a buyer and seller typically split a commission of around 5% to 6% paid by the seller. However, the NAR’s agreed-upon rule changes might prompt negotiations for lower agent commissions by homebuyers and sellers.
“It may take some time for the changes to impact the marketplace, but our hope and expectation is that this will put downward pressure on the cost of hiring a real estate broker,” said Robby Braun, an attorney involved in a federal lawsuit filed in 2019 in Chicago on behalf of millions of home sellers.
Analysts at Keefe, Bruyette & Woods also anticipate that the NAR rule changes will lead to lower agent commissions and could encourage some homebuyers to forgo using an agent altogether.
“In our view, the combination of mandated buyer representation agreements and the prohibition of blanket compensation offers made by listing agents and sellers should result in significant price competition for buyer agent commissions,” the analysts stated in a research note on Friday.
While enabling homebuyers to negotiate competitive prices for their agent’s services, the rule changes require home shoppers to consider how to cover their agent’s compensation.
Homebuyers may still request a concession from a potential home seller to include compensation for the buyer’s agent. However, a home seller with multiple offers might decline such a request or choose a bid from a different buyer not asking for a concession.
“The real solution is for the industry to work on removing regulatory barriers that make it challenging for buyers to include this compensation in their mortgages,” said Stephen Brobeck, senior fellow at the Consumer Federation of America.
The NAR faced multiple lawsuits regarding how agent commissions are determined. In late October, a federal jury in Missouri found that the NAR and several major real estate brokerages conspired to require home sellers to pay commissions to homebuyers’ agents, violating federal antitrust laws.
The jury’s ruling demanded that the defendants pay nearly $1.8 billion in damages, with potential damages exceeding $5 billion if the court awarded treble damages to the plaintiffs.
If approved by the court, the settlement will resolve these suits and similar legal challenges faced by the NAR. It covers over one million NAR members, its affiliated Multiple Listing Services, and all brokerages with a NAR member as a principal that had a residential transaction volume of $2 billion or less in 2022.
“Ultimately, continuing the litigation would have harmed members and their small businesses,” said Nykia Wright, NAR’s interim CEO, in a statement. “While there is no perfect outcome, this agreement represents the best possible outcome under the circumstances.”
The settlement does not include real estate agents affiliated with HomeServices of America and its related companies.
In the previous month, Keller Williams Realty, one of the nation’s largest real estate brokerages, agreed to pay $70 million and revise some of its agent guidelines to settle agent commission lawsuits.
Two other major real estate brokerages reached similar settlement agreements last year. Anywhere Real Estate Inc. agreed to pay $83.5 million, while Re/Max agreed to pay $55 million in their respective settlements.
