Mar. 15, 2024 at 3:43 pm

Buying a home? Realtor commissions could shrink after legal settlement

March 15, 2024no commentNo tags

Realtor commission fees consumers pay to buy and sell a house could change.

The National Association of Realtors, embroiled in legal battles over the real estate industry’s commission structure, has reached a settlement that could dramatically slash the fees paid to brokers.

NAR said Friday that the settlement would lead to it putting in place a new Multiple Listing Service rule, which would prohibit offers of broker compensation.

The real estate industry has long worked under a model of a 5% to 6% commission paid by the seller and split between the seller’s agent and the buyer’s agent.

But a federal case in Missouri that challenged that commission structure led to a jury deciding in October that NAR and large brokerage firms conspired to keep costs artificially high. The jury awarded $1.8 billion in damages, which could rise to more than $5 billion under antitrust rules.

Commissions going away?:How much you pay to buy or sell a home may be about to change. Here’s what you need to know

Now, if the settlement in the class-action case announced Friday is approved, the changes could dramatically lower costs for those looking to sell their home.

“This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals,” NAR said in a press release. “Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them.”

The settlement must still get court approval. If approved, changes would go into effect in mid July, NAR said.

Stephen Brobek, a senior fellow at the Consumer Federation of America, has said elimination of the practice of a house seller paying fees to both the seller’s and buyer’s agent will be a watershed moment for the industry.

It is “likely to precipitate changes that increase price competition in the residential real estate markets,” Brobek said after the jury verdict decision in October.

The changes could eventually save consumers $20 billion to $30 billion in real estate commissions each year, he said. The Consumer Federation of America has predicted commission rates could decline from a range of 5% to 6%, to 3% to 4%.

Additionally, the NAR will pay $418 million over approximately four years as part of the class-action settlement.

Another new rule as part of the settlement will be a new NAR rule that would require MLS participants working with buyers to enter into written agreements with their buyers. NAR continues, as it has done for years, to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much, it said.

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals,” said Nykia Wright, Interim CEO of NAR.

Added Kevin Sears, NAR president: “This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients.”

This is a developing story.

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Buying a home? Realtor commissions could shrink after legal settlement

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