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The 6% commission, common in home purchase transactions, no longer exists.
In a sweeping move expected to dramatically reduce the cost 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 paying $418 million in damages and eliminating commission rules.
The NAR, which represents more than 1 million real estate agents, also agreed to implement a set of new rules. One prohibits agent compensation from being included in listings placed on local centralized listing portals known as multiple listing services, which critics say led brokers to offer more expensive properties to clients. Another ends requirements that brokers subscribe to multiple listing services, many of which are owned by NAR subsidiaries, where homes have broad visibility in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.
The deal will effectively destroy the current home buying and selling business model, in which sellers pay both their broker and the buyer’s broker, which critics say has artificially raised home prices.
By some estimates, real estate commissions are expected to fall between 25% and 50%, according to TD Cowen Insights. This will open opportunities for alternative real estate sales models that already exist but don’t have much market share, including flat-fee and discount brokerages.
Shares of real estate companies Zillow and Compass fell more than 13% on Friday as investors worried that lower commission rates for agents could lead to less business for the real estate platforms.
In a 10-K filing last month, Zillow warned that, “if agent commissions are significantly impacted, it could reduce real estate partners’ marketing budgets or reduce the number of real estate partners participating in the industry, thereby which could negatively affect our finances. condition and results of operations.
Shares of real estate brokerage Redfin also fell nearly 5%.
Meanwhile, homebuilder stocks rose on the news: Lennar shares gained 2.4%, PulteGroup shares added 1.1% and Toll Brothers shares added 1.8%.
For a median-priced U.S. home for sale ($417,000), sellers are paying more than $25,000 in brokerage fees. Those costs are passed on to the buyer, driving up the price of homes in the United States. That fee could be reduced by between $6,000 and $12,000, according to TD Cowen Insights analysis.
“While the deal comes at a significant cost, we believe the benefits it will bring to our industry are worth that cost,” NAR President Kevin Sears said in a statement.
In November, a federal jury in Missouri found NAR and two brokerages responsible for $1.8 billion in damages for conspiring to keep agent commissions artificially high. Because this was an antitrust case, the NAR was potentially forced to pay triple those damages: $5.4 billion.
The NAR had promised to appeal the case, but other brokerages settled, and the NAR eventually did as well on Friday.
“NAR has worked hard for years to resolve this litigation in a way that benefits our members and American consumers,” Nykia Wright, NAR’s interim executive director, said in a statement. “Our goal has always been to preserve consumer choice and protect our members to the greatest extent possible. “This agreement achieves both objectives.”
The NAR had required home sellers to include agent compensation when posting an ad on a multiple listing service. Although the NAR has long said that commissions are negotiable and that the structure helped make homes more affordable for buyers, critics have long argued that the fees were expected and sellers felt they would lose buyers if they did not. They offered them.
Home sellers who 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 brokerages said buyers should be able to negotiate the fee with their agent and that sellers should not have to pay it.
This agreement, which is subject to the approval of a judge, opens the door to a more competitive real estate market. Real estate agents could now compete on commissions, allowing potential buyers to compare prices before committing to buying a home. Brokers could start advertising their rates, allowing clients to choose lower-cost agents. The NAR, in its announcement, did not set a suggested rate.
This marks the biggest shift 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.
Although it’s unclear what the future of the housing market will look like, Miller said he expected home buying to recover somewhat as costs fell dramatically for buyers.
“There are all kinds of models we could see in the future, and no one knows what they are,” he said, suggesting that some brokers may charge, say, a $3,000 fee for selling a home, while others will offer a competitive commission.
The deal will bring sweeping reforms to millions of Americans, said Benjamin D. Brown, managing partner of Cohen Milstein Sellers & Toll and co-chair of its antitrust practice, who helped craft the deal.
“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 brokers to steer buyers to other properties, said Robert Braun, a partner in Cohen’s antitrust practice. Milstein.
“For too long, home sellers have faced a system recognized by many as blatantly unfair. “This class action lawsuit and settlement brings justice to our customers and will require important changes that 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 have HomeServices of America agents covered by the settlement, but said it was pleased to have more than 1 million of its members in favor of 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 deal could trigger a mass exodus of brokers from the industry, potentially half of the roughly 2 million agents in the United States.
Lower rates mean mediocre agents are likely to leave the field, but better brokers will get more business. “The good ones will do absolutely better,” he said.
Tariffs in the United States are significantly higher than in foreign countries, Miller said. In Israel, Singapore and the United Kingdom, brokers charge between 1% and 2% for the same as agents in the United States.
The NAR has been fighting US antitrust officials and litigation for years related to alleged anti-competitive practices. But the November verdict marked the biggest setback for the association yet and ultimately led to the downfall of the rules that have long protected its compensation model.
The partnership also faces scrutiny from the U.S. Department of Justice, and it is unclear whether this deal with sellers will affect government scrutiny of the brokerage industry.
The trade group has also undergone serious leadership upheaval over the past year.
In January, former NAR president Tracy Kasper Low, after she said she received a threat to reveal a past non-financial personal matter unless she compromised her position at NAR. Sears replaced Kasper earlier this year.
Kasper had just taken office in August 2023, after Kenny Parcell, the former president, resigned amid sexual harassment allegations which were first published by the New York Times. NAR employees reportedly said Parcell touched them inappropriately and sent them 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. Also updated to clarify Norm Miller’s comments on running backs’ salary outlook.