A prominent real estate industry association has made the decision to abolish longstanding policies that have historically influenced agent commissions. This move comes as a response to lawsuits alleging that these regulations artificially inflated costs for homeowners selling their properties.As part of the agreement announced on Friday, the National Association of Realtors (NAR) has also agreed to a $418 million settlement to provide compensation to home sellers across the United States.
The plaintiffs in multiple lawsuits against the NAR and several major brokerages contended that the trade association’s regulations governing homes listed on its affiliated Multiple Listing Services unfairly bolstered agent commissions. They argued that these rules also encouraged agents representing buyers to steer clear of listings where the seller’s broker offered lower commissions to the buyer’s agent.
As a component of the settlement, the NAR has agreed to cease mandating upfront compensation to a buyer’s agent from a broker advertising a home for sale on MLS. This change allows individual home sellers to negotiate such compensation outside of MLS platforms, with the requirement that the home seller’s broker discloses any such arrangements. Furthermore, the trade group has agreed to mandate that agents or others working with homebuyers enter into a written agreement with them, ensuring transparency regarding the charges for their services.
These rule revisions, scheduled to take effect in mid-July, mark a significant departure from the practices of real estate agents dating back to the 1990s. They have the potential to facilitate negotiations for lower agent commissions between homebuyers and sellers.
Presently, agents working with both buyers and sellers typically split a commission of approximately 5% to 6%, paid by the seller. However, the changes agreed upon by the NAR could prompt negotiations for lower agent commissions.
“‘It may take some time for the changes to influence the marketplace, but we anticipate this will reduce the cost of hiring a real estate broker,’ remarked Robby Braun, an attorney involved in a federal lawsuit filed in 2019 in Chicago.” AP News
Analysts anticipate that these rule changes will lead to lower agent commissions and may encourage some homebuyers to forego using an agent altogether. They project that mandated buyer representation agreements and the prohibition of blanket compensation offers by listing agents will foster significant price competition for buyer agent commissions.
While these changes may empower homebuyers to negotiate competitive prices for agent services, they also require home shoppers to consider how to cover their agent’s compensation.
Homebuyers may still request concessions from sellers to cover the buyer’s agent compensation, but sellers may decline such requests, particularly if they have multiple offers.
Stephen Brobeck, senior fellow at the Consumer Federation of America, suggested that the real estate industry should work to eliminate regulatory barriers that hinder buyers from including agent compensation in their mortgages. The NAR faced numerous lawsuits regarding the setting of agent commissions, culminating in a federal jury’s finding in late October that the NAR and several large brokerages conspired to require home sellers to pay commissions to buyers’ agents in violation of antitrust law.
If approved by the court, the settlement resolves these lawsuits and covers over one million of the NAR’s members, its affiliated Multiple Listing Services, and brokerages with a NAR member as a principal. It excludes real estate agents affiliated with HomeServices of America and its related companies.
“Nykia Wright, NAR’s interim CEO, stated, ‘Continuing to litigate would have harmed members and their small businesses. While not a perfect outcome, this agreement represents the best possible result under the circumstances.'” AP News
In addition to the NAR settlement, Keller Williams Realty agreed last month to pay $70 million and adjust some agent guidelines to settle agent commission lawsuits. Similarly, two other large brokerages settled similar terms last year, with Anywhere Real Estate Inc. agreeing to pay $83.5 million and Re/Max agreeing to pay $55 million.
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Real estate lawsuit settlement upends decadeslong policies that helped set agent commissions
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