The National Association of Realtors (NAR) announced Friday that it finally reached a settlement with homeowner groups that had been embroiled in lawsuits with the association since 2019. The $418 million settlement effectively ends the current NAR broker commission model, which the homeowners’ claimants alleged forced them to pay excessive commission fees.
If a federal court approves the landmark case’s outcome, as expected, it could give the housing market its biggest shake-up yet. The commission rule changes the NAR has agreed to could restructure the entire process of buying and selling real estate and could also deliver potential home price declines across the country.
Here are the changes at a glance and what they could mean for investors and agents alike.
The End of the 6% Commission-Sharing Structure
The most sweeping change introduced by the settlement is the elimination of the current NAR commission-sharing structure.
Here’s how it’s always worked: Real estate agents who are Realtors are required to offer a share of commission with the buyer’s agent in a transaction, if present. Given the NAR’s dominance on agent designations throughout the United States, this effectively created an industry-standard commission, thus violating antitrust laws, as the plaintiffs alleged.
NAR guidelines clearly state that the commission rate is negotiable and that “commission rates are set by the market.” But in practice, commission rates are always set by listing agents and almost always at a rate of 5% to 6%. For homes selling for $400,000, this can amount to a commission payout of $24,000.
Because the sellers pay the commissions, the key argument is that it inflates the prices of homes to make up for it. Seemingly, now that the settlement has gone through, we could very well see a reduction in home prices.
Ultimately, listing agents will no longer be required to offer commission to buyer agents, which will bring more…