The National Association of Realtors (NAR) agreed to a settlement last week that will eliminate its rules on sales commissions. The deal, if approved by the federal court, is likely to shake up the real estate market and could potentially decrease housing prices across the country.
Anthony Panebianco, a real estate attorney at Davis Malm Attorneys, told BiggerPockets that the settlement is unsurprising, as a judgment would have likely led to the NAR’s bankruptcy.
“The elimination of the mandatory cooperative compensation model was predicted before this settlement and now is guaranteed,” he added.
The NAR agreed to pay $418 million in damages and implement new rules by July that will change how real estate brokers are compensated. One rule would prohibit brokers from offering compensation on the multiple listing service (MLS), which critics say led to brokers pushing more expensive properties on buyers. Another rule would require buyer-brokers to enter into a written agreement with their buyers.
“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,” Nykia Wright, interim CEO of NAR, said in a statement.
An End to the Traditional Commission Model?
The change to NAR rules essentially means the end of the standard 6% commission rate for brokers, and commissions are expected to be cut by as much as half.
In turn, this could open opportunities for alternative selling models. These could include an increase in models that already exist, such as flat fees and discount brokerages, or even completely new models, Nick Narodny, founder and CEO at real estate startup Aalto, told BiggerPockets.
“They could be everything from subscription to flat just giving consumers more of a power of choice and the representation of buying,” he said.
With all the current issues facing the NAR, Panebianco said there would be traction if…