NAR to Abandon 6% Commission Norms and Compensate $418 Million in Damages Following Lawsuit Settlement

On Friday, the National Association of Realtors (NAR) announced it has finally reached an agreement with homeowner groups who had been litigating against it since 2019. This $418 million settlement effectively ends the current broker commission model used by NAR that caused homeowner claimants to incur excessive commission fees.

Assuming the expected outcome of a landmark case is approved by a federal court, its impact could have significant ramifications on the housing market. Commission rule changes proposed by NAR could revamp all aspects of buying and selling real estate as well as result in price declines nationwide.

Here is a breakdown of recent changes and their potential impact on both investors and agents alike.

Ending of 6% Commission-Sharing Structure Suffix
One of the more significant changes brought about by this settlement agreement is its elimination of the current NAR commission-sharing structure of 6% commission sharing.

Here is how it has always worked: Real estate agents licensed as Realtors must offer to share in commission with buyer’s agents when present in transactions, given NAR’s dominance in agent designation across the US; due to this practice, an industry standard commission was effectively created, violating antitrust laws as the plaintiffs claimed.

NAR guidelines specify that commission rates can be negotiated and “set by the market”. But in practice, commission rates are set by listing agents themselves – typically between 5-6% of sales price for homes selling for $400,000 which could equal to an outlay of $24,000 in commission payments to listing agents.

Since sellers pay commissions, one argument against it is that it inflates home prices to cover it. Now that the settlement has taken place, we may see home prices decline as a result of it.

Eventually, listing agents won’t need to offer commission to buyer agents; this will spur more competition among agents as sellers look for those offering the lowest commission packages.

No one knows for certain the commission rates real estate agents will now charge, although economists predict a reduction of up to 30 % in fees charged.

The End of an MLS Subscription Requirement
This ruling represents another substantial change: Real estate agents no longer must sign up for their local Multiple Listing Service (MLS), and commission information will no longer appear within it – effectively ending “steering,” where buyers’ agents select more expensive properties in exchange for higher commission payments. Moreover, new rules eliminate any requirement that realtors subscribe to an MLS in order to perform their services.

Real estate investors still require relationships with local agents; agents will compile databases of homes for sale – an invaluable resource for investors – which they may charge for. But with open competition between agents likely playing into this process, agents may work harder at finding properties buyers or investors want.

Unanswered remains is how all these new broker-buyer relationships will be regulated, if at all. According to the NAR settlement, any MLS subscriber broker must enter into written agreements with buyers so they “understand exactly what services and value will be provided, at what cost,” leaving us to speculate as to whether buyer-broker agreements become the standard in cases without accessing an MLS system.

Kevin Sears, president of NAR, issued the following statement in regards to this settlement agreement: “NAR exists to serve our members and American consumers, so while this settlement comes at an added cost, its potential benefits to our industry outweigh these expenses.”

These changes, should they be approved by the federal court, will take effect in July 2024.