The traditional 6% commission on home sales is now a thing of the past. The National Association of Realtors (NAR) has made a groundbreaking decision to change the way homes are bought and sold. This comes after reaching a settlement with a group of home sellers, putting an end to major antitrust lawsuits. The settlement involves a hefty sum of $418 million in damages and the removal of commission rules.
NAR, representing over a million Realtors, has introduced new regulations. These include a ban on including agents’ fees in listings on multiple listing services (MLS), which are centralized databases for home listings. This practice was criticized for encouraging the sale of pricier homes. Additionally, the requirement for brokers to join multiple MLS, many of which NAR subsidiaries own, has been removed. Another significant change is that buyers’ brokers must now have written agreements with their clients.
This settlement is set to revolutionize the current model of home buying and selling. Traditionally, sellers would cover the fees for both their broker and the buyer’s broker, a system that has been criticized for inflating home prices. With the new changes, real estate commissions could drop by 25% to 50%, according to TD Cowen Insights. This opens the door for alternative real estate selling models, such as flat-fee and discount brokerages, to gain more traction in the market.
The news has impacted the stock market, with shares of real estate companies like Zillow and Compass dropping over 13%. This decline reflects concerns that lower commission rates might reduce business for these platforms. On the other hand, homebuilder stocks have seen an increase, with companies like Lennar, PulteGroup, and Toll Brothers experiencing gains.
For a home priced at the American average of $417,000, sellers are currently paying over $25,000 in brokerage fees. These costs, ultimately borne by the buyer, contribute to higher home prices. With the new settlement, these fees could decrease significantly, saving sellers between $6,000 and $12,000.
Despite the financial hit from the settlement, NAR believes the benefits to the industry are worth the cost. The settlement comes after a federal jury found NAR and two brokerages guilty of conspiring to keep commission rates high, with potential damages tripling to $5.4 billion due to the antitrust nature of the case. NAR had planned to appeal but ultimately chose to settle.
NAR has long defended its commission structure, arguing it makes housing more affordable for buyers. However, critics argue that the system is unfair to sellers, who feel pressured to offer standard commissions to attract buyers.
This settlement paves the way for a more competitive housing market, where Realtors can compete on commission rates. This could lead to more transparency and lower costs for homebuyers. The changes represent the most significant shift in the housing market in a century, according to Norm Miller, a real estate professor.
The settlement also addresses long-standing criticisms of the real estate industry’s anticompetitive practices. It aims to empower individual sellers to negotiate better deals and prevent brokers from steering buyers towards properties offering higher commissions.
While most Realtors are included in the settlement, HomeServices of America continues to challenge the case in court. NAR has expressed satisfaction with the agreement, emphasizing its benefits for members and the industry.
The settlement could lead to significant changes in the real estate industry, including a potential reduction in the number of brokers. However, it is expected that top brokers will thrive under the new system. It’s also worth noting that commission rates in the U.S. are higher than in many other countries.
NAR has faced challenges from antitrust officials and litigation for years. This settlement marks a significant setback for the association and could lead to further scrutiny from the Department of Justice. The past year has also seen leadership changes within NAR, amid various controversies.
This agreement marks a pivotal moment in the real estate industry, promising more competitive practices and potentially lower costs for homebuyers.