The National Association of Realtors recently reached a groundbreaking agreement that will change the way real estate brokers’ commissions have traditionally been handled. For a long time, these commissions were automatically set, often amounting to as much as 6% of a home’s selling price.
Now, under the new terms, both home buyers and sellers will have the opportunity to discuss and decide on agent fees right from the start. This change comes as part of a significant $418 million legal settlement. If a federal court gives the green light to this agreement, experts in consumer advocacy foresee a decrease in the number of real estate agents, which could lead to even lower commission rates.
Benjamin Brown, a managing partner at the Cohen Milstein law firm and a key figure in negotiating this settlement, highlighted the positive impact of this change. He pointed out that for many years, the real estate industry’s anti-competitive practices have financially hurt millions of people. Brown believes that the reforms introduced by this settlement will benefit a vast number of American families.
In a recent statement, the NAR acknowledged the settlement but denied any wrongdoing. Nykia Wright, the interim CEO of NAR, emphasized the organization’s commitment to resolving the litigation in a way that supports both its members and American consumers. Wright stated that the settlement aligns with NAR’s goals of preserving consumer choice and protecting its members as much as possible.
Traditionally, a home seller had to commit to a brokerage fee to list their property on a multiple listing service, or MLS, which was typically around 5% or 6% of the home’s price, depending on the location. This fee was then split between the seller’s listing agent and the buyer’s agent. However, this standard practice has faced criticism for potentially encouraging buyers’ agents to favor more expensive homes.
In October, a federal jury found the NAR and several major brokerages guilty of conspiring to increase commission fees, resulting in a landmark $1.78 billion in damages awarded against the trade group. Doug Miller, an attorney and consumer advocate in the real estate sector, criticized the commission-splitting arrangements, likening them to a bribe that works against the seller’s interests.
With the approval of this settlement, the requirement for brokerage commissions to be listed on MLS sites will be removed, opening the door for sellers to negotiate fees directly. This could also encourage homebuyers to negotiate their fees more freely or even decide against using brokers altogether. The changes to brokerage fees are expected to start rolling out within months after the settlement’s approval, with a preliminary hearing scheduled to take place soon.
**CORRECTION** (March 15, 2023, 2:27 p.m. ET): An earlier version of this article incorrectly stated the month when a federal jury found the NAR and some major brokerages guilty of collusion to inflate commission fees. The correct month was October, not November.