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The standard 6% commission on home purchase transactions will no longer be applicable.
In a drastic step that is expected to significantly reduce the cost of buying and selling homes, the National Association of Realtors on Friday announced a settlement with a group of home sellers that requires payment of $418 million in damages and commission provisions. The agreement was reached to end a landmark antitrust lawsuit by repealing the law.
NAR, which represents more than 1 million real estate agents, also agreed to implement a new set of rules. One of them prohibits the inclusion of agent fees in listings on regional property portals, known as multiple listing services, which encourages agents to push more expensive properties onto customers. critics point out. The other eliminates the requirement for agents to subscribe to multiple listing services, many of which are owned by NAR subsidiaries, allowing them to view a wider range of homes on the local market. Another new rule would require a buyer's agent to enter into a written contract with the buyer.
The agreement effectively destroys the current home buying and selling business model, in which sellers pay both their broker and the buyer's broker, which critics say has artificially inflated home prices. Pointed out.
According to TD Cowen Insights, real estate commissions are expected to fall by 25% to 50%, according to some estimates. This opens up opportunities for alternative models of real estate sales that exist but do not have a significant market share, such as flat-rate commissions and discount brokerage.
Shares in real estate companies Zillow and Compass both fell more than 13% on Friday as investors worried that lower commissions for agents would lead to less business for the real estate platforms.
Zillow said in a 10-K filing last month that “if agent commissions are materially impacted, real estate partners' marketing budgets may be reduced or the number of real estate partners participating in the industry may be reduced. “This may have a negative impact on our financial performance.” Surgery situation and results. ”
Shares of real estate brokerage company Redfin also fell by nearly 5%.
Meanwhile, homebuilder stocks rose on the news, with Lennar shares up 2.4%, Pulte Group up 1.1% and Toll Brothers up 1.8%.
For a home sold in America with an average price of $417,000, sellers pay more than $25,000 in commissions. Those costs are passed on to buyers, driving up American home prices. That fee could fall by $6,000 to $12,000, according to an analysis by TD Cowen Insights.
“Although the settlement will come at a significant cost, we believe the benefits to our industry are worth the cost,” NAR Chairman Kevin Sears said in a statement.
In November, a federal jury in Missouri found NAR and two brokerage firms liable for $1.8 billion in damages for conspiring to keep agent commissions artificially high. Because this was an antitrust lawsuit, NAR could be sued for three times his $5.4 billion in damages.
NAR had promised to appeal the lawsuit, but other intermediaries also settled, and NAR ultimately settled on Friday.
“NAR has worked for many years to resolve this litigation in a manner that benefits our members and U.S. consumers,” NAR Interim CEO Nikia Wright said in a statement. “It has always been our goal to preserve consumer choice and protect our members as much as possible. This settlement accomplishes both of those goals.”
NAR required home sellers to include agent compensation when listing on multiple listing services. NAR has long argued that fees are negotiable and that this structure helps make homes more affordable for buyers, but critics say the fees were expected and that the Sellers have long argued that they feel they will lose buyers if they don't offer commissions.
Home sellers who have filed lawsuits against NAR have argued that in a competitive market, buyers' commissions should be paid by the serviced buyers, not the sellers. The sellers who filed suit against NAR and the brokers said buyers should be able to negotiate commissions with agents and sellers should not be burdened with paying commissions.
The settlement, which is subject to judge approval, opens the door to a more competitive housing market. Real estate agents can now compete on commissions, and prospective buyers can research interest rates before deciding to buy a home. Brokers may start advertising commissions, allowing customers to choose lower-cost agents. NAR did not set a recommended fee in its announcement.
Norm Miller, professor emeritus of real estate at the University of San Diego, said this is the biggest change to the housing market in 100 years.
“I've been waiting for this for 50 years,” Miller said.
Mr. Miller said that while it is unclear what the future holds for the housing market, he expects home purchases to recover to some extent as costs for homebuyers come down significantly.
“There could be all kinds of models in the future, but no one knows what they will be,” he said, adding that some agents may charge, say, a $3,000 fee to sell a home. , suggested that some intermediaries may offer competitive fees.
Benjamin D. Brown, managing partner of Cohen, Milstein, Sellers & Toll, and co-chair of the antitrust practice, who helped draft the settlement, said the agreement has fundamental implications for millions of Americans. He said it would bring about major reforms.
“For years, anticompetitive regulation of the real estate industry has caused economic harm to millions of Americans,” Brown said.
Robert Brown, a partner in Cohen Milstein's antitrust practice, said private sellers are trying to get a better deal on their own because agents fear that offering lower commissions will drive buyers to other properties. He said he often feels powerless to negotiate.
“For too long, home sellers have faced a system that many recognize as patently unfair. This class action lawsuit and settlement will bring justice to our clients and help ensure future It will require significant changes that will help home sellers,” Brown said.
Most of the real estate agents are included in the settlement, but the brokerage, HomeServices of America, continues to fight the case in court, according to NAR.
NAR said it had been fighting to include HomeServices of America agents in the settlement and was pleased that more than 1 million members supported the agreement.
“Continuing to litigate will ultimately harm our members and their small businesses,” Wright said in a statement. “No outcome is perfect, but this agreement is the best we can achieve under the circumstances.”
Miller said the settlement could lead to a mass exodus of brokers from the industry, potentially as many as half of the roughly 2 million agents in the United States.
Lower fees mean mediocre agents are more likely to exit the field, but top brokers get more business. “Better definitely brings better results,” he said.
Miller pointed out that American fees are significantly higher than in other countries. In Israel, Singapore and the UK, a broker charges the same commission as an agent in the US, he charges 1% to 2%.
NAR has fought off lawsuits over alleged anticompetitive conduct with U.S. antitrust authorities for years. But the November ruling marked the association's biggest setback yet, ultimately leading to the collapse of the rules that had long protected its compensation model.
The association also faces scrutiny from the U.S. Department of Justice, and it's unclear whether the settlement with the sellers will affect government oversight of the securities industry.
The industry group has also experienced significant leadership turmoil over the past year.
In January, former NAR Chairman Tracy Kasper resigned, saying she had received threats to reveal past personal non-financial matters unless her position at NAR was compromised. Mr. Sears replaced Mr. Kasper earlier this year.
Kasper only took over in August 2023 after former president Kenny Purcell resigned following sexual harassment allegations first reported by the New York Times. NAR officials said Purcell had touched them inappropriately and sent them lewd photos and texts, the report said. In the Times article, Purcell denied the accusations.
In November 2023, NAR CEO Bob Goldberg also resigned and was replaced by Wright. Mr. Goldberg resigned two days after the $1.8 billion judgment against NAR.
This story has been updated with additional reporting and context. Also updated to clarify Norm Miller's comments regarding broker salary expectations.
