Summary

The US housing industry faces significant changes as the National Association of Realtors settles a $418 million lawsuit, agreeing to abandon traditional commission fee rules. The settlement aims to lower costs for buyers and sellers but could lead to many real estate brokers losing business. This marks a major shift from the standard 6% commission rate set by NAR, with the lawsuit alleging antitrust violations and forcing NAR to rethink its practices. Buyers will no longer need to propose compensation, potentially changing broker-client dynamics, while the DOJ continues investigating NAR's control over the Multiple Listing Service, suggesting a significant shift ahead for the housing market.

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For the first time in roughly 100 years, the US housing industry is facing substantial changes after the National Association of Realtors agreed to a $418 million lawsuit settlement on Friday. Along with the financial costs, NAR–the country’s largest trade association–agreed to abandon long-standing rules surrounding commission fees.

The settlement could bring down the costs of both buying and selling homes. But it could also leave many real estate brokers out of business. 

The National Association of Realtors, founded in 1908, essentially set the standards of commission fees in the United States, which typically hovers around 6%, to be split between the home seller’s broker and the buyer’s agent, in most cases. For comparison, other countries have commission rates between  1- and 3%. Americans pay around $100 billion in commissions every year. NAR historically required sellers to decide on the commission rate before listing their homes on the NAR property database known as the Multiple Listing Service–a practice that has been more widely contested in recent years, culminating in several lawsuits. 

The original lawsuit filed against NAR in April of 2019 argued that NAR’s rules force home sellers to pay huge fees. The home sellers also accused NAR of violating antitrust laws. In the end, NAR settled and paid $1.8 billion in damages in October. 

But this lawsuit was merely the start. A similar case in Kansas City resulted in major financial penalties after NAR was found guilty of collusion. The underlying argument stayed the same: the National Association of Realtors was liable for conspiring to keep agent commissions unnaturally high. 

The NAR settlement announced on Friday must still be approved by a federal court, but if it is, the rules of home buying and selling in the US are in for a major renovation within the next few months. 

For starters, NAR will be forced to drop the typical 6% commission. Sellers will no longer be required to make a compensation proposal to potential buyers or their agents, either, which some argue could simply encourage brokers to urge clients towards buying more expensive properties. The settlement would also mean that homebuyers would have to sign a formalized, written deal with their broker before they start  working together. Experts say this may encourage homebuyers to forego brokers altogether. 

Whatever the end result, the housing market is likely in for a few months of confusion while homebuyers and their agents write up formal commission agreements. In the meantime, the Department of Justice is continuing their investigation into the National Association of Realtors and their practices, specifically involving their control of the Multiple Listing Service that has been said to quash competition. 

Overall, Friday’s settlement holds a lot of weight for the future of the US housing market. Buyers will likely save on commissions without the NAR 6% standard, which will ultimately bring US fees more in line with the costs of buying or selling homes in other parts of the world. Commission rates will also plunge, likely by about 30%. Buyers and sellers alike are in for a mountain of complexity, but maybe–just maybe–it will save them money in the long run.

What the National Association of Realtors' settlement means for consumers and real estate brokers

National Association of Realtors Agrees to Slash Commissions to Settle Lawsuits - The New York Times

National Association of Realtors to cut commissions to settle lawsuits. Here's the financial impact. - CBS News