A powerful real estate trade association has agreed to pay $418 million and change its rules to settle lawsuits claiming homeowners have been unfairly forced to pay artificially inflated agent commissions when they sold their home. This settlement set the stage of 6% commission reduce in home prices that could lower prices to 25%. Statistics say that Americans are paying more than $2 Billion a year in real state commissions, that exceeds most of the countries around the world.
Quick Read
- The National Association of Realtors (NAR) has agreed to a $418 million settlement and rule changes in lawsuits alleging that homeowners were unfairly required to pay high agent commissions.
- The settlement may lead to a potential reduction in the standard 6% commission, possibly lowering home prices by up to 25%.
- Under the new rules, agents listing homes on Multiple Listing Services (MLS) cannot use the platform to offer commissions to buyer’s agents, leaving it up to individual sellers to negotiate such terms.
- NAR will also introduce a rule requiring agents working with buyers to establish a written agreement detailing the commission fees.
- These changes, effective mid-July, mark a significant shift in real estate agent operations.
- The NAR faced multiple lawsuits, including a Missouri federal jury ruling that found NAR and several brokerages violated antitrust laws, leading to a potential $5 billion penalty with treble damages.
- The settlement impacts over one million NAR members, affiliated MLS, and brokerages with 2022 residential transaction volumes of $2 billion or less, excluding those affiliated with HomeServices of America.
- Court approval is pending for the settlement agreement.
The Associated Press has the story:
How National Association of Realtors $418M settlement may lower 6% of home prices?
Newslooks- (AP)
A powerful real estate trade association has agreed to pay $418 million and change its rules to settle lawsuits claiming homeowners have been unfairly forced to pay artificially inflated agent commissions when they sold their home. This settlement set the stage of 6% commission reduce in home prices that could lower prices to 25%. Statistics say that Americans are paying more than $2 Billion a year in real state commissions, that exceeds most of the countries around the world.
The National Association of Realtors said Friday that its agents who list a home for sale on a Multiple Listing Service, or MLS, will no longer be allowed to use the service to offer to pay a commission to agents that represent potential homebuyers. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, however.
NAR also agreed to create a rule that would require MLS agents or other participants working with a homebuyer to enter into written agreement with them. The move is meant to ensure that homebuyers know going in what their agent’s service will charge them for their services.
The rule changes, which are set to go into effect in mid-July, represent a major change the way real estate agents operate.
The NAR faced multiple lawsuits over the way agent commissions are set. In October, a federal jury in Missouri found that the NAR and several large real estate brokerages conspired to require that home sellers pay homebuyers’ agent commission in violation of federal antitrust law.
The jury ordered the defendants to pay almost $1.8 billion in damages — and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.
The NAR said the settlement covers over one million of its members, its affiliated Multiple Listing Services and all brokerages with a NAR member as a principal that had a residential transaction volume in 2022 of $2 billion or less.
The settlement, which is subject to court approval, does not include real estate agents affiliated with HomeServices of America and its related companies, the NAR said.
Under the terms of the agreement announced Friday, the National Association of Realtors also agreed to pay $418 million to help compensate home sellers across the U.S.
Home sellers behind multiple lawsuits against the NAR and several major brokerages argued that the trade group’s rules governing homes listed for sale on its affiliated Multiple Listing Services unfairly propped up agent commissions. The rules also incentivized agents representing buyers to avoid showing their clients listings where the seller’s broker was offering a lower commission to the buyer’s agent, they argued.
As part of the settlement, the NAR agreed to no longer require a broker advertising a home for sale on MLS to offer any upfront compensation to a buyer’s agent. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, though the home seller’s broker has to disclose any such compensation arrangements.
The trade group also agreed to require agents or others working with a homebuyer to enter into a written agreement with them. That is meant to ensure homebuyers know going in what their agent will charge them for their services.
The rule changes, which are set to go into effect in mid-July, represent a major change to the way real estate agents have operated going back to the 1990s, and could lead to homebuyers and sellers negotiating lower agent commissions.
Currently, agents working with a buyer and seller typically split a commission of around 5% to 6% that’s paid by the seller. This practice essentially became customary as home listings included built-in offers of “cooperative compensation” between agents on both sides of the transaction.
But the rule changes the NAR agreed to as part of the settlement could give home sellers and buyers more impetus to negotiate lower agent commissions.
“It may take some time for the changes to impact the marketplace, but our hope and expectation is that this will put a downward pressure on the cost of hiring a real estate broker,” said Robby Braun, an attorney in a federal lawsuit brought in 2019 in Chicago on behalf of millions of home sellers.
Analysts with Keefe, Bruyette & Woods also anticipate that the NAR rule changes will lead to lower agent commissions and could persuade some homebuyers to skip using an agent altogether.
“In our view, the combination of mandated buyer representation agreements and the prohibition of blanket compensation offers made by listing agents and sellers should result in significant price competition for buyer agent commissions,” the analysts wrote in a research note Friday.
The NAR faced multiple lawsuits over the way agent commissions are set. In late October, a federal jury in Missouri found that the NAR and several large real estate brokerages conspired to require that home sellers pay homebuyers’ agent commissions in violation of federal antitrust law.
The jury ordered the defendants to pay almost $1.8 billion in damages — and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.
The settlement, if approved by the court, resolves that and similar suits faced by the NAR. It covers over one million of the NAR’s members, its affiliated Multiple Listing Services and all brokerages with a NAR member as a principal that had a residential transaction volume in 2022 of $2 billion or less.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” Nykia Wright, NAR’s interim CEO, said in a statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
The settlement does not include real estate agents affiliated with HomeServices of America and its related companies.
Last month, Keller Williams Realty, one of the nation’s largest real estate brokerages, agreed to pay $70 million and change some of of its agent guidelines to settle agent commission lawsuits.
Two other large real estate brokerages agreed to similar settlement terms last year. In their respective pacts, Anywhere Real Estate Inc. agreed to pay $83.5 million, while Re/Max agreed to pay $55 million.
