NAR settles lawsuit, eliminates 6% commission

Lawsuit leads to big payout, could rewrite how buyers and sellers interact with real estate agents during property sale process

As part of a historic settlement, the National Association of Realtors (NAR) is doing away with its standard sales commission for real estate agents.

The NAR requires a home seller to agree to a commission rate, which is nominally negotiable but has long been typically 6%, before the seller’s property is listed on the Multiple Listing Service (MLS). The commission has been a fixture of the real estate industry, but a Missouri court late last year found that the NAR, along with Keller Williams Realty and HomeServices of America, were liable for $1.8 billion in damages for colluding to keep commissions artificially high.

The NAR  had initially planned on appealing, but the other companies involved decided to settle, perhaps leading the country’s largest trade group to follow suit. In addition to eliminating the longstanding commission, the organization has also agreed to pay $418 million in damages over roughly four years to the groups of home sellers who brought the lawsuit to court.

“NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” said NAR President Kevin Sears. “NAR is focused firmly on the future and on leading this industry forward. … This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients.”

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, the NAR’s interim CEO. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”

Part of the terms of the NAR’s settlement is the resolution of claims against over a million NAR members and all brokerages with an NAR member as a principal that brokered $2 billion or less in 2022. In addition to its payout, the NAR has also agreed to establish a new rule prohibiting offers of broker compensation on the MLS; another new rule will mandate written agreements between buyers and their real estate brokers.

All in all, it’s a profound shift in the process of real estate transactions — one that, according to some experts, could significantly alter residential property prices. Prospective homebuyers are now free to shop around on commission fees before they decide to purchase a property, while real estate professionals can advertise their fees, leading to increase competition.

The impact may be substantial, but it’s also not likely to come all at once, said Marty Green, principal at mortgage law firm Polunsky Beitel Green.

“The industry will be in transition as everyone digests the settlements and market forces begin working. I think we will begin to see some creative buyer’s agent arrangements that may have been harder to get traction on before,” he said. “But these changes won’t happen overnight, and I anticipate a certain amount of uncertainty for the coming months. MLS rules will need to be changed, agreements will have to be modified, business practices reconsidered, and mortgage underwriting adjusted. 

 “This uncertainty impacts not just the real estate community, but also consumers, as mortgage underwriting guidelines have looked at real estate commissions based on how they have historically been paid. We are still in a seller’s market, so I can envision some sellers not being prepared to pay the buyer’s side agent or limiting the amount they will pay.

“The question then is whether the buyer has the resources to pay the buyer’s portion of the commission. I am confident that, if the buyer is paying the commission, the amount will be more heavily negotiated and will be reduced. Realtors, though, may now require some payment upfront from the buyer since there will be increased uncertainty about how they will ultimately be paid.”


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