A home is listed available for sale on October 16, 2023 in Austin, TX.
Brandon Bell | Getty Images
The National Association of Realtors has approved a landmark settlement that will eliminate long-standing automatic commissions for Realtors, which typically amount to 6% of the purchase price.
Instead, home buyers and sellers will be able to negotiate fees with their agents in advance. If the $418 million legal agreement is approved by a federal court, consumer advocates expect the ranks of real estate agents to thin, leading to lower commission rates.
“For years, anti-competitive rules in the real estate industry have caused financial harm to millions,” said Benjamin Brown, managing partner at the law firm Cohen Milstein and one of the negotiators in the settlement. “This settlement brings sweeping reforms that will help countless American families.”
NAR acknowledged the pending settlement in a statement on Friday and denied any wrongdoing.
“NAR has worked hard for years to resolve this lawsuit in a way that benefits our members and American consumers,” said Nikia Wright, interim CEO of NAR, whose former president resigned late last year amid the fallout from a federal lawsuit.
“Our goal has always been to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals,” Wright said in the statement.
Currently, a home seller is essentially limited to paying a brokerage fee to list their property on the Multiple Listing Service, or MLS — typically 5% or 6% depending on their geographic area. When selling, half of the fee goes to the listing agent representing the seller, while the buyer's agent gets the other half.
The practice — which has become standard in the real estate industry in recent decades — led to accusations that some buyers' agents were shifting prospects toward more expensive homes. In October, a federal jury found NAR and some major brokerages liable for colluding to inflate commission fees, and ordered the trading group to pay a historic $1.78 billion in damages.
“It's bribery,” Doug Miller, an attorney and longtime advocate for consumer rights in real estate, said of the commission-splitting arrangements. “You're paying someone to negotiate against you. There's no good reason for sellers to pay buyers' brokers.”
If the settlement is approved, brokerage commissions would be stripped from MLS sites and opened to negotiation with sellers, among a series of other changes. Homebuyers will also be able to negotiate fees more easily if they choose to sign up with a broker — although experts say the new arrangement may incentivize more buyers to ditch brokers altogether.
The new changes in brokerage fees will begin to take effect within months of the settlement being approved. A preliminary hearing to approve the deal is scheduled to be held in the coming weeks.
