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A powerful real estate trade group has agreed to do away with policies that for decades helped set agent commissions, moving to resolve lawsuits that claim the rules have forced people to pay artificially inflated costs to sell their homes.<\/p>\n
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.<\/p>\n
Home sellers behind multiple lawsuits against the NAR and several major brokerages argued that the trade group\u2019s 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\u2019s broker was offering a lower commission to the buyer\u2019s agent, they argued.<\/p>\n
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\u2019s agent. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer\u2019s agent outside of the MLS platforms, though the home seller\u2019s broker has to disclose any such compensation arrangements.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Currently, agents working with a buyer and seller typically split a commission of around 5% to 6% that\u2019s paid by the seller. This practice essentially became customary as home listings included built-in offers of \u201ccooperative compensation\u201d between agents on both sides of the transaction.<\/p>\n
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.<\/p>\n
\u201cIt 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,\u201d said Robby Braun, an attorney in a federal lawsuit brought in 2019 in Chicago on behalf of millions of home sellers.<\/p>\n
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.<\/p>\n
\u201cIn 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,\u201d the analysts wrote in a research note Friday.<\/p>\n
While setting the stage for homebuyers to negotiate a more competitive price for their agent\u2019s services, the rule changes mean home shoppers will have to factor in how to cover their agent\u2019s compensation.<\/p>\n
Homebuyers could still ask a prospective home seller for a concession that includes money to help cover the buyer\u2019s agent compensation. However, a home seller with multiple offers, for example, could refuse such a request, or opt to go with a bid from a different buyer who isn\u2019t asking for such a concession.<\/p>\n
\u201cThe real solution is for the industry to work to remove regulatory barriers that make it difficult for buyers to include this compensation in their mortgages,\u201d said Stephen Brobeck, senior fellow at the Consumer Federation of America.<\/p>\n
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\u2019 agent commissions in violation of federal antitrust law.<\/p>\n
The jury\u00a0ordered the defendants<\/a>\u00a0to pay almost $1.8 billion in damages \u2014 and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.<\/p>\n The settlement, if approved by the court, resolves that and similar suits faced by the NAR. It covers over one million of the NAR\u2019s 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.<\/p>\n \u201cUltimately, continuing to litigate would have hurt members and their small businesses,\u201d Nykia Wright, NAR\u2019s\u00a0interim CEO<\/a>, said in a statement. \u201cWhile there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.\u201d<\/p>\n The settlement does not include real estate agents affiliated with HomeServices of America and its related companies.<\/p>\n Last month, Keller Williams Realty<\/a>, one of the nation\u2019s largest real estate brokerages,\u00a0agreed to pay $70 million<\/a>\u00a0and change some of of its agent guidelines to settle agent commission lawsuits.<\/p>\n Two other large real estate brokerages agreed to similar settlement terms last year. In their respective pacts, Anywhere Real Estate<\/a> Inc. agreed to pay $83.5 million, while Re\/Max agreed to pay $55 million.<\/p>\n<\/div>\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n