Legal Update: NAR’s Ready to Settle Its Lawsuit. Here’s What Home Sellers and Buyers Stand to Gain.

Sellers could soon be spending less to sell their homes. This month, after previously vowing to fight, the National Association of REALTORS® (NAR) gave in and made a major change, in order to release itself from lawsuits.

NAR and several brokerages were claimed to have colluded to keep agent commissions high. But soon, if a new settlement agreement goes through, there’ll be no more “agent commission” box in the listings at all. NAR also agreed to pay out $418 million in the settlement signed on March 15, but not yet filed with the court. The New York Times first got a copy of the document.

Assuming the court approves the settlement agreement, how will things change for anyone involved in a home sale?

Let’s unpack this story, Q&A-style.

Q. How Many Sellers and Buyers Could This Affect?

Many. As of now, NAR-affiliated agents handle nine in ten home sales. From now on, instead of baked-in 6% broker fees, buyers and sellers will be negotiating for lower costs. Across millions of transactions, imagine the amount of money that’s freed up, changing the dynamics of a deal. As The New York Times put the point: “Housing experts said the deal, and the expected savings for homeowners, could trigger one of the most significant jolts in the U.S. housing market in 100 years.”

Q. What Practice Did NAR Agree to Stop?

NAR has long expected home sellers to agree to a commission (5-6% of the home sale price, to be split by the seller’s and buyer’s agents) when listing homes for sale through the Multiple Listing Service (MLS) database. Based on the new settlement document, NAR will delete that charge from the fill-in form. This means sellers won’t have to sign up to cover both sides’ commissions up front.

Q. What’s the Matter With Expecting Sellers to Cover Commissions?

When there’s no negotiation, professional fees can be set artificially high. This is why U.S. brokerages and agents have high fees, compared to their counterparts in other countries. Current practice also leads to a type of steering, in which agents might skip showing their clients homes that aren’t NAR-affiliated.

Q. So, Fees Could Drop for Home Sellers?

Yes, that’s likely. If brokers can’t embed a 6% fee into the listing, agents will have to negotiate rates, and this could bring about substantial savings for sellers. Fees could be slashed by up to 30%, The New York Times has reported. Say the seller puts a home on the market for $250,000. This would mean signing up to pay some $15,000 in agent fees. And what seller wouldn’t want to see that price get a 30% haircut?

Q. Will Agents Feel an Impact?

Yes. Agents will not need to belong to (pay fees to) a local MLS in order to function. That opens up more opportunities and creates more competition. Some agents will cheer the change. Buyers, they’ll say, should be paying for their agents directly. Some say clients should pay on a per-service basis so the agent doesn’t have to deal with no-shows.

Q. Does This Mean Agents Aren’t Worth What We Pay Them?

No. Agents can save deals. Good agents bring immense value to their clients. But this is not what the lawsuit’s about. A buyer’s agent will now have to explain that value to the client; it won’t be presumed. If this settlement agreement goes through, buyers will starting talk fees with their agents — and what the buyer will get for those fees!

Note: Agents’ commissions, even though they are tied to the MLS today, are already negotiable. Yet many buyers have been paying 5-6% commission because it’s an industry standard, and written into the listing.

Q. If There Were No Commissions, How Would We Pay Our Agents?

Richmond Federal Reserve Bank economists recently proposed a per-service or what they call à la carte pricing method for buyers’ agents. They say it would cut total commissions paid to brokers some $30 billion. Buyers and sellers would each pay their agents independently, and it could be a standard fee for a particular service, without being linked to the home price. Perhaps commissions would get paid to good agents in that new normal, too. Some agents might choose to set hourly or per-service rates.

Q. How Will the Seller’s Experience Change?

If the agreement goes through, some homeowners could become interested in putting their homes on the market. The change to the MLS would essentially be a discount for selling. But we need to say more. Because this, in turn, could add to the supply of starter homes for sale. In general, when fees are lower, more deeds get conveyed!

Q. How Will the Buyer’s Experience Change?

Buyers will have to cover their own agent’s fees! Yikes! But seriously, we know buyers ultimately cover those fees, when buying the home and taking on a mortgage. So, although some object that the buyer will have to pay their agent, buyers do so anyway, and now they’ll likely pay less. Paying less on a loan every month can add up to impressive savings over time. In short, the days of a standard 3% per agent will be over. Buyers might even get homes for under listing price, if sellers don’t have to cover the 6%.

Q. Does Tech Innovations Helping to Press the Industry to This Point?

Yes. Online and app-based companies surely play a part in this. They enable today’s buyers to do a lot of the legwork using county websites and real estate sites to locate homes and evaluate markets. Maybe there’s a certain irony to it, as increasingly web-based real estate companies now face a kind of disruption to their businesses that their own production of information creates?

Overall, Who Are the Big Winners?

NAR is finally out of the business of forcing homeowners to pay inflated commissions.

— Michael Ketchmark, attorney for the Missouri home sellers, as quoted in The New York Times (Mar. 2024).

Count Michael Ketchmark among the winners. And the other winners are…

All the other people involved in the court action in the first place. Many home sellers could get small shares of the class-action payout. Meanwhile, they’re changing an industry.

People who wish to handle their own conveyances, without agents — and the lawyers who help them with the paperwork, for a smaller fee than they’d be charged for an agent’s representation.

Sellers and buyers in general. Lower fees are about to be normalized. Some people who study the potential effects think that freeing up billions of collective dollars could revive the housing market.

Some brokerages will want or need time to adapt. In any case, the agreement won’t go into effect sooner than this summer. On the other hand, Benjamin Brown, another attorney who worked on the settlement, says: “It’ll be a really exciting time for the industry.” And that’s a perfect note to end on.

Note:We are glad to provide key updates on news and policy affecting deed transactions. As always, nothing in this article is legal or financial advice.

Supporting References

Debra Kamin for The New York Times: Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits (Mar. 15, 2023).

Megan Cerullo for CBS Interactive Inc. via CBSNews.com: National Association of Realtors to Cut Commissions to Settle Lawsuits. Here’s the Financial Impact (Mar. 15, 2024).

Will Daniel via Yahoo Finance: Roughly $30 Billion Slashed From Real Estate Agents’ Commissions – Fed Economists Pose Solution to the “Anomaly’ in the American Housing Market (Mar. 6, 2024; a republished article from Fortune.com, citing Borys Grochulski and Zhu Wang, Real Estate Commissions and Homebuying).

And as linked.