Decades-long policies supporting agent commissions face significant changes due to real estate lawsuit settlement

Decades-long policies supporting agent commissions face significant changes due to real estate lawsuit settlement

In a major development for the real estate industry, the National Association of Realtors (NAR) has agreed to eliminate policies that have long dictated agent commissions. This decision comes as a response to multiple lawsuits claiming that these rules have led to artificially inflated costs for selling homes. As part of the settlement, the NAR will also pay $418 million to compensate home sellers across the United States.

The lawsuits brought against the NAR and several major brokerages argued that the trade group’s regulations governing homes listed for sale on its affiliated Multiple Listing Services unfairly boosted agent commissions. They further contended that these rules incentivized agents representing buyers to avoid showing listings where the seller’s broker offered a lower commission to the buyer’s agent.

Under the terms of the settlement, the NAR will no longer require brokers advertising homes for sale on MLS to offer any upfront compensation to a buyer’s agent. This change allows individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms. However, any compensation arrangements made by the home seller’s broker must be disclosed.

Additionally, the NAR has agreed to mandate that agents or other individuals working with homebuyers enter into a written agreement with their clients. This requirement aims to ensure that homebuyers are aware of the fees charged by their agents for their services.

These rule changes, expected to take effect in mid-July, mark a significant departure from the way real estate agents have operated since the 1990s. They could potentially result in homebuyers and sellers negotiating lower agent commissions, providing much-needed relief for those involved in real estate transactions.

“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,” stated Robby Braun, an attorney representing millions of home sellers in a federal lawsuit filed in 2019.

The NAR has faced multiple lawsuits challenging the way agent commissions are set. In October, a federal jury in Missouri ruled that the NAR and several large real estate brokerages had conspired to require home sellers to pay commissions to buyers’ agents, violating federal antitrust laws. The jury ordered the defendants to pay nearly $1.8 billion in damages, with the potential for up to $5 billion if awarded treble damages.

If approved by the court, the settlement will resolve the lawsuits faced by the NAR, covering over one million of its members, affiliated Multiple Listing Services, and brokerages with a NAR member as a principal that had a residential transaction volume of $2 billion or less in 2022. Nykia Wright, NAR’s interim CEO, expressed that although there may be no perfect outcome, this agreement is the best under the circumstances and avoids further harm to members and their small businesses.

It is important to note that the settlement does not include real estate agents affiliated with HomeServices of America and its related companies. However, other major real estate brokerages, such as Keller Williams Realty, Anywhere Real Estate Inc., and Re/Max, have previously entered into similar settlement agreements to resolve agent commission lawsuits.

The implications of this settlement are far-reaching for the real estate industry. With the elimination of long-standing policies governing agent commissions, homebuyers and sellers can expect a shift in the negotiation process. While it may take some time for these changes to fully manifest, there is hope that this landmark decision will ultimately result in reduced costs for hiring real estate brokers and promote a more transparent and equitable market for all parties involved.

In conclusion, the recent settlement between the NAR and home sellers over agent commissions signifies a significant turning point for the real estate industry. With the elimination of policies that have long dictated commission rates, homebuyers and sellers can anticipate a new era of negotiation and potentially lower costs. While the full impact of these changes remains to be seen, this landmark decision is a step towards a more transparent and fair real estate market.