Goodbye to the Standard 6% Real Estate Commission

Goodbye to the Standard 6% Real Estate Commission

Landmark Settlement Changes Home-Buying and Selling

In a groundbreaking shift for the real estate market, the National Association of Realtors (NAR) has settled a major lawsuit that will change how homes are bought and sold. The familiar 6% commission that traditionally went to real estate agents is being eliminated. Through this settlement, the NAR will pay $418 million in damages and revise its rules to make home buying more affordable.

Understanding the Settlement Terms

The NAR is changing several of its long-standing practices. First, the amount agents are paid will no longer be listed with home sales on multiple listing services—databases used by real estate professionals. This change aims to stop the practice of selling pricier homes for higher commissions.

Additionally, real estate brokers will no longer need to subscribe to multiple listing services operated by NAR subsidiaries. A significant new rule is also coming into play: buyers will now have to sign written agreements with their agents.

The Impact of the Settlement

This decision is expected to drastically reduce the cost of purchasing a home, possibly lowering traditional real estate agent commissions by 25% to 50%. This opens the door for alternative, more affordable ways to sell homes, like flat-fee and discount brokerages, to become more common.

Market Reactions Show Potential Effects

The announcement rattled the stock market, with real estate companies like Zillow and Compass seeing their shares drop more than 13%. Zillow previously acknowledged that any major change to agent commissions could hurt their business.

Conversely, homebuilders like Lennar, PulteGroup, and Toll Brothers saw their stocks rise, possibly due to the anticipation that more affordable commissions can lead to increased home sales.

What Does This Mean for Home Sellers and Buyers?

For an average American home priced at $417,000, the standard brokerage fee exceeds $25,000—a cost often passed on to the buyer. With the new changes, this fee could decrease significantly, saving both sellers and buyers thousands of dollars.

The NAR’s Response

Kevin Sears, president of the NAR, acknowledged that although this settlement is costly, the benefits to the industry and consumers make it worthwhile. The NAR had been facing a federal jury’s verdict that found them liable for keeping commissions high, which could have led to even more extensive damages had they not settled.

Looking Ahead

The changes NAR has agreed to could bring about greater choice for consumers and help NAR members by preserving important aspects of home buying and selling processes. Nykia Wright, interim CEO of NAR, emphasizes the organization’s commitment to benefiting members and consumers alike.

In summary, home-buying and selling are headed towards a future where efficiency, affordability, and choice take center stage. The real estate landscape is poised for change, and this settlement is a pivotal start.

Homebuying Could Get Cheaper Due to Settlement

How Homebuying Costs Might Drop

A legal settlement could change who pays the real estate agent’s commission, potentially making it more affordable to buy a house. Today, when someone sells their house, they usually pay the commission for the buyer’s real estate agent. Some homeowners think this isn’t fair because it’s the buyer who uses the agent’s services, not the seller.

The settlement means sellers won’t always have to pay the buyer’s agent commission. Instead, buyers might pay, which could encourage agents to compete on price, potentially leading to lower costs for those looking to buy a home.

Will This Change How Houses are Sold?

Norm Miller, a veteran real estate professor, believes this is one of the biggest shake-ups in the housing market for a long time. He’s been expecting such a change for decades and predicts that the settlement could lead to various new ways that agents charge for selling a house. This could be a fixed fee like $3,000, or more competitive commission rates.

Benjamin D. Brown and Robert Braun, who are lawyers involved in creating the settlement, say this change is a win for millions of Americans. For a long time, they point out, the system was stacked against sellers who had little power to negotiate better deals. The risk was that if a seller offered lower commissions, agents might ignore their property and guide buyers to homes with higher commissions.

However, not all brokers accept this settlement – for example, HomeServices of America is still challenging it. Nevertheless, the National Association of Realtors (NAR) has managed to get most of its members on board, believing the settlement is better than prolonged litigation.

What Could This Mean for Real Estate Agents?

With lower fees on the horizon, some believe many real estate agents might leave the industry, perhaps even half of the current 2 million or so in the U.S. While lesser-performing agents might bow out due to reduced earnings, it’s thought that the best agents will thrive even more. Norm Miller points out that the fees in America have been much higher than those in other countries, where agents charge significantly less, often between 1% to 2% for the same service.

In conclusion, while the future of the housing market remains somewhat uncertain, the potential for lowered homebuying costs and more competitive pricing among real estate agents might make it easier and less expensive for people to buy homes in America.

The National Association of Realtors Faces Challenges

The National Association of Realtors (NAR), a prominent organization in the US real estate industry, has recently encountered significant obstacles. Over several years, it has had to defend itself against accusations of engaging in anti-competitive behavior. These are serious claims that suggest the NAR engaged in activities that could have stifled competition within the industry.

A Major Legal Defeat and Ongoing Investigations

In November, NAR received a significant blow when a verdict went against them. This outcome has been one of their most serious setbacks and has led to changes in the rules that guarded their compensation system. Compensation within the real estate industry often involves how realtors share commissions, and these rules have been protective of how NAR members earn money.

Apart from court battles, the US Department of Justice is also investigating the NAR. The results of NAR’s recent legal troubles and whether they affect the ongoing government investigations are currently uncertain. The Department of Justice could potentially take action based on findings of anti-competitive practices.

Leadership Shake-ups Within NAR

The NAR has not only faced legal problems but also internal leadership issues. Earlier in the year, Tracy Kasper, the then-president of the NAR, resigned from her role. She made the decision after an individual threatened to make a private matter public unless she compromised her position in the NAR. Her departure allowed Sears to step into the position as her replacement.

Tracy Kasper’s presidency was very short-lived; she had only assumed the role in August 2023 after Kenny Parcell, who had been dealing with his own issues, resigned. Parcell’s resignation was a result of a New York Times report on allegations of sexual harassment against him. Employees claimed he acted inappropriately, which included sending unwanted photos and messages. However, he has denied these accusations.

Additionally, in the same month as the legal verdict, Bob Goldberg, NAR’s chief executive at the time, also resigned. This happened just two days after the significant legal judgment had been made against the organization. His departure led to Wright taking over the role.

The NAR is certainly in a period of transition and turmoil, with both its leadership structure and traditional business practices under intense scrutiny and pressure. These difficulties come at a time when the industry is navigating a rapidly changing real estate market.

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