(CNN) — The 6% commission, a standard in home purchase transactions, is no more.
In a sweeping move expected to reduce the cost of buying and selling a home, the National Association of Realtors announced Friday a settlement with groups of homesellers, agreeing to end landmark antitrust lawsuits by paying $418 million in damages and eliminating rules on commissions.
The NAR, which represents more than 1 million Realtors, also agreed to put in place a set of new rules. One prevents sellers’ brokers from setting buyers’ agents’ compensation, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services – many of which are owned by NAR subsidiaries – where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.
The agreement effectively will destroy the current homebuying and selling business model, in which sellers pay both their broker and a buyer’s broker that critics say have driven housing prices artificially higher.
“While the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” said Kevin Sears, president of the NAR, in a statement.
In November, a federal jury in Missouri found the NAR and two brokerages liable for $1.8 billion in damages for conspiring to keep agent commissions artificially high. The NAR had pledged to appeal the case, but other brokerages settled — and, eventually, so did the NAR on Friday.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR, in a statement. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
NAR had required homesellers to pay a set 6% commission that is typically split evenly between the seller’s agent and the buyer’s agent. Although the NAR said the commission was negotiable and helped make housing more affordable for buyers, critics have long argued that the fees were effectively set and made housing more expensive.
Settlement could lead to lower homebuying costs
Homesellers who brought lawsuits against the NAR have argued that in a competitive market, the cost of the buyer’s agent’s commission should be paid by the buyer who received the service, not by the seller. The sellers who brought the lawsuit against the NAR and the brokerages said that buyers should be able to negotiate the fee with their agent, and that the sellers should not be on the hook for paying it.
This settlement, which is subject to a judge’s approval, opens the door to a more competitive housing market. Realtors could now compete on commissions, allowing for prospective buyers to shop around on rates before they commit to buying a home. Brokers could begin to advertise their fees, allowing customers to choose lower-cost agents. The NAR, in its announcement, did not set a suggested fee.
Although most realtors are included in the settlement, agents affiliated with the brokerage HomeServices of America continue to fight the case in court and will maintain their 6% commission, the NAR said.
The NAR said it had encouraged HomeServices of America to join the settlement, but said it was pleased to have more than 1 million of its members on board with the agreement.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” said Wright in a statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
The NAR has been fighting off US antitrust officials and litigation for years regarding alleged anti-competitive practices. But November’s verdict marked the association’s biggest setback yet — and ultimately led to the downfall of its 6% rate.
The association also faces scrutiny from the US Department of Justice, and it’s unclear whether this settlement with sellers will impact the government’s scrutiny of the brokerage industry.
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