Landmark NAR Settlement Eliminates Realtors’ 6% Commission; How Will It Impact The Housing Market?

A groundbreaking settlement between the National Association of Realtors (NAR) and groups of home sellers can potentially change the American real estate market. The settlement can reduce the cost of buying and selling a home. The NAR announced a new set of rules as part of the settlement which would end the landmark antitrust lawsuits. The NAR which represents over 1 million realtors has agreed to pay $418 million in damages and eliminated rules on commissions that do away with the standard 6% commission for real estate agents in the US, per Fortune.

The settlement follows a series of lawsuits brought by 500,000 home sellers from different regions, according to Fox11. The home seller alleged antitrust violations in the real estate industry and accused the NAR and residential brokerage companies of conspiring to keep commissions for real estate sales artificially high. Here’s all you need to know about the impact of the settlement.

Lower commissions

The structural changes in the commission are expected to reduce commissions by 25% to 50%, according to TD Cowan, a financial services research firm, CNN reported. With the new rules in place, some brokerages may offer pared-down services at a discount as well.

Furthermore, the elimination of the standard commission will allow competition among real estate agents. This may cause agents to lower their commissions even more to remain competitive in the market.

Changes in payment structure

Till now, homebuyers had to pay their agents out of pocket but it is not required under the new rules. As per the settlement which still needs court approval, sellers can still pay both their agents and buyers’ agents as well. The sellers are not required to pay the buyer’s agent as well on MLS systems. Furthermore, sellers won’t even be allowed to say how much they are paying their agents on the MLS.

Clear and transparent agreements

The above-mentioned rule puts the onus of negotiating terms with the agents on the buyers and their agents can include that in a buyers representation agreement. This agreement will also specify what the buyer’s agent is supposed to do, how they will be paid, and more. The agreement may also need to mention that in case the seller doesn’t agree to pay the buyer’s agent commission, the buyer will be on the hook for that payment.

Furthermore, the NAR has agreed to put in place a set of new rules, one of which prohibits agents’ compensation from being included on listings placed on local centralized listing portals called the multiple listing services or MLS. Another new rule ends the requirement of brokers subscribing to the MLS, many of which are owned by NAR subsidiaries.

Impact of the new rules

The elimination of the standard commission is expected to have a massive effect on the housing market in the U.S. This could potentially drive down housing costs and reshape the dynamics of buying and selling homes.

According to a recent study by the Federal Reserve Bank of Richmond, the cost-based commission model (in which the buyers' agents make money only per house showing and not from a percentage of the) sale can potentially save consumers over $30 billion per year. The research also found that a commission cap would help reduce prices for homebuyers and sellers. However, a commission floor will also need to be set to support low-value housing sales.