Realtors agree to axe 6% commissions in NAR lawsuit settlement

National Association of Realtors agrees to slash commissions

The National Association of Realtors (NAR) announced a court settlement Friday that would bring major changes to home sales – and savings to home sellers nationwide.

The trade group, which has long set the standard for real estate practices, has agreed to settle numerous lawsuits by paying $418 million in damages and getting rid of its rules on commissions. Industry experts told The New York Times that the settlement "will blow up the market and would force a new business model."

"What’s at issue nationwide is costing Americans about $60 billion in extra real estate commissions," Michael Ketchmark, one of the attorneys representing the plaintiffs in the lawsuits, told The Associated Press.

In November, a Missouri jury found the National Association of Realtors and several residential brokerage companies guilty of conspiring to keep commissions for home sales high.

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The class-action lawsuit was filed in 2019 on behalf of 500,000 home sellers in Missouri and some border towns. The verdict stated that the defendants "conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law."

The jury ruled that the companies owed a collective $1.78 billion in damages, but the realtors appealed and reached the settlement announced Friday. Economists told The Times that commissions could be lowered by 30 percent, which could mean cheaper home prices.

"NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth the cost," the trade group said in a post on X, formerly Twitter.

What does the settlement change?

A "sale pending" sign is posted in front of a home for sale on November 30, 2023 in San Anselmo, California. (Photo by Justin Sullivan/Getty Images)

NAR said its agents who list a home for sale on a Multiple Listing Service, or MLS, will no longer be allowed to use the service to offer to pay a commission to agents that represent potential homebuyers. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer's agent outside of the MLS platforms, however.

According to The New York Times, a homeowner selling a $400,000 home currently pays about $24,000 in commissions. Typically, the home seller pays their listing agent, who then splits the commission with the buyer’s agent according to the NAR rules. Traditionally, that works out to a 5% to 6% commission split roughly evenly between the buyer’s and seller’s agents.

NAR also agreed to create a rule that would require MLS agents or other participants working with a homebuyer to enter into written agreement with them. The move is meant to ensure that homebuyers know going in what their agent will charge them for their services.

The settlement mandates that any fields showing broker compensation be removed from MLS databases. NAR doesn’t own multiple listing sites, but most of them are owned by local NAR subsidiaries. Experts say the ruling could lead to a substantially smaller membership for the National Association of Realtors.

When do the NAR commission changes take effect?

The rule changes are set to go into effect in mid-July.

NAR said the settlement covers over one million of its members, its affiliated Multiple Listing Services and all brokerages with a NAR member as a principal that had a residential transaction volume in 2022 of $2 billion or less. It doesn't release agents affiliated with HomeServices of America.

The Associated Press contributed to this report.

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