By A.J. Kaufman, Managing Editor
In what could be a seismic shift, the National Association of Realtors (NAR) announced on March 15 that it had settled with groups of home sellers accusing NAR — and brokerages requiring their realtors to be NAR members — of violating antitrust laws by setting inflated commissions for real estate agents and artificially increasing home prices.
The NAR agreed to pay $418 million in damages to the plaintiffs, eliminate the industry-standard 6% commission, and curtail rules that required the seller’s agent to make an offer of payment to the buyer’s agent.
Altogether, the settlement and rule changes — which go into effect this summer — will reshape how millions of sellers and buyers transact and how their representatives are remunerated.
Some believe the decision will wipe out billions in agent commissions in the coming years while accelerating a decline in the number of working real estate agents. Others claim the effects will be more modest, especially for competent agents, yet decrease housing costs and increase competition.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” Interim NAR CEO Nykia Wright said 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.”
Home sellers traditionally pay broker commissions to their listing agent as well as the buyer’s agent, which then get split evenly by both agencies. Commissions have always been negotiable and can start as low as 2% but often range between 5% and 6%. The lawsuits claimed that these practices helped inflate commissions.
An NAR press release reiterated they do not set commissions and “The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero.”
The NAR has nearly 1.5 million members, up from fewer than one million in 2012.
While the NAR denied wrongdoing, it instituted several changes for its members. Sellers can no longer advertise the amount they’re willing to pay a broker’s agent through NARs’ regional databases; buyers, meanwhile, must now sign agreements with their agents directly and negotiate that fee upfront.
NAR President Kevin Sears said that “While the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost.”
Plaintiffs and some consumer advocates hailed the settlement as a win that could lower the costs of home buying — particularly for Generation Z home buyers— but agents are expressing frustration, concerned about their futures and warning that home buyers, including military veterans and first-time home buyers, could wind up getting hurt.
Closer to home, there are poignant assessments.
“Focusing on present market challenges is more productive than speculating about unapproved settlement outcomes,” Northeast Tennessee Association of REALTORS® (NETAR) President Michelle Davis told the Business Journal a week after the ruling. “The time for analyzing the outcomes will be when we know what we’re working with. Real estate professionals excel at adapting to constant industry changes, ensuring the best services for clients.”
A Tri-Cities realtor who has worked in the industry for a half-dozen years is sanguine, noting he doesn’t “think much change will come from the lawsuits.”
“I could be wrong, but I think buyer’s agents will get more buyer representation agreements signed (which they should already be doing anyway),” he explained to the Business Journal. “I don’t see how this impacts home prices in any kind of way. If anything, this potentially makes buying more expensive for the buyer.”
As of mid-April, the average cost of a Tennessee home was just over $310,000, with a 30-year fixed mortgage rate for a house sitting around 7%. In Tennessee, the media monthly home payment is roughly $1,500. A recent report showed median sales prices in Northeast Tennessee settled above $250,000.
As homebuying season sees more homes on the market now than last year, buyers perhaps have surrendered to the reality of high prices and mortgage rates, although an April 18 NAR report revealed national sales in March posted their biggest decline in more than a year, reversing course after a positive start to 2024.
