This week, the National Association of Realtors announced that it has entered into a settlement – one that could make it less expensive for people to buy homes in the U.S.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. 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,” said Nykia Wright, Interim CEO of NAR.
According to CNN, “agreement effectively will destroy the current homebuying and selling business model, in which sellers pay both their broker and a buyer’s broker, which critics say have driven housing prices artificially higher.”
CBS News explained that the NAR, which represents more than 1.5 million realtors (who handle almost 90% of home sales) required home sellers to determine a commission rate, typically 6%, before listing homes on its property database, known as the Multiple Listing Service, or MLS. Last year, a federal jury in Missouri found the group liable for inflating brokerage commissions. With the settlement, the 6% figure will be slashed.
What does that mean for home buyers? Well, according to CNN, sellers are paying an average of $25,000 in brokerage fees for homes selling at $417,000 – the average priced home in the U.S. An analysis by TD Cowen Insights found that $25,000 amount could fall by $6,000 to $12,000.
“I’ve been waiting 50 years for this,” said Norm Miller, professor emeritus of real estate at the University of San Diego. He said it’s the biggest change in the housing market in a century.
CNN said the change could open up opportunities for alternative models of selling real estate, such as flat fee and discount brokerages. These “already exist but don’t have much market share,” the outlet explained.
It also said that shares of real estate firms Zillow and Compass both fell by more than 13% Friday after the settlement was announced, while shares of real estate brokerage Redfin also fell nearly 5%. At the same time, homebuilder stocks rose, including Lennar, PulteGroup and Toll Brothers.
“The settlement, which is subject to court approval, makes clear that NAR continues to deny any wrongdoing in connection with the Multiple Listing Service (MLS) cooperative compensation model rule (MLS Model Rule) that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation,” said the NAR. “Under the terms of the agreement, NAR would pay $418 million over approximately four years.