The National Association of REALTORS has settled a lawsuit with homeowners, and will end the standard 6% commission on home sales. The association will pay $418 million in damages, paid over four years, and the change is expected to result in more competition among realtors and reduced commissions that sellers pay. Homeowner lawsuits against the industry claim the rules make home sellers pay artificially inflated costs to sell their homes, without reasonable alternatives.
Commissions for both Realtors in a transaction are typically paid by the home seller, who pays both the buying agent’s and the selling agent’s fee; a 6% commission would be split between the two at 3% each in a cooperative compensation arrangement.
A $500,000 home with a 6% commission ends up costing $30,000 to sell. For a $1 million home, that commission is $60,000. If another set of realtors accept 3% commission, it would lead to a considerable savings to the home seller.
The settlement, which is subject to court approval, says NAR admits to no any wrongdoing in connection with the Multiple Listing Service cooperative compensation model rule, introduced in the 1990s.
“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.
The settlement releases most NAR members and many industry stakeholders from liability in these matters.
In addition to the financial payment, NAR will enact a new MLS rule prohibiting offers of broker compensation on the MLS. While offers of broker compensation could not be communicated via the MLS, they will continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals.
Further, NAR has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with their buyers. NAR continues, as it has done for years, to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much. These changes will go into effect in mid-July 2024.
