The National Association of Realtors (NAR) has agreed to pay $418 million over four years and change certain rules to settle a series of lawsuits over the industry’s sales commission fees, a move expected to greatly decrease home-selling costs.
“No longer will homeowners be required under NAR rules to offer compensation to buyers agents," Michael Ketchmark, lead attorney for the plaintiffs in the case, told Kiplinger in an interview. The new rules "will return the sale of homes to the free market and allow technology to benefit sellers of homes."
Those changes will provide a huge opportunity for the cost of selling a home to drop dramatically, he added.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Under the settlement, which is pending court approval, NAR agreed to stop requiring homeowners to pay buyers agents commissions when they sell their homes, a practice in the U.S. that has been around for nearly 100 years, Ketchmark said. The average total commission rates in the U.S. — split between buyer and seller brokers — are 5% to 6% of the sale price, according to court documents.
NAR, which admits no wrongdoing in the case, has also agreed to draft new rules that prohibit broker compensation offers on its Multiple Listing Service (MLS) property database and that require MLS participants working with buyers to put their agreements in writing. These changes are set to become effective in mid-July.
The MLS has been used “as a vehicle for propping up and inflating commissions," Ketchmark said. “Probably the most significant part of the settlement is the changes to the way that homes are sold."
NAR, whose 1.5 million members make up the nation’s largest trade group, did not respond to a request for comment. In a statement, NAR sad it continues to encourage members to use buyer brokerage agreements that help consumers understand the services and value that will be provided.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” Nykia Wright, interim CEO of NAR, said in the statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
The settlement follows NAR’s loss in a district court case last October involving a conspiracy to artificially inflate commissions on home sales. A jury in that case ordered NAR and several real estate brokerages — including Berkshire Hathaway Energy-owned HomeServices of America — to pay about $1.8 billion in damages to roughly 500,000 home sellers in Missouri.
Non-negotiable commission rule challenged
In their suit, the home sellers challenged NAR’s rule requiring them to make non-negotiable commission offers to brokers to list their homes on MLS databases. A separate case involving similar charges and covering 14 states was also filed in Illinois.
NAR’s proposed settlement will resolve the Missouri and Illinois cases for all of those defendants — except for HomeServices of America, which is still litigating the Missouri judgement, Ketchmark said.
Wright said that NAR has worked hard for years to resolve the litigation “in a manner that benefits our members and American consumers.” The goal has been to preserve consumer choice and protect the group’s members to the greatest extent possible, she said, adding that the settlement achieves both of those goals.
The settlement is currently unavailable for the public to view but is expected to be filed next week. For more on the Missouri case, you can view the District Court for the Western District of Missouri Western Division filing here.
RELATED CONTENT
-
Meta and Microsoft Highlight Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
Get AirPods Pro 2 for the Lowest Price Ever, Plus Other Apple Products on Sale for Amazon Prime DayScore the AirPods Pro 2 for their lowest-ever price this Amazon Prime Day. Plus, shop for other Apple products on sale.
-
FTC Cracks Down: Fake Reviews Officially a No-NoCompanies can no longer buy and post online reviews that aren't by actual customers — and there's a hefty fine involved. Here's what to watch for.
-
Election Could Reshape Opportunity Zones and 1031 ExchangesTrump and Harris have divergent approaches to qualified opportunity zones and 1031 exchanges. See how each could fare under their administrations.
-
What Buyers and Sellers Need to Know About New Real Estate RulesBuyers and sellers have more room to negotiate commissions, and that could reduce home prices over the long run.
-
How Employers Can Ensure They're Paying All Employees Fairly'Equal pay for equal work' has been the law since 1963, but pay gaps because of gender, race and other characteristics persist. How does a company get it right?
-
IRS Solar Tax Credit Payouts Soar as Scams Target HomeownersClean Energy Clean energy tax credits are paying off for many, but experts warn of increasing scams.
-
With Mortgage Rates Falling, Here's How Much You Could SaveAs mortgage rates fall, you could potentially save thousands over the life of your loan.
-
Before Buying Your First Home, Get These Three Ducks in a RowWith mortgage rates higher than we're used to, making sure you can comfortably afford to buy your first home is more important than ever.
-
Should You Refinance Your Mortgage Now That the Fed Just Cut Rates?The Fed just cut rates, so mortgage refinance rates will be cheaper. Should you act now, or wait?
