Housing.Buzz on the NAR Real Estate Commission Settlement

“The 6% Commission On Buying Or Selling A Home Is Gone After Realtors Association Agrees To Seismic Settlement”

NEWS EXCERPT: CNN Business, 04/15/24, The 6% commission, a standard in home purchase transactions, is no more. In a sweeping move expected to dramatically reduce the cost of buying and selling a home, the National Association of Realtors announced Friday a settlement with groups of home sellers, agreeing to end landmark antitrust lawsuits by paying $418 million in damages and eliminating rules on commissions.

The NAR, which represents more than 1 million Realtors, also agreed to put in place a set of new rules. One prohibits agents’ compensation from being included on listings placed on local centralized listing portals known as multiple listing services, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.

OUR TAKE: In many (most?) major metro markets in the U.S. the mirage of 6% commission rates being typical has lived on, and is misinforming consumers. Sure, there are Sellers who 'agree' to a 3% Listing commission (for a suite of pre-marketing services and advice) and a 3% Buyer's Agent commission (for qualifying and guiding a Buyer through home showings, preparing purchase offers, coordinating inspections and contingencies, and more), but its very common for a seller to seek out lower commissions in the 2-2.5% or lower rate. I'm aware of 1% Listing commission rates, and Buyer Agent commissions as low as 1-1.5% (with an outlier example of 0.5%).

Admittedly, with home sale properties are 25-50% higher in recent years -- even outpacing rampant inflation -- so it may only take a 2% commission to mimic the 'earlier' 3% but unfortunately for the Agents, they're enduring the the great collision of that same rampant inflation (in their personal lives as ‘consumers’) as the same time as declining commission rates. Then add the ‘part-time agent’ phenomenon — agents who often are full-time W2 career professionals in a different career field who acquire the relatively-easy-to-obtain real estate sales license to capture commissions on their own personal purchase and/or to offer steep discounts when their relative's buy or sell.

Given the ongoing nationwide structural shortages in housing inventory for sale (especially affordable housing), the NAR-settlement and other pending litigation is unlikely to be better for first-time buyers, or fair housing interests, or dividing families and other groups looking for the lifestyle stability (and persistent presence in school systems) and asset accumulation that can accompany home ownership. The new required industry practices like suppression of ‘buyer agent commission’ could add even more confusion and sense of defeat to buyers at the margin who rely on ‘cash back’ and other tactics to transition to an purchased property.

In our opinion, as is typical for this entire storyline, few assertions and conclusion are as they first appear. As the myriad of other commission-related and real estate broker-related lawsuits proceed, the industry is sure to have even more changes to business practices.