The 6% commission on buying or selling a home is gone

In a significant development expected to substantially reduce the costs associated with buying and selling homes, the National Association of Realtors (NAR) announced on Friday a settlement with groups of homesellers, bringing an end to landmark antitrust lawsuits by agreeing to pay $418 million in damages and eliminating rules on commissions.

Representing over 1 million Realtors, the NAR also agreed to implement a set of new rules. One of these rules prohibits agents’ compensation from being included on listings placed on local centralized listing portals, known as multiple listing services (MLS), which critics argue led brokers to prioritize more expensive properties for customers. Another rule ends requirements for brokers to subscribe to multiple listing services, many of which are owned by NAR subsidiaries, where homes are widely viewed in local markets. Additionally, a new rule will mandate that buyers’ brokers enter into written agreements with their buyers.

This agreement is poised to disrupt the current homebuying and selling business model, where sellers pay both their broker and a buyer’s broker, a practice that critics say has artificially inflated housing prices.

According to TD Cowen Insights, real estate commissions are expected to decline by 25% to 50% as a result of this settlement. This will create opportunities for alternative real estate selling models that already exist but have limited market share, such as flat-fee and discount brokerages.

Following the news, homebuilder stocks rose midday on Friday: Lennar shares increased by 2.6%, PulteGroup shares by 1.1%, and Toll Brothers shares by 1%.

For the average-priced American home for sale, which is $417,000, sellers currently pay over $25,000 in brokerage fees. These costs are passed on to the buyer, contributing to the higher prices of homes in America. According to TD Cowen Insights, this fee could decrease by between $6,000 and $12,000 based on their analysis.

Kevin Sears, president of the NAR, commented, “While the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost.”

In November, a federal jury in Missouri found the NAR and two brokerages liable for $1.8 billion in damages for conspiring to maintain artificially high agent commissions. As an antitrust case, the NAR was potentially liable for triple those damages — $5.4 billion.

While the NAR had initially planned to appeal the case, other brokerages settled, and eventually, so did the NAR on Friday.

Nykia Wright, interim CEO of NAR, stated, “NAR has worked diligently 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.”

Previously, the NAR had required homesellers to include agent compensation when listing on an MLS. Despite NAR's stance that commissions are negotiable and that the structure helps make housing more affordable for buyers, critics have long contended that these fees were expected and that homesellers felt compelled to offer them to avoid losing potential buyers.