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A National Association of Realtors court settlement will affect real estate commissions industry-wide. JEFFREY CZUM
New rules — and a monster settlement — could start saving homebuyers and sellers thousands of dollars in lower commissions while increasing competition among brokers as soon as this summer.
While the changes work their way across the industry, the National Association of Realtors, the country’s largest trade group, has agreed to a $1.8 billion fine over four years to settle charges that the industry conspired to keep agent commissions among the world’s highest by requiring sellers to pay the selling and purchasing agent commissions, which nationally often was 5 to 6 percent. Some estimates call for an annual consumer savings of $20 billion to $50 billion due to the upcoming changes as the anti-trust case has the potential to change the way homes have been sold for generations. The early forecast is that these adjustments will provide significant changes in how real estate brokers are compensated, notably with lower commissions.
In October, a federal jury ruled that NAR had conspired to artificially inflate commissions. The ruling originated with a 2019 anti-trust suit brought by a group of Missouri homesellers arguing the industrywide practice violated anti-trust laws. Consequently, buyer brokers will no longer be able to select the listings they show clients based on compensation offers made via multiple listing services, the platform used by real estate agents and brokers to share information about properties for sale. Should a federal court uphold the settlement, which may take several months, sellers will no longer be required to make a compensation offer before marketing their homes to potential buyers. The agreement provides consumers with greater compensation leverage while resolving claims against NAR and its over 1 million members although the settlement is subject to court approval. The money is to be distributed to some 50 million homesellers nationwide. Those who sold a home within the last five years through a real estate agent may have overpaid broker commission and may be entitled to reimbursement. Home sales in contract should proceed without interruption.
The settlement, which aims to eradicate anti-competitive practices, only resolves claims against NAR, which has also agreed to institute a new MLS rule to prohibit broker-compensation offers on MLS, effectively stopping broker-compensation communication via the MLS. Consumers however, will be able to maintain off-MLS offers by direct negotiation with real estate professionals. These changes may encourage buyers to bypass agents.
Most MLS websites are controlled by local NAR associations. Access is conditioned on real estate agents and brokers following mandatory rules set forth in NAR’s Handbook on Multiple Listing Policy, including the Buyer Broker Commission Rule. While New York agents typically are not NAR members, the ruling is to have ramifications throughout the industry.
“NAR and MLS have settled to cut their losses,” said Judi Desiderio, the president of Town & Country Real Estate in East Hampton. “Sellers have been known to negotiate upfront and at the end of negotiations. This may actually cost buyers more money and impede agents’ ability to sell. The ripples are just beginning to circulate.”
“People are still sorting this out,” said another seasoned Hamptons real estate broker speaking on the condition of anonymity. Representatives from other area brokerages declined to comment for this article.
“This will be a time of adjustment, but the fundamentals will remain. Buyers and sellers will continue to have many choices when deciding to buy or sell a home,” said NAR President Kevin Sears in a statement. “The benefits it will provide to our industry are worth that cost.”
Ultimately, agents may become more transparent with their fee structures and/or devise more creative with compensation models.
“It will take 12 to 36 months until the dust settles on how this shakes out,” said Alan Schnurman, a litigation lawyer with Zalman Schnurman & Miner in New York City and a real estate broker in Bridgehampton. “The winners are the public — those listing and selling homes. Plus, every buyer is a potential future seller of the property.
“The brokerage industry is the true loser,” he continued. “The income of these companies will be reduced substantially. The experienced, longtime brokers who have most of the listings will do fine or even prosper. The newer brokers with few or no listings will be challenged.”
Some estimates call for broker commission to be reduced by 30 percent. It remains to be seen if this will cause a reduction in home prices. Renters are not impacted and will continue to pay commissions.
“It will not affect the amount of real estate bought and sold in upscale markets such as the Hamptons, Aspen, Palm Beach and Manhattan,” Schnurman said. “Buyers in these markets will follow the path to the listing broker. It will take time for the public to become accustomed to this new paradigm.”
