Home Prices May Fall As Real-Estate Group Agrees to Lower Commissions

Estimated read time 4 min read

The entire real-estate industry could shift in homeowners’ favor, thanks to a settlement by one of the most powerful groups of real-estate agents in the country.

In a wave of class-action lawsuits, homeowners have accused the National Association of Realtors of conspiring to rip off both buyers and sellers by charging unfairly high commissions.

On Friday, the NAR said it would pay $418 million in damages to settle those suits. In a major win for consumers, it also agreed to amend its rules on commissions, The New York Times, which obtained a copy of the signed agreement, reported.

The plaintiffs also argued that the standard 5% to 6% that most real-estate agents charge violated antitrust laws and kept home prices expensive. Experts have said that if homebuyers and sellers no longer need to pay their brokers so much, home prices could go down across the country as a result.

“This is by far the biggest change to hit the real estate industry in more than 30 years,” Toby Schifsky, vice president of real estate education company Kaplan, said in a statement. “While this may result in lower prices for homebuyers — especially important at a time of elevated mortgage rates — it’s going to be imperative for buyer representatives and agents to demonstrate their value to would-be buyers. This affects them more than anybody in the process.”

In other countries, the Times said, agents’ commission fees are much lower, typically ranging from 1% to 3%.

The settlement is poised to affect home sellers, who will no longer be pushed to pay such high commissions to their real-estate agents — who usually split the commission with their buyers’ agents.

The changes are expected to take effect in the next four to six months.

For decades, the structure of how real estate agents get their commission has followed a serpentine path.

Here’s how it worked: the buyer paid the seller the cost of the home, then the seller would take about 5% to 6% of the final sale price to pay their real-estate agent, who would then split that money with the buyer’s agent. This meandering system essentially forced sellers to offer the highest commission rate in order to attract the buyers’ agents.

“Individual sellers often feel powerless to negotiate a better deal for themselves given the risk that offering lower commissions will cause brokers to steer buyers to other properties,” said Robert A. Braun, a partner in Cohen Milstein’s Antitrust practice, in a statement.

Oftentimes, sellers didn’t even realize they could negotiate that fee.

But now, that whole system is out the window, which could force agents to lower their rates to keep up with the competition.

That’s not great news for brokers, who some experts said might be forced to leave the industry.

“There are going to be real-estate agents who are not able to articulate, let alone demonstrate, their value,” Brian Boero, the CEO of 1000watt, an agency that advises real-estate brokerages and mortgage companies, previously told Business Insider. “Those folks will probably be out of the business very quickly.”

The NAR declined to comment but referred BI to its press release.

“NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” NAR President Kevin Sears said in the statement.

The NAR will pay out the settlement, which is still subject to court approval, to the plaintiffs over the next four years, the group said in its press release. Lawyers expect the deal to be filed in the next few weeks, the Times reported.

March 15, 2024: A previous version of this story stated that the NAR’s rules set a standard commission rate of 5 to 6%. It’s been updated to reflect that the rates were standard.