Realtors Agree to 6% Commission Cut — Here’s How Much It Will Save Home Buyers
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Vance Cariaga
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U.S. home buyers who have had to deal with soaring home prices in recent years might soon see things go in a different direction following a lawsuit settlement that could cut out-of-pocket costs by tens of thousands of dollars. The $418 million settlement was reached early Friday, March 15, by the National Association of Realtors (NAR). As The New York Times reported, the agreement includes eliminating the 6% sales commission that has long been a standard in the housing industry.
Lawyers expect the settlement to be filed within weeks, according to The New York Times, which obtained a copy of the signed agreement. After that, it will still need to be approved by a federal court. The deal effectively ends a “multitude of legal claims” from home sellers who argued that the rules forced them to pay excessive fees.
Housing experts told the NYT that the agreement could trigger “one of the most significant jolts in the U.S. housing market” in a century.
“This will blow up the market and would force a new business model,” said Norm Miller, a professor emeritus of real estate at the University of San Diego.
Americans pay around $100 billion in real estate commissions a year, the NYT reported, and U.S. real estate agents have some of the highest standard commissions in the world. While commissions in many other countries are usually between 1% and 3%, the standard in the U.S. is 5% to 6%. On a $400,000 home, the difference can add up to as much as $20,000.
According to the Housing Wire website, the NAR agreement also eliminates all fields displaying broker compensation on Multiple Listing Services and puts a “blanket ban on the requirement that agents subscribe to MLSs in the first place in order to offer or accept compensation for their work.”
Economists told The New York Times that total commissions could now be reduced by as much as 30%, which would reduce home prices across the board. The ultimate impact could resemble what happened in the travel industry following the emergence of online broker sites such as Expedia and Kayak.
“The forces of competition will be let loose,” Benjamin Brown, co-chairman of the antitrust practice at Cohen Milstein and one of the lawyers who hammered out the settlement, told the NYT. “You’ll see some new pricing models and some new and creative ways to provide services to home buyers. It’ll be a really exciting time for the industry.”
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