Landmark Settlement to Eliminate Automatic Real Estate Commissions
The National Association of Realtors has agreed to a landmark settlement that would eliminate real estate brokers’ longstanding automatic commissions, commonly of up to 6% of the purchase price.
New Era for Real Estate Transactions
Instead, home buyers and sellers would be able to negotiate fees with their agents up front. If the $418 million legal agreement is approved by a federal court, consumer advocates predict the ranks of real estate agents will thin, further driving down commission prices.
Breaking Down Anti-Competitive Barriers
“For years, anti-competitive rules in the real estate industry have financially harmed millions,” said Benjamin Brown, managing partner at the Cohen Milstein law firm and one of the settlement’s negotiators. “This settlement bring sweeping reforms that will help countless American families.”
NAR Responds to Settlement
The NAR acknowledged the pending settlement in a statement Friday and denied any wrongdoing.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR. “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,” Wright said in the statement.
Current Commission Practices
Currently, a home seller is essentially locked into paying a brokerage fee for listing their property on a Multiple Listing Service, or MLS — usually 5% or 6% depending on their geographic area. Upon selling, half the fee goes to a listing agent representing the seller, while the buyer’s agent gets the other half.
Accusations of Collusion and Bribery
The practice — which has become standard in the real estate industry in recent decades — led to accusations that some buyers’ agents were steering prospects toward more expensive homes. In November, a federal jury found the NAR and some major brokerages liable for colluding to inflate commission fees, ordering the trade group to pay a historic $1.78 billion in damages.
Expected Changes
If the settlement is approved, brokerage commissions would be stripped from MLS sites and opened up to negotiation with sellers, among a series of other changes. Home buyers, too, would also be able to negotiate fees more easily if they choose to sign up with a broker — though experts say the new arrangement may incentivize more buyers to forgo brokers entirely.
Preliminary Hearing Scheduled
The new brokerage-fee changes would begin to take effect within months of the settlement’s approval. A preliminary hearing to approve the deal is slated to take place in coming weeks.
Conclusion
The proposed settlement marks a significant shift in the real estate industry, moving towards a more transparent and competitive market. While the effects of the settlement are yet to be seen, experts predict a reduction in commission prices and a potential thinning of the ranks of real estate agents.
FAQs
Q: What is the proposed settlement?
A: The proposed settlement aims to eliminate real estate brokers’ automatic commissions, commonly of up to 6% of the purchase price, and allow home buyers and sellers to negotiate fees with their agents up front.
Q: What are the expected changes?
A: If the settlement is approved, brokerage commissions would be stripped from MLS sites and opened up to negotiation with sellers, among a series of other changes. Home buyers would also be able to negotiate fees more easily if they choose to sign up with a broker.
Q: What are the potential consequences of the settlement?
A: Experts predict a reduction in commission prices and a potential thinning of the ranks of real estate agents, as consumers may opt to forgo brokers altogether.
Q: When is the preliminary hearing scheduled?
A: A preliminary hearing to approve the deal is slated to take place in coming weeks.
