Realtors' Settlement Will Lower the Cost of Selling a Co-op or Condo

The National Association of Realtors (NAR), a powerful organization that has set the guidelines for home sales for decades, has agreed to settle a series of lawsuits by paying $418 million in damages and by eliminating a bedrock of the industry: the 6% sales commission.

Housing experts say the deal, and the expected savings for homeowners, could trigger one of the most significant jolts in the U.S. housing market in 100 years, The New York Times reports. “This will blow up the market and would force a new business model,” says Norm Miller, a professor emeritus of real estate at the University of San Diego.

Americans pay roughly $100 billion in real estate commissions annually, and real estate agents in the United States have some of the highest standard commissions in the world. In many other countries, commission rates hover between 1 and 3%. In the United States, most agents specify a commission of 5 or 6%, paid by the seller. If the buyer has an agent, the seller’s agent agrees to share a portion of the commission with that agent when listing the home on the market.

The original lawsuit, filed in April 2019 by a group of Missouri home sellers, ended in a verdict of $1.8 billion in October. It spawned a flurry of related lawsuits, which argued that NAR, and brokerages who required their agents to be members of NAR, had violated antitrust laws by mandating that the seller’s agent make an offer of payment to the buyer’s agent, and setting rules that led to an industrywide standard commission. Without that rate essentially guaranteed, agents will now most likely have to lower their commissions as they compete for business. Economists estimate that commissions could now be reduced by 30%, driving down home prices across the board.

“The forces of competition will be let loose,” says Benjamin Brown, co-chairman of the antitrust practice at Cohen Milstein and one of the lawyers who hammered out the settlement. “You’ll see some new pricing models, and some new and creative ways to provide services to home buyers.

In a related article, The Times predicts four major changes in the way homes are bought and sold: the 6% commission will cease to be he norm; as a result, housing prices and consumer costs will come down; the practice of brokers "steering" buyers to pricier homes will be less common; and the ranks of real estate agents, which swelled during the pandemic, could be reduced by as many as 1 million.

“The reset button on the sale of homes was hit today,” says Michael Ketchmark, the Kansas City lawyer who represented the home sellers in the main lawsuit. “Anyone who owns a home or dreams of owning one will benefit tremendously from this settlement.”