The National Association of Realtors (NAR) has agreed to a US$418 million legal agreement that could see agent commissions in the US slashed.
According to The WSJ, the agreement will make it easier for home buyers to negotiate fees with their own agents and could lead to more buyers forgoing the use of agents altogether.
The settlement, which still needs a federal court’s approval, would end a number of legal claims from home sellers who argued that the rules forced them to pay excessive fees.
The current standard commission — 5 per cent to 6 per cent of the purchase price, split between the seller’s agent and the buyer’s agent — is close to the highest rate in the world.
NAR agreed to abandon current industry rules that have required most home sale listings to include an upfront offer telling buyers’ agents how much they will get paid.
Under the current system, sellers have typically set buyers agents’ fees, with consumer advocates claiming the arrangement has prevented buyers from negotiating to save money and kept commissions in the US higher than in most of the world.
The association has said the current model helps buyers benefit from an agent’s advice even if they can’t afford to pay an agent out of pocket.
If approved by the federal court, homes listed for sale would no longer include upfront offers to buyers agents from mid-July.
The US$418 million in settlement money would be distributed to recent home sellers nationwide, which could be about 50 million people.
The NAR has faced mounting pressure since a Kansas City jury delivered a US$1.8 billion verdict against the organisation and two national brokerages in October 2023.
The jury found that industry rules for how buyers’ agents are paid kept commission rates artificially high.
NAR Interim Chief Executive Officer Nykia Wright said the association had worked hard for years to resolve the litigation in a manner that benefited members and consumers.
“It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible,” Ms Wright said.
Going forward, sellers could still offer to compensate buyers’ agents but, in most markets, they would not be able to put those offers in the home listing.
If buyers don’t want to pay for their agents out of pocket, they can still ask for the seller to cover the cost of the buyer’s agent.
University of San Diego Professor of Real Estate Norm Miller said the expected savings for homeowners, could trigger one of the most significant jolts in the US housing market in 100 years.
“This will blow up the market and would force a new business model,” Mr Miller said.
