Changes in the Housing Market: National Association of Realtors Reaches Settlement

On Friday, March 15, the National Association of Realtors reached a settlement agreement that, after going into effect in July, will eliminate the decades-old standard 6% sales commission [1]. This decision has the potential to decrease the cost of buying or selling a home in the United States, but has negative implications for the careers of many real estate agents. 

The National Association of Realtors (NAR), not exactly a household name, is an extremely powerful organization, ranking as the largest trade association in the United States [2], as well as 2023’s second largest spender on lobbying Congress and federal agencies, according to OpenSecrets, a nonprofit organization that publishes data on lobbying and campaign finance [3]. For a long time, this overwhelming influence had made it difficult to challenge the 6% standard commission. Consumer advocates have long said that the practice is unfair to house buyers, preventing them from negotiating to reduce costs, and has resulted in higher commissions in the United States in comparison with the rest of the world [4]. However, the NAR has recently faced a large wave of antitrust legal threats, including litigation in both Kansas City and in Chicago.

The $418 million settlement agreement (which will be distributed to recent home sellers across the country) will resolve the NAR’s legal exposure, and effectively give power to home buyers to negotiate directly with agents concerning compensation [5]. Buyers’ agents will no longer be able to view an expected pay on the NAR’s Multiple Listing Service, and once a commission rate has been negotiated, agents and clients will have to enter a written agreement [6]. These new requirements are expected to drive down fees, therefore affecting both parties in home transactions, and perhaps most dramatically, real estate agents themselves.

Some media have portrayed the news of this agreement as a “bombshell”, dramatically reducing the cost of buying a house in the United States, but these proclamations should be taken with a grain of salt. Real estate commission fees cannot be blamed for the unfortunate reality that home ownership is out of reach of so many Americans. Particularly for especially expensive homes, prices will decrease, but it won’t be the extraordinary shift that will make home ownership more achievable.

Some suggest that the most substantial change from the settlement will instead be the reduction in real estate agent profits. Commissions have been estimated by economists to drop by 30% as more of a free market is created and the industry opens up to technological change [7]. The New York Times compares this to the travel industry shakeup, when travel agents greatly reduced in number due to websites like Kayak and Expedia [8]. 

Consumer groups, antitrust firms, and even some realtors applaud the agreement, mostly because of the new competition the industry will be exposed to - and competition creates quality. Many real estate experts have noted that the pandemic spurred new interest in becoming a real estate agent as a simple way to make cash, but many of the new agents weren’t deserving of the 6% standard commission [9]. Benjamin Brown, co-chairman of the antitrust practice at Cohen Milstein and a key player in reaching the settlement, explained the benefit of competition in real estate. He said, “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” [10].

[1] Laura Kusisto & Nicole Friedman, Realtors Reach Settlement That Will Change How Americans Buy and Sell Homes, Wall Street Journal (Mar. 15, 2024, 4:36 PM), https://www.wsj.com/real-estate/realtors-settlement-change-buy-sell-homes-da45eb23?mod=hp_lead_pos1.

[2] NAR Fact Sheet, National Association of Realtors, https://www.nar.realtor/newsroom/nar-fact-sheet#:~:text=What: The National Association of,and commercial real estate industries.

[3] Lobbying: Top Spenders, OpenSecrets, https://www.opensecrets.org/federal-lobbying/top-spenders.

[4] Wall Street Journal, supra note 1.

[5] Ibid.

[6] Jonathan Stempel & Mike Scarcella, Home Buying Costs Could Fall in Big US Real Estate Group Settlement, Reuters (Mar. 15, 2024, 4:01 PM), https://www.reuters.com/legal/big-us-real-estate-group-settles-litigation-over-inflated-commissions-2024-03-15/.

[7] Debra Kamin, Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits, New York Times (Mar. 15, 2024), https://www.nytimes.com/2024/03/15/realestate/national-association-realtors-commission-settlement.html.

[8] Ibid.

[9] Rob Wile, Consumer Advocates - And Even Some Realtors - Hail NAR Settlement: ‘We’ve Opened Up the Entire Industry to Competition’, NBC News (Mar. 15, 2024, 8:00 AM), https://www.nbcnews.com/business/consumer/realtor-settlement-affects-homebuyers-sellers-how-explainer-rcna144650.

[10] New York Times, supra note 7.