6% commission on home purchase or sale will disappear after real estate association agrees to seismic settlement

There is no longer a 6% commission that is standard in home purchase transactions.

The National Association of Realtors announced a settlement with home sellers’ groups on Friday, agreeing to end landmark antitrust lawsuits by paying $418 million in damages and ending commission rules.

NAR, which represents more than 1 million real estate agents, also agreed to a set of new rules. One of them prohibits agents’ salaries from being included in listings posted on local, centralized listing portals called multiple listing services, which critics say has prompted brokers to push more expensive properties on their clients. Another ends with a requirement that brokers subscribe to multiple listing services – many of which are owned by NAR subsidiaries – where homes are widely viewed in the local market. Another new rule will require buyer’s brokers to enter into written contracts with buyers.

The agreement will effectively destroy the current business model of buying and selling homes, in which sellers pay both a broker and a buyer’s agent, which critics say has artificially driven up home prices.

By some estimates, real estate commissions will decline by 25% to 50%, according to TD Cowen Insights. This will open up opportunities for alternative property sales models that already exist but do not have a large market share, including flat-rate and discount brokers.

Shares of real estate companies Zillow and Compass fell more than 13% on Friday as investors worried that lower commission rates for agents could result in lower trading for real estate platforms.

Last month, in a 10-K filing, Zillow warned that “if there is a significant impact on agent commissions, it could reduce real estate partners’ marketing budgets or reduce the number of real estate partners participating in the industry, which could adversely affect our financial results condition and results of surgery.”

Shares of real estate brokerage Redfin also fell nearly 5%.

Meanwhile, homebuilder stocks rose on the news: Lennar shares gained 2.4%, PulteGroup shares rose 1.1% and Toll Brothers shares rose 1.8%.

For the average American home for sale – $417,000 – sellers pay more than $25,000 in brokerage commissions. These costs are passed on to the buyer, driving up home prices in America. TD Cowen Insights analysis shows that this fee could fall between $6,000 and $12,000.

“While the settlement involves significant costs, we believe the benefits it will provide our industry are worth those costs,” Kevin Sears, NAR president, said in a statement.

In November, a federal jury in Missouri found NAR and two brokerage firms liable for $1.8 billion in damages for conspiring to artificially keep agent commissions high. Because this was an antitrust case, NAR was potentially on the hook for triple damages – $5.4 billion.

NAR promised to appeal the case, but other brokerages settled the case — and NAR ultimately did the same on Friday.

“NAR has worked hard over the years to resolve this dispute in a manner favorable to our members and American consumers,” Nykia Wright, NAR’s interim CEO, said in a statement. “Our goal has always been to preserve consumer choice and protect our members as much as possible. This settlement accomplishes both of these goals.”

The NAR required home sellers to take into account agent compensation when posting an ad on the multiple listing site. While NAR has long argued that commissions are negotiable and that this structure makes housing more affordable for buyers, critics have long argued that the fees were expected and home sellers felt they would lose buyers if they didn’t offer them.

A settlement may result in lower home purchase costs

Home sellers who filed lawsuits against NAR argued that in a competitive market, the cost of a buyer’s agent’s commission should be borne by the buyer who received the service, not the seller. The sellers who filed suit against NAR and the brokerages said buyers should be able to negotiate the fee with their agent and sellers should not be charged with paying it.

This settlement, which requires a judge’s approval, opens the door to a more competitive housing market. Real estate agents could now compete on commission, allowing potential buyers to see rates before they decide to purchase a home. Brokers could start advertising their fees, allowing customers to choose cheaper agents. NAR did not specify a suggested fee in its announcement.

This represents the biggest change in the housing market in a century, said Norm Miller, a retired real estate professor at the University of San Diego.

“I’ve been waiting 50 years for this,” Miller said.

While it’s unclear what the future of the housing market will look like, Miller said he expects some uptick in home purchases as costs drop dramatically for homebuyers.

“There are all kinds of models that we might see in the future, but no one knows what they are,” he said, suggesting that some brokers might charge, say, $3,000 to sell a home, while others offer a competitive commission.

The settlement will bring sweeping reforms to millions of Americans, said Benjamin D. Brown, managing partner of Cohen Milstein Sellers & Toll and co-chair of its antitrust practice, who helped prepare the settlement.

“For years, anti-competitive real estate industry rules have financially harmed millions of Americans,” Brown said.

Individual sellers often feel powerless to negotiate a better deal for themselves, given the risk that offering lower commissions could cause brokers to steer buyers to other properties, said Robert Braun, a partner in Cohen Milstein’s antitrust practice.

“For too long, home sellers have had to deal with a system that many consider grossly unfair. This class action and settlement provides justice for our clients and will require important changes that will help future home sellers,” Braun said.

Although most real estate brokers are included in the settlement, brokerage HomeServices of America is still fighting the case in court, NAR reports.

NAR said it fought to include HomeServices of America agents in the settlement, but said it was pleased that more than one million of its members were participating in the agreement.

“Ultimately, further litigation would harm members and their small businesses,” Wright said in a statement. “While no perfect outcome can be achieved, this agreement is the best result we could achieve under the circumstances.”

Miller said the settlement could lead to a mass exodus of brokers from the industry – potentially half of the roughly 2 million agents in America.

Lower fees mean average agents will likely leave the field, but the best brokers will gain more clients. “The good ones will definitely do better,” he said.

Miller noted that fees in America are much higher than in other countries. In Israel, Singapore and the UK, brokers charge 1% to 2% for the same as agents in the United States.

Years of trouble for the NAR

NAR has been battling U.S. antitrust officials and litigating alleged anticompetitive practices for years. But the November verdict marked the association’s biggest defeat to date and ultimately led to the collapse of rules that had long protected its compensation model.

The association is also facing scrutiny from the U.S. Department of Justice, and it is unclear whether the settlement with the sellers will have an impact on the government’s control of the brokerage industry.

The trade group also experienced major leadership turmoil last year.

In January, former NAR president Tracy Kasper stepped down after being threatened with disclosing past personal and non-financial affairs unless she compromised her position at NAR. Sears replaced Kasper earlier this year.

Kasper only took up the position in August 2023, after former President Kenny Parcell resigned amid sexual harassment allegations first reported by the New York Times. NAR employees reportedly said Parcell touched them inappropriately and sent them lewd photos and text messages. In the Times article, Parcell denied the accusations.

In November 2023, NAR CEO Bob Goldberg stepped down and was replaced by Wright. Goldberg stepped down two days after the $1.8 billion NAR verdict.

This story has been updated with additional reporting and context. It has also been updated to clarify Norm Miller’s comments on broker compensation prospects.

CNN’s Matt Egan contributed to this report.

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