National Association of Realtors settlement could shake up home market across U.S.

American homeowners could see a significant drop in the cost of selling their homes after a real estate trade group agreed to a landmark deal that will eliminate a bedrock of the industry, the standard 6% sales commission.

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 its rules on commissions. Legal counsel for the NAR approved the agreement early Friday morning, and the New York Times obtained a copy of the signed document.

Greg Lawrence, broker/owner of Golden Valley-based Home Avenue, said the settlement terms were “absolutely shocking.”

“This changes the whole industry,” said Lawrence, who has long railed against the commission structure.

The deal, which lawyers anticipate will be filed within weeks and still needs a federal court’s approval, would end a multitude of legal claims from home sellers who argued that the rules forced them to pay excessive fees.

In a statement released on Friday morning, Nykia Wright, the interim chief executive of the NAR, said “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.”

Housing experts said 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.

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 U.S., 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.

Lawrence, whose firm already charges a flat fee, said he thinks more buyer’s agents will adopt a similar structure that will more directly compensate them for the services they provide. That takes some of the burden off sellers, who now pay the buyer’s brokers. He’s concerned, however, that some listing agents will continue charging 6% and that some buyers will forgo representation altogether.

Under the current structure, a U.S. homeowner currently looking to sell a

home for $400,000 — close to the current U.S. median for homes — will pay about $24,000 in commissions, a cost that is baked into the final sales price.

The lawsuits argued that the NAR, and brokerages who required their agents to be members of the 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 opening of a free market for Realtor compensation could mirror the shake-up that occurred in the travel industry with the emergence of online broker sites such as Expedia and Kayak.

“The forces of competition will be let loose,” said Benjamin Brown, co-chair 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. It’ll be a really exciting time for the industry.”

The original lawsuit, filed in April 2019 by a group of Missouri home sellers, ended in a verdict of $1.8 billion in October. Because the suit included accusations of antitrust violations, plaintiffs could have been eligible for triple damages of up to $5.4 billion. In exchange for the reduction in damages, the association gave up its right to appeal.

The verdict sent shock waves through the real estate industry and has since catalyzed into more than a dozen copycat suits across the country, including a nationwide class-action case that ensnares the country’s largest brokerage and its owner, Warren Buffett. That brokerage, Berkshire Hathaway, has not settled, but others, including Keller Williams and Re/Max, have settled in separate cases. The NAR now joins them.

Under the settlement, tens of millions of home sellers will probably be eligible to receive a small piece of a consolidated class-action payout.

The legal loss struck a blow to the power wielded by the organization, which has long been considered untouchable, insulated by its influence. Founded in 1908, the NAR has more than $1 billion in assets, 1.3 million members and a political action committee that pours millions into the coffers of candidates across the political spectrum.

The antitrust division of the Department of Justice is continuing its investigation of the NAR’s practices, including the organization’s oversight of databases for home listings, called multiple listing sites or the MLS. The sites are owned and operated by the NAR’s local affiliates. For decades, the Justice Department has questioned whether these databases stifle competition and whether some NAR rules foster price-fixing on commissions.

Some experts said the shift on commission structure, and the billions of dollars that would flow into the housing market as a result, could spark a recovery in the housing market, going so far as to say that it could be as significant as the 1930s New Deal, a flurry of legislation and executive orders signed by President Franklin Roosevelt designed to stabilize and rebuild the nation’s economic recovery following the Great Depression. This included the Better Housing Program, which was designed to make housing and mortgages more accessible and led to the creation of the Federal Housing Administration.

Kris Lindahl of Twin Cities-based KLRE said his company has always treated commissions as negotiable, and that the biggest change to real estate right now is the interest rates.

“As the settlement is released, we’ll have a clearer picture of how the landscape will change,” he said. “Real estate has always been evolving, and consumers want choices.”

Michael Ketchmark, the Kansas City lawyer behind the home sellers’ legal triumph said, “NAR is finally out of the business of forcing homeowners to pay inflated commissions.”

The October verdict landed at a time of controversy for the organization, and in the last five months, its internal turmoil reached a fever pitch. Its chief executive, Bob Goldberg, announced in a closed-door meeting that he would retire, just days after the verdict. His exit followed that of NAR president Kenny Parcell, who resigned in August two days after a Times investigation revealed widespread allegations of sexual harassment.

In January, the NAR’s new president, Tracy Kasper, who had stepped into the role with a pledge of reshaping the organization’s culture and fighting the lawsuits at all costs, announced her own sudden exit after the NAR said Kasper was the target of blackmail.

Star Tribune staff writer Jim Buchta contributed to this story.