The National Association of Realtors Reaches Landmark Settlement to Reform Commission Practices

The National Association of Realtors (NAR) has agreed to a groundbreaking settlement that would abolish automatic commissions for real estate brokers, typically up to 6% of the purchase price.

If a federal court approves the proposed $418 million legal agreement, it might usher in a new era for home buyers and sellers. The freedom to negotiate fees with their agents upfront could reduce the number of real estate agents, potentially resulting in lower commission prices.

Benjamin Brown, managing partner at the Cohen Milstein law firm and one of the settlement's negotiators, emphasised the significance of the reforms, stating, "For years, anti-competitive rules in the real estate industry have financially harmed millions. This settlement brings sweeping reforms that will help countless American families."

The National Association of Realtors (NAR) has acknowledged the pending settlement in a statement, reiterating its commitment to benefiting its members and consumers. Nykia Wright, NAR's interim CEO, emphasised the organisation's efforts to preserve consumer choice and protect its members.

Home sellers are typically required to pay a brokerage fee for listing their property on a Multiple Listing Service (MLS). This fee, often ranging from 5% to 6% depending on the geographic area, is split upon sale, with half going to the listing agent representing the seller and the other half to the buyer's agent.

Critics argue that this practice, which has become standard in the real estate industry, can lead to accusations of buyer agents steering prospects towards more expensive homes. In November, a federal jury found NAR and some major brokerages liable for conspiring to inflate commission fees, resulting in a historic $1.78 billion in damages.

The proposed settlement aims to strip brokerage commissions from MLS sites and allow for negotiation with sellers, among other changes. Home buyers would also have greater flexibility to negotiate fees with brokers, potentially encouraging more buyers to bypass brokers altogether.

Implementing the new brokerage fee structure would commence within months of the settlement's approval. A preliminary hearing to approve the deal will occur in the coming weeks.