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Major Shift in Real Estate: NAR Settlement Redefines Commission Structure, Affects Millions



The real estate industry is on the brink of significant change, as the National Association of Realtors (NAR) has announced a landmark settlement that promises to redefine the traditional commission structure. For years, a 6% commission on home sales, split between the buyer’s and seller’s agents, has been the norm. However, the recent settlement, subject to court approval, aims to eliminate set commission rules, potentially reducing them by 25% to 50%, according to TD Cowen Insights.

A Transformative Agreement

The NAR has agreed to pay $418 million over approximately four years to resolve claims related to broker commissions. This settlement will impact over one million NAR members, all state/territorial and local Realtor associations, and brokerages with a residential transaction volume in 2022 of $2 billion or below. Nykia Wright, Interim CEO of NAR, stated, “NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. 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.”

Implications for Consumers and Realtors

For consumers, this change is a breath of fresh air. Lower commission rates could make home buying and selling more affordable, potentially revitalizing the housing market. Sellers, in particular, may benefit from lower fees, making their properties more attractive to buyers.

Realtors will need to adapt to this new financial landscape. The reduction in commissions encourages agents to seek innovative ways to distinguish themselves, whether through specialization, volume sales, or offering additional services. The settlement also introduces a new MLS rule prohibiting offers of broker compensation on the MLS, which could change how compensation is negotiated and communicated. These changes are set to go into effect in mid-July 2024.

Adapting to Change

The real estate profession is set to undergo a period of adjustment. Kevin Sears, NAR President, remarked, “This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients.”

The settlement marks a new era in real estate, characterized by reduced transaction costs for consumers and a call to action for professionals to innovate and adapt. While challenges lie ahead, particularly for realtors adjusting to reduced income, the industry is poised for growth and transformation, continuing its vital role in the American dream of homeownership.