The National Association of Realtors (NAR) has agreed to pay $418 million over four years and change certain rules to settle a series of lawsuits over the industry’s sales commission fees, a move expected to greatly decrease home-selling costs.
“No longer will homeowners be required under NAR rules to offer compensation to buyers agents," Michael Ketchmark, lead attorney for the plaintiffs in the case, told Kiplinger in an interview. The new rules "will return the sale of homes to the free market and allow technology to benefit sellers of homes."
Those changes will provide a huge opportunity for the cost of selling a home to drop dramatically, he added.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Under the settlement, which is pending court approval, NAR agreed to stop requiring homeowners to pay buyers agents commissions when they sell their homes, a practice in the U.S. that has been around for nearly 100 years, Ketchmark said. The average total commission rates in the U.S. — split between buyer and seller brokers — are 5% to 6% of the sale price, according to court documents.
NAR, which admits no wrongdoing in the case, has also agreed to draft new rules that prohibit broker compensation offers on its Multiple Listing Service (MLS) property database and that require MLS participants working with buyers to put their agreements in writing. These changes are set to become effective in mid-July.
The MLS has been used “as a vehicle for propping up and inflating commissions," Ketchmark said. “Probably the most significant part of the settlement is the changes to the way that homes are sold."
NAR, whose 1.5 million members make up the nation’s largest trade group, did not respond to a request for comment. In a statement, NAR sad it continues to encourage members to use buyer brokerage agreements that help consumers understand the services and value that will be provided.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” Nykia Wright, interim CEO of NAR, said in the statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
The settlement follows NAR’s loss in a district court case last October involving a conspiracy to artificially inflate commissions on home sales. A jury in that case ordered NAR and several real estate brokerages — including Berkshire Hathaway Energy-owned HomeServices of America — to pay about $1.8 billion in damages to roughly 500,000 home sellers in Missouri.
Non-negotiable commission rule challenged
In their suit, the home sellers challenged NAR’s rule requiring them to make non-negotiable commission offers to brokers to list their homes on MLS databases. A separate case involving similar charges and covering 14 states was also filed in Illinois.
NAR’s proposed settlement will resolve the Missouri and Illinois cases for all of those defendants — except for HomeServices of America, which is still litigating the Missouri judgement, Ketchmark said.
Wright said that NAR has worked hard for years to resolve the litigation “in a manner that benefits our members and American consumers.” The goal has been to preserve consumer choice and protect the group’s members to the greatest extent possible, she said, adding that the settlement achieves both of those goals.
The settlement is currently unavailable for the public to view but is expected to be filed next week. For more on the Missouri case, you can view the District Court for the Western District of Missouri Western Division filing here.
RELATED CONTENT
-
How Trusts Can Be Used to Protect LLCs From CreditorsCombining limited liability companies with domestic asset protection trusts can achieve maximum asset protection.
-
Financial Planning Tips for Business Owners Raising KidsBORKs face specific challenges that other business owners don't, so they need a different approach to their financial plans to ensure their family is protected.
-
How to Sell Your Business With No RegretsThe key to a successful exit: You've got to be prepared. So, start now by maximizing profitability, planning for succession and avoiding the dreaded five D's.
-
Debunking the Myth of the Silver SpoonJust because your family is wealthy doesn't mean life's all smooth sailing for your kids. When family dynamics are complicated, communication is key.
-
Beware of 'Buy a Business' Coaching ScamsJust because someone says they can make you rich by helping you buy the business of your dreams doesn’t mean they actually have the expertise to do that.
-
Limited Liability Companies (LLCs): How Assets Are ProtectedAn LLC can prevent problems with assets within the LLC from affecting assets outside the LLC, but there are limits to asset protection.
-
Succession Musts: Thoughtful Planning and Frank DiscussionsWhen it comes to passing on the family business, you don't want anyone to be surprised about who will control or inherit the business after the owner's death.
-
Is Harris’s $25k Down Payment Assistance Good or Bad for Homebuyers?Democratic Presidential candidate Kamala Harris plans to offer $25,000 in down payment assistance for first-time homebuyers. But is this good or bad for the housing market?
