Americans will likely see a drastic drop in the cost of selling their homes after a landmark legal settlement will end the notorious commission system used by real estate agents.
The National Association of Realtors (NAR) agreed on Friday morning to pay $418 million in damages and to amend its controversial rules in order to settle a wave of threatening lawsuits.
Experts say the change could cut costs by 30 percent, or around $20,000 on the sale of a $1 million home.
As it stands, agents in the US make between 5 and 6 percent on the sale price of a home – far more than almost anywhere else in the world.
That’s because for decades they have relied on a controversial mechanism to keep their rates high and extract as much commission as possible from sellers.
Americans will likely see a drastic drop in the cost of selling their houses after a landmark legal settlement was reached on Friday morning
Previously, the buyer’s agent could see which properties have the highest sales commission and ‘steer’ buyers to them
The settlement agreed on Friday will still require approval from a federal court.
In a press release announcing it on Friday morning, the association denied doing any wrongdoing.
‘NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,’ said Nykia Wright, interim CEO of NAR.
‘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,’ she added.
Last year, the NAR and a number of brokerages were found by a federal jury in Missouri to have conspired to force home sellers to pay higher fees.
In the US, rules stipulated by the NAR mean sellers pay between 5 and 6 percent commission – which is split equally between the buyer’s and seller’s agents.
Michael Ketchmark (pictured) was the lead attorney in the class-action lawsuit brought against the NAR in Missouri
Plaintiffs argued that buyer’s agents were incentivized to steer their clients towards homes whose owners were paying higher broker’s fees because they would then earn more themselves.
Sellers were therefore incentivized to pay higher fees if they wanted their home to be shown to prospective buyers, the jury found.
In the wake of the Missouri ruling came a wave of ‘copycat’ lawsuits.
‘The filing of copycat lawsuits throughout the country made painfully clear that the litigation path was going to be massively expensive’ said Marty Green, principal of law firm Polunsky Beitel Green, in a statement on the settlement.
He suggested changes thanks to the settlement would take time to come into effect and that mortgage underwriting could also be impacted.
‘I think we will begin to see some creative buyer’s agent arrangements that may have been harder to get traction on before,’ he added. ‘But these changes won’t happen overnight and I anticipate a certain amount of uncertainty for the coming months.’
The NAR is the largest trade association in the US and only its fee-paying members are allowed to call themselves ‘Realtors’. They are also the only people with access to its proprietary databases of properties available for sale.
It is through those databases that agents list the amount of commission that is being paid for the sale of a home.
While the changes will benefit sellers, they could also cause significant disruption to the livelihoods of the NAR’s 1.6 million members.
Desirae Wykoff, 36, got her Realtor license in 2015 and earned between $15,000 and $25,000 a year to supplement the income from her full-time job
In recent years, acquiring a real estate license has become a popular side hustle for Americans. In 2020 and 2021 – when the pandemic forced many out of work – a record 156,000 people became Realtors, according to the NAR.
‘I feel like realtors are getting an unfair reputation from this,’ agent Desirae Wykoff, 36, told DailyMail.com after the Missouri ruling. ‘I could see a lot of these people hanging up their license.’
Wykoff got her license in 2015 when her husband quit his job to start a new business, but it was slow to get off the ground.
When they divorced five years later she became a single mother-of-three. She worked full-time at a local car dealership in Tulsa, Oklahoma, and brokered real estate deals on the side to supplement her income – usually an extra $15,000 to $25,000 a year.
‘When you’re on the outside looking in at this profession, it looks like easy money. It looks like you do a little bit of work for a lot of money but that is not at all what it is,’ she told DailyMail.com.
