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National Association of Realtors agrees to slash commissions
Here's what Realtor Doug Rudnick thinks will happen after the NAR settlement takes effect.
The National Association of Realtors announced a settlement on Friday that eliminated its rules on sales commissions.
The settlement is in response to multiple lawsuits claiming homeowners have been unfairly forced to pay artificially inflated commissions to Realtors when they sold homes.
RELATED: Realtors agree to axe 6% commissions in NAR lawsuit settlement
Experts say the settlement will likely lead to lower commissions – and, thus, lower sales costs – but it's not yet clear how much.
How much are real estate commissions?
The typical commission on the sale of a home is 6%, which pays agents for the effort to list and show homes. The fee is usually paid by the seller of the home, and is sometimes split between the seller’s agent and the buyer's agent.
- For a $1-million home, that means $60,000 in real estate commissions.
- For home that sells for $412,778 – the current median price for a home in the U.S., according to Redfin data – that works out to just under $25,000 in commissions.
How much will home prices drop?
File; Prospective home buyers speak with a real estate agent during an open house in a neighborhood in Clarksburg, Maryland on September 3, 2023. (Photo by ROBERTO SCHMIDT/AFP via Getty Images)
Of course, no agent is going to work for free, but the new rules will make it easier for buyers and sellers to negotiate commissions, likely leading to a reduction in costs.
According to the New York Times, economists estimate that commissions could be reduced by 30 percent, which should be reflected in lower home prices.
With that assumption, the cost of the commission on the $1-million home above would drop by $18,000, while the cost of the $412,778 home would drop by nearly $7,000.
"It may take some time for the changes to impact the marketplace, but our hope and expectation is that this will put a downward pressure on the cost of hiring a real estate broker," Robby Braun, an attorney in a federal lawsuit brought in 2019 in Chicago on behalf of millions of home sellers, told the Associated Press.
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However, Realtor Doug Rudnick pointed out that the 6% commission has always been negotiable and warned that sellers may find, "you get what you pay for."
"Does the seller really want to reduce their price for that $10,000, $15,000, $20,000 that would have impacted it before? Human nature is usually not. But this is going to be a slow, educational process on both sides to make sense for everybody," he told LiveNOW from FOX.
When should homeowners sell?
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The rule changes still have to be approved by the court. But assuming that happens, they are set to go into effect in mid-July of 2024.
Experts say homeowners thinking of selling their home may want to wait until that time in order to take advantage of the potentially lower commissions.
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Does this affect all home sales?
This settlement only involves the National Association of Realtors, which runs the widely used Multiple Listing Services (MLS) home sales database.
Some other groups have already settled. Last month, Keller Williams Realty, one of the nation’s largest real estate brokerages, agreed to pay $70 million and change some of its agent guidelines to settle agent commission lawsuits.
Two other large real estate brokerages agreed to similar settlement terms last year. In their respective pacts, Anywhere Real Estate Inc. agreed to pay $83.5 million, while Re/Max agreed to pay $55 million.
The settlement does not include real estate agents affiliated with HomeServices of America and its related companies.
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Information from the Associated Press was used in this report.