Real Estate Industry Set for Major Change: NAR Agrees to Commission Rules Overhaul

Overview of Settlement Impact: The National Association of Realtors (NAR) has agreed to eliminate rules on commissions as part of a settlement, potentially reshaping how the real estate industry operates. The $418 million settlement aims to address allegations of inflated commissions and could have significant implications for both buyers and sellers.

Key Settlement Terms:

• 50 cases in litigation qualify for the Elective Option (EO) based on injury verification.
• Settlement offers extended for various conditions, with 18 accepted, 9 declined, and 10 expired.
• DOJ offers made to 59 claimants, with 24 accepted, 2 rejected, 25 expired, and 8 pending.
• New rule for the Multiple Listing Service (MLS) to prohibit offers of broker compensation on the platform.
• Changes effective mid-July 2024 if approved by a federal court.

Impact on Consumers: Under the settlement, consumers will have the option to choose whether to pay a commission when selling their home, rather than being compelled to pay both the listing and buyer’s agents. Potentially tens of millions of home sellers could be eligible for compensation through a consolidated class-action payout.

Broader Industry Implications: The settlement comes amidst ongoing scrutiny of real estate commissions, with implications for the $100 billion annually paid by home sellers in commissions. The Biden administration has also weighed in, highlighting the potential savings of switching to a model where buyers and sellers pay for their own agents.

Industry Response and Legal Context: The NAR has denied wrongdoing and emphasized its goal to preserve consumer choice. The settlement follows a series of lawsuits alleging price-fixing and commission inflation, including a $1.8 billion class-action jury award in Missouri. The DOJ has expressed concerns about the adequacy of proposed settlements, citing the need for structural changes to the commission structure.

Historical Context and Future Outlook: The NAR has historically set the standard for commission rates, with the current model established in the late 1800s and early 1900s. The settlement could mark a significant shift in how real estate transactions are conducted, with implications for both industry practices and consumer savings.

Stock Market Response: Shares of Zillow Group Inc. saw a significant drop following the announcement, reflecting investor uncertainty about the potential impact of the settlement on the real estate market.