Americans are likely to see a dramatic drop in the cost of selling their homes after a landmark legal settlement will end the infamous commission system used by real estate agents.
The National Association of Realtors (NAR) agreed Friday morning to pay $418 million in damages and amend controversial rules to settle a wave of threatened lawsuits.
Experts say the change could cut costs by 30 percent, or about $20,000 on the sale of a $1 million home.
As it stands now, real estate agents in the US earn between 5 and 6 percent on the sale price of a home – much 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 many commissions from sellers as possible.
Americans are likely to see a dramatic drop in the cost of selling their homes after a landmark legal settlement was reached Friday morning
Previously, the buyer’s agent could see which properties had the highest sales commission and ‘send’ buyers there
The settlement agreed to Friday still requires approval from a federal court.
In a press release announcing this on Friday morning, the association denied committing any wrongdoing.
“NAR has worked diligently for years to resolve this lawsuit in a way 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 as best we can. This settlement achieves both goals,” she added.
Last year, a federal jury in Missouri found that NAR and some real estate agents conspired to force home sellers to pay higher fees.
In the US, NAR rules mean that 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 against NAR in Missouri
Plaintiffs argued that buyer’s agents were incentivized to send their clients to homes whose owners paid higher agent fees because they would earn more themselves.
Sellers were therefore incentivized to pay higher fees if they wanted their homes to be shown to potential buyers, the jury found.
In the aftermath of the Missouri ruling, a wave of copycat lawsuits emerged.
“The filing of copycat lawsuits across the country made painfully clear that the process would be enormously expensive,” Marty Green, principal at law firm Polunsky Beitel Green, said in a statement about the settlement.
He suggested it would take some time for the settlement’s changes to take effect and that mortgage underwriting could also be affected.
“I think we’re going to see some creative buyer agent arrangements that may have been harder to achieve before,” he added. “But these changes will not happen overnight and I expect a degree of uncertainty in the coming months.”
The NAR is the largest trade association in the US and only its paying members are allowed to call themselves “Realtors.” They are also the only people who have access to the company’s own databases of properties for sale.
Through these databases, agents list the amount of commission paid for the sale of a home.
While the changes will benefit sellers, they could also cause significant disruption to the livelihoods of NAR’s 1.6 million members.
Desirae Wykoff, 36, obtained her real estate license in 2015 and earns between $15,000 and $25,000 a year to supplement income from her full-time job
In recent years, obtaining a real estate license has become a popular side hustle for Americans. In 2020 and 2021 — when the pandemic left many unemployed — a record 156,000 people became real estate agents, according to the NAR.
“I feel like this gives real estate agents an unfair reputation,” agent Desirae Wykoff, 36, told DailyMail.com after the Missouri ruling. “I saw a lot of these people hang up their driver’s licenses.”
Wykoff got her license in 2015 when her husband quit his job to start a new business, but it was slow to take off.
When they divorced five years later, she became a single mother of three children. She worked full-time at a local car dealership in Tulsa, Oklahoma, and also brokered real estate transactions to supplement her income – usually an additional $15,000 to $25,000 per year.
‘If you look at this profession from the outside, it seems like you can make easy money. It seems like you’re doing a little work for a lot of money, but that’s not what it is at all,” she told DailyMail.com.
