Realtors agree to change commission rules in a deal that could reduce costs for consumers

The National Assn. of Realtors on Friday said it will make changes to its commission rules to settle national allegations the requirements stifled competition, a move that may reduce costs for at least some consumers.

The settlement, which still must receive court approval, could mark a major change in the housing market.

Today, sellers typically pay a 5% to 6% commission when they sell their homes, with half of that going to the listing agent and half to the buyer’s agent, and critics of that model say the settlement could upend that practice.

“This settlement over time will benefit home sellers and buyers greatly, eventually lowering agent commissions by tens of billions of dollars a year and helping align agent compensation and services rendered,” Stephen Brobeck, a senior fellow with the Consumer Federation of America, said in a statement.

Under an existing Realtor rule, listing agents must make an offer of compensation to buyer agents in order to list homes on NAR-affiliated multiple listing services, or the MLS.

This rule — known in the industry as “cooperative compensation” — has reduced competition and kept commission rates artificially high, according to lawsuits filed against the Realtors.

The rule has also caused buyer agents to “steer” their clients to homes that offer higher commission rates, the lawsuits allege.

In a news release, the national trade group said it continues to deny any wrongdoing as it relates to its current commission rule, but to settle the allegations, it will prohibit offers of agent compensation on the MLS and pay $418 million.

Home sellers could still offer to pay buyer agent commissions under the settlement if they communicated it outside the MLS, according to the National Assn. of Realtors.

But the lawsuits argue that doing away with a requirement to post compensation on a listing would lead to buyers paying their own agent’s commission, rather than having the sellers fork over cash to someone who represents the opposite side in a negotiation. If buyers paid, the lawsuits argue, that would force buyer agents to negotiate lower commission rates to win business.

In that scenario, home buyers may need to pay out of pocket for an agent to represent them, thus increasing their upfront costs. However, Robert A. Braun, an attorney presenting home sellers in two of the settling lawsuits, argued that buyers would ultimately see reduced costs as well because under the current system, buyer agent commissions get passed along to buyers in the form of higher home prices.

That doesn’t mean sellers make a conscious decision to set their home prices higher because they need to pay a buyer’s agent. Rather, Braun said it means fewer homes make financial sense to sell because some homeowners don’t have enough equity to pay two commissions.

If buyers paid their own agent, more homeowners could afford to sell, increasing supply and helping put downward pressure on price, said Braun, a partner with Cohen Milstein Sellers & Toll.

“Going forward, there is a significant likelihood home prices will be lower than they otherwise would be,” he said.

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