On Friday, the National Association of Realtors reached a resolution in antitrust litigation. The lawsuit alleged that brokerages had been artificially raising sales commissions. This settlement is expected to result in significant modifications and reduced expenses for individuals purchasing and selling homes in the future.

The $418 million agreement requires the NAR to remove long-standing regulations on commissions and enable buyers to more easily discuss fees with their personal agents or opt to not use an agent at all.

These revisions have the potential to increase the number of home purchases by decreasing standard commissions by thousands of dollars. This could be advantageous for individuals and families with lower income who are facing challenges with rising inflation or inability to afford homes in their desired areas.

However, it could potentially result in a decrease in profits for traditional real estate companies and decrease the incentive for employment among the over 1 million agents represented by the NAR.

The settlement was announced 4½ months after a federal jury in Kansas City, Missouri, ordered the NAR and several brokerages to pay $1.78 billion in an antitrust case covering agents in that state.

A judge is deliberating a demand from the claimants to triple the compensation.

Numerous lawsuits with similar claims have been initiated in various regions across the nation.

Defendants in the litigation have included HomeServices of America, part of Warren Buffett’s Berkshire Hathaway.

Other brokerages such as Anywhere Real Estate, Compass, Douglas Elliman, Keller Williams, and Re/Max have also faced lawsuits.

The stock prices of multiple brokerage firms declined, with some experiencing losses in the double digits, following the announcement of a settlement. However, shares of certain homebuilding companies such as Lennar and Toll Brothers rose after the news.

The accord requires court approval. It resolves claims against NAR agents, state and local Realtor groups, and most smaller brokerages. HomeServices is not part of the settlement.

Reforms ahead

The practice of paying a combined 5% to 6% in commissions for both the sellers’ agents and buyers’ agents has been objected to by sellers. This is due to their own agents setting fees for both parties.

Some critics argued that sellers should have the freedom to list their homes on multiple databases without having to pay for the services of a buyer’s agent. This would allow both buyers and sellers to search for the most favorable terms.

They also mentioned that the current system motivates agents to direct clients towards homes with higher commissions.

As part of the agreement, property listings on NAR’s Multiple Listing Service will no longer disclose the amount that buyers’ agents will receive.

Agents representing buyers must now make written agreements with their clients. These changes will go into effect in mid-July.

Cohen Milstein Sellers & Toll, who played a role in facilitating the agreement for those against the industry’s procedures, stated that people selling properties through multiple listing services will now be exempt from paying for the services of buyers’ agents.

Confusion predicted

Not everyone is receptive to the changes.

Judi Desiderio, the chief executive of Town & Country Real Estate in East Hampton, New York, expressed concern that this will create confusion for all parties involved in buying, selling, and brokering homes in the area, including buyers, sellers, brokers, and agents. This region is known for its multimillion-dollar homes.

According to Desiderio, certain purchasers may ultimately face higher costs for properties.