NAR Settlement Shakes Up Real Estate Commission Structure
The National Association of Realtors (NAR) reached a settlement on Friday in long-standing antitrust lawsuits brought against them by groups of home sellers. The agreement involves a substantial $418 million payout in damages and, importantly, the elimination of fixed commission regulations. This landmark decision has the potential to significantly reduce the financial burden on both home buyers and sellers.
New Regulations for Realtors
A new set of regulations, impacting over a million Realtors, will also be implemented as part of the settlement. Key among the changes is a ban on including agent fees in property listings on multiple listing services (MLS) and other centralized real estate portals. This practice has faced criticism for potentially encouraging brokers to steer clients towards pricier properties. Additionally, the settlement mandates that brokers must be subscribers to these multiple listing services. A further requirement stipulates that buyers' brokers must now formalize agreements with their clients through written contracts, adding a layer of transparency and accountability to the process.
Impact on the Real Estate Market
This settlement is expected to disrupt the existing home buying and selling business model, a model which critics argue has artificially inflated home prices due to sellers covering the commission fees for both their own and the buyer's brokers.
Industry analysis by TD Cowen Insights suggests that real estate commissions could plummet by as much as 25% to 50%. Alternative sales models, such as flat-fee and discount brokerages, which currently hold a relatively small market share, are poised to benefit from the shift.
Stock Market Reactions
The news sent ripples through the stock market, with real estate platform companies experiencing notable declines. Shares of both Compass and Zillow tumbled more than 13% on Friday, reflecting investor concerns about the impact of reduced agent commissions on their businesses. Zillow had previously highlighted this risk in a 10-K filing, stating that a significant impact on agent commissions could negatively affect their financial condition and operating results. Shares of brokerage firm Redfin also dropped by almost 5% in response to the announcement.
Conversely, the news buoyed homebuilder stocks. Shares of Toll Brothers witnessed a 1.8% increase, Lennar saw a 2.4% gain, and PulteGroup's stock value rose by 1.1%.
Potential Cost Savings for Homebuyers
The current brokerage fees for sellers of an average-priced American home ($417,000) exceed $25,000, a cost ultimately borne by the buyer and a contributing factor to rising home prices. TD Cowen Insights estimates that the settlement could lead to a reduction of up to $12,000 in these fees, representing significant potential savings for homebuyers.
In a statement, Kevin Sears, President of the NAR, acknowledged the substantial cost of the settlement but emphasized that “the benefits the settlement will bring to our industry outweigh the significant cost associated with it.”