The customary 6% commission in house purchases is no longer in place.
The National Association of Realtors announced a settlement with groups of home sellers on Friday, agreeing to end historic antitrust lawsuits by paying $418 million in damages and doing away with commission regulations.
It’s an important decision that will drastically reduce the price of buying and selling a house.
A new set of regulations will also take effect, as agreed upon by the NAR, encompassing over a million Realtors. One ban includes agents’ fees in listings on regional multiple listing sites or centralized listing portals. It has come under fire for encouraging brokers to pressure clients into purchasing more expensive properties. Brokers must also be subscribers to multiple listing services. Another new rule will require buyers’ brokers to put their clients into written contracts.
The deal will end the present home-buying and selling business model, which critics claim has artificially raised house prices because sellers pay their and the buyer’s brokers.
TD Cowen Insights reports that real estate commissions could drop by up to 25 to 50%. Alternative real estate sales models, such as flat-fee and discount brokerages, that currently exist but have a small market share will have more opportunities.
With investors fearing that lower agent commission rates would result in less business for real estate platforms, shares of real estate firms Compas and Zillow both fell by more than 13% on Friday.
Zillow issued a warning last month in a 10-K filing, saying that “it could negatively affect our financial condition and results of operations if agent commissions have a significant impact, which could reduce the marketing budgets of real estate partners or reduce the number of real estate partners participating in the industry.” Shares of brokerage firm Redfin dropped by almost 5%.
As a result of the news, homebuilders’ stocks increased: Toll Brothers’ shares increased 1.8%, Lennar’s shares increased 2.4%, and PulteGroup’s shares increased 1.1%.
Brokerage fees for sellers of the $417,000 average price American home are more than $25,000. The buyer bears the additional costs, which drive up the cost of homes in the United States. That charge might decrease by as much as $12,000. It is according to TD Cowen Insights’.
“The benefits the settlement will bring to our industry outweigh the significant cost associated with it,” stated Kevin Sears, President of the NAR.