(Bloomberg) — The National Association of Realtors agreed to settle litigation over commission rules for US real estate agents, clearing the way for possible changes in how Americans buy and sell homes.
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For homeowners and buyers, the proposed settlement marks an important shift, altering the way that agents communicate with each other about commissions in a move that may result in lower fees.
“We believe the potential changes would likely accelerate commission pressure on buyer agents, and could support overall commission rates around a home transaction trending lower in the near term,” William Blair analysts including Stephen Sheldon said Friday in a note.
The NAR, a trade group for US real estate agents that counts about 1.5 million members, would pay roughly $418 million over about four years under the agreement, which is subject to court approval, according to a statement Friday from NAR. The Realtor group continues to deny any wrongdoing with how it structured a model rule for broker compensation.
The NAR has come under fire from multiple lawsuits taking aim at the industry’s compensation structure, in which sellers pay a commission — often around 6% — that is then divided between representatives for both sides of the transactions. In many cases, sellers have been compelled to enter into commission-sharing arrangements as a prerequisite for marketing their homes on multiple-listing services, the industry’s main tool for publicizing listings.
As part of the agreement announced Friday, agents won’t be able to put compensation offers on multiple listing services, moving talks about fees off those platforms. The group will also institute a new rule where buyer agents would have to enter into written agreements with their clients, a change that will take place starting in July, the group said.
Last year, a Missouri jury found the Realtor group and others liable of colluding to keep real estate agent commissions high in a $1.8 billion verdict. The changes announced Friday will release most NAR members from liability in that case, as well as some other pending lawsuits.
The Realtor group is also facing scrutiny from the US Justice Department, which has pushed to decouple the process for paying commissions to buyers’ and sellers’ agents.
Read More: Home Sales Process Is Under Threat From $1.8 Billion US Verdict
In a report last year, analysts at Keefe Bruyette & Woods estimated that possible changes to the compensation structure could push the annual commission pool down by more than 30% over time as the market adjusts to a new system. The report also estimated that changes could lead to a 60% to 80% reduction in the number of real estate agents.
The changes will apply to a wide swath of the industry, but not every company. Berkshire Hathaway Inc.’s HomeServices of America and its related firms are not released under the settlement since the company is still litigating the Missouri case.
Zillow Group Inc. shares fell 13% to $46.48 at 12:37 p.m. Friday in New York, the most since May 2022. The company gets the largest share of its revenue by selling leads to buyer’s agents, and lower commissions could mean those representatives have less money to spend on marketing. Short seller Spruce Point Capital Management has argued that new commission rules could hurt Zillow, but the company said it is well-positioned to thrive in a changing industry landscape.
Stocks of real estate brokerages Compass Inc., Anywhere Real Estate Inc. and Redfin Corp. also fell.
(Updates with analyst commentary starting in second paragraph, DOJ background in seventh paragraph.)
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