Real estate agents lost their 6% commissions — here's how first-time homebuyers could end up losing out, too
Last month, the National Association of Realtors (NAR) agreed to cough up $418 million in damages and eliminate commission rules in a landmark deal experts say will significantly shake up the real estate industry.
“This will blow up the market and would force a new business model,” Norm Miller, a professor emeritus of real estate at the University of San Diego, told The New York Times.
Don't miss
Commercial real estate has beaten the stock market for 25 years — but only the super rich could buy in. Here's how even ordinary investors can become the landlord of Walmart, Whole Foods or Kroger
Cost-of-living in America is still out of control — use these 3 'real assets' to protect your wealth today, no matter what the US Fed does or says
Car insurance rates have spiked in the US to a stunning $2,150/year — but you can be smarter than that. Here's how you can save yourself as much as $820 annually in minutes (it's 100% free)
The NAR agreed to settle after a series of lawsuits accused the organization of conspiring to artificially inflate home sale commissions.
However, many economists and real estate agents are concerned about the burden this will place on first-time homebuyers — especially moderate- to middle-class people, many of whom are Black and Latino families. According to the New York Times report, buyers and sellers are now responsible for paying their own agents (versus expecting the seller to pay a single commission).
Coming up with the additional funds to cover these costs, in addition to the down payment and closing costs, may inevitably push some families out of the housing market before they could even get in.
The end of the 6% commission fee?
Ryan Tomasello, an analyst for investment banking firm Keefe, Bruyette & Woods, published a report in October prior to the settlement. In it, he predicted changes to the commission structure could lead to a 30% reduction in the $100 billion Americans pay in real-estate commission fees each year.
What’s more, Tomasello said it could drive more than half of the nation’s 1.6 million realtors out of the industry.
Real estate agents across the U.S. typically charge a commission between 5-6% — one of the highest rates in the world — that is often divided equally between the buyer’s agent and the seller’s agent.
However, recent lawsuits argued the NAR stifled competition among real estate brokers and violated antitrust laws by requiring the seller’s agent to make an offer of payment to the buyer’s agent and implementing rules that led to steep standard commission fees.
This settlement means the NAR can no longer set any rules that would allow a seller’s agent to set compensation for a buyer’s agent. The association’s Multiple Listing Service (MLS) — which buyers and sellers use to view for-sale properties — will no longer feature any fields offering broker compensation either.
Experts say the agreement — and potential slide in commission fees — could revive the sluggish housing market.
“This will be a really fundamental shift in how Americans buy, search for, and purchase and sell their housing. It will absolutely transform the real estate industry,” said Max Besbris, an associate professor of sociology at the University of Wisconsin-Madison, according to The New York Times.
However, others warn the possibility of lower commission fees and demand for buyer agents could deter folks from pursuing careers in the real estate industry.
Read more: These 5 magic money moves will boost you up America's net worth ladder in 2024 — and you can complete each step within minutes. Here's how
DOJ still investigating
The Department of Justice’s antitrust division is continuing to investigate NAR practices — particularly whether the organization’s rules have led to price-fixing on commission fees and whether MLS databases have been constraining competition.
The Realtor group continues to deny any wrongdoing.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” Nykia Wright, the interim CEO of NAR, said in response to the lawsuit agreement.
“While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
The agreement must still receive approval by a federal judge before it can take effect.
What to read next
Leonardo DiCaprio and Oprah Winfrey invest in this asset to keep their wealth safe — you may want to do the same in 2024
Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead. Get in now for strong long-term tailwinds
Jeff Bezos told his siblings to invest $10K in his startup called Amazon, and now their stake is worth over $1B — 3 ways to get rich without having to gamble on risky public stocks
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.