Is 6% commission dead? What NC homeowners should know after landmark settlement

The housing market is facing a massive shakeup.

The National Association of Realtors — the trade group that sets rules for home sales across the nation — on Friday agreed to pay $418 million in damages and rewrite several rules to resolve claims of price fixing, The New York Times first reported.

The landmark deal is still subject to a judge’s approval.

But if passed, it would slash the NAR’s standard 5% to 6% commission of a home’s sale price, one of the highest rates in the world. It would also bring sweeping changes to the Multiple Listing Service (MLS), the group’s online portal where more than 80% of homes are bought and sold in the U.S.

The changes are expected to go into effect this July. What does that mean for sellers, buyers and Realtors here in North Carolina?

Here’s what you need to know.

What was the NAR lawsuit about?

In April 2019, a group of Missouri home sellers filed a lawsuit, the Sitzer-Burnett case, against the NAR and other defendants, including Berkshire Hathaway HomeServices, Keller Williams and RE/MAX.

The plaintiffs argued commission rates were too high, buyers’ brokers were paid too much, and its rules led to fixed rates. It also triggered more than a dozen of other lawsuits. (The NAR has about 1.5 million members nationwide.)

Last November, a federal jury found the NAR and two brokerages liable for $1.8 billion in damages, CNN reported.

The NAR continues to deny any wrongdoing but settled on Friday.

The settlement releases its members, including 10,000 members of the Raleigh Regional Association of Realtors from liability for the types of claims brought in cases on behalf of home sellers.

“Ultimately, continuing to litigate would have hurt members and their small businesses,” Nykia Wright, the NAR’s interim CEO, said in a release.

What’s in the settlement?

The NAR has agreed to pay $418 million to home sellers over four years.

It’s also committed to several rule changes. They include banning brokers from setting commissions for buyers’ agents, a practice called decoupling, and ending requirements that brokers subscribe to multiple listing services.

Brokers must also enter into a written agreement with their buyers, summarizing the terms and conditions of their services. That could mean more home buyers would set their agents’ pay, and sellers may save on commissions. (North Carolina is one of 18 states where brokerage agreements have been mandatory law since the early 1990s.)

“We stand by NAR’s decision,” said Jay Nelson, Raleigh Regional Association of Realtors’ communications director. “This agreement is the best way for our members and our industry to move forward and provide the best possible service to clients.”

What does this mean for homeowners in NC?

Stephen Brobeck, senior fellow at the Washington, D.C.-based Consumer Federation of America, said the settlement is a win-win for both sellers and buyers.

While rates are unlikely to fall immediately, they could shrink to 3% to 4% over time, saving consumers an estimated $20 billion to $30 billion annually.

It also opens up the marketplace to “a greater variation in types of compensation and rates charged by agents,” like flat-fee and discount brokerages, he said.

Take, for example, a $1 million home in today’s market. A seller would expect to incur up to $60,000 in commission costs alone: $30,000 going to their agent and $30,000 to the buyer’s agent.

For a median-priced (mid-way point) home in Raleigh — around $379,995 in February — it would be closer to $22,800 in commission. The costs are typically baked into the final sales price. But under the new guidelines, buyers will have much more room to negotiate, he said.

“[The] buyer will still be able to request a concession from sellers that includes funds to help cover buyer agent compensation, but this will be after they have had the opportunity to comparison shop,” Brobeck said.

It will also encourage sellers to negotiate their listing agents’ compensation, he added.

Will home prices go down?

Some experts argue these changes could push down prices.

Others aren’t so sure. Many also point out that, in North Carolina at least, it’s been standard practice for buyers and sellers to negotiate compensation for years.

“Our prices have always been based on supply and demand,” said John Wood, owner of Re/Max United in Cary, who has been an agent in the Triangle since 1988.

“The proposed settlement does not dictate what commission rates can be charged or how they are paid, only that [they] cannot be displayed in an MLS system.”

Stacey Anfindsen, an Apex appraiser who analyzes MLS data, pointed to the region’s long-running housing shortage as another reason why prices won’t budge much.

“I just don’t see where somebody’s going to cut the price when you have an undersupply,” he said. “There’s a decent amount of work that is involved from an agent’s standpoint. It’s a marketing expense.”’

Mark Parker, a RARR member and a Realtor with Coldwell Banker, believes house prices could even go up if commissions are removed from the asking price.

“Sellers no longer have to offer any consideration of compensation,” he said. “This will leave buyers’ agents going back to the buyer and asking them to cover their expected fee when they’re already feeling the pinch of purchasing a home.”

What does it mean for NC Realtors?

Matt Fowler, executive director of Triangle MLS, a Cary-based multiple listing service, said it’s too soon to understand the settlement’s full impact on the MLS and Realtors operating in the region.

“We have a hundred questions,” he told The N&O, shortly after the announcement.

But he said he welcomed more transparency.

“There have been other regulatory changes in the past that have impacted MLS, and we’ve adapted. Operationally we will have some work to do. The bigger challenge will be informing consumers that the system is more dependable because of this agreement, not less.”

Tammie Harris runs her own eponymous brokerage firm in North Raleigh and Franklinton. As a Realtor for over 17 years, she said most firms already negotiate fees in the Triangle. “The 6% was never really a mandate in our market,” she said.

On the flipside, she’s worried about the impact on those who make a living from real estate. She fears it could trigger a mass exodus from the profession.

“So many agents jumped ship when the market crashed in 2008. I wonder if this will push agents out of the business due to the fear of not being able to continue to be profitable. “

Realtors provide a valuable service to clients, she said. “This could be affected.”

NC Reality Check is an N&O series holding those in power accountable and shining a light on public issues that affect the Triangle or North Carolina. Have a suggestion for a future story? Email realitycheck@newsobserver.com