The National Association of Realtors (NAR) will eliminate rules that fostered a standard 5 percent to 6 percent sales commission as part of a $418 million settlement with home sellers.
The powerful realtors organization agreed to pay $418 million in damages to settle several lawsuits from home sellers, it announced in a press release. The lawsuit alleged that the association’s commission rules forced home sellers to pay excessive fees, according to The New York Times.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” Nykia Wright, the NAR’s interim CEO, said in a statement. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
The settlement will likely lead to a significant drop in commissions for home sales, with the association agreeing to drop a compensation-sharing system at the core of the lawsuit.
The NAR said it “continues to deny any wrongdoing” in connection with the compensation-sharing system. It also said that offers of broker compensation “continue to be an option consumers can pursue” outside the system.
“Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers,” the association argued.
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The decision to slash commissions could help bring down housing costs, which have skyrocketed since the beginning of the pandemic.
The average price of an existing single-family home in January was $379,100, up 5.1 percent from one year earlier, according to NAR data. Home prices rose in 85 percent of U.S. cities in the fourth quarter of last year, with 15 percent posting double-digit increases.
Home prices soared in the wake of COVID-19, as the pandemic throttled new construction and low interest rates fueled demand. As the Federal Reserve has raised interest rates to a two-decade high over the past two years, mortgage rates have also climbed above 7 percent.
Updated at 2:34 p.m. EDT