Realtor Group Strikes $418 Million Deal to End Suits Over Commissions

(Bloomberg) — The National Association of Realtors agreed to settle litigation over commission rules for US real estate agents, clearing the way for widespread changes in how Americans buy and sell homes.

Most Read from Bloomberg

For homeowners and buyers, the proposed settlement marks a potentially pivotal change for the industry. The deal would shift the way that agents communicate about commissions, ending the typical setup for a longstanding practice that generally resulted in sellers paying around 6% in fees.

The NAR, a trade group for US real estate agents that counts about 1.5 million members, would pay about $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 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 many agents would have to enter into written agreements with their buyers, 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. The group and brokerages are also facing other lawsuits.

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 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 firm. Berkshire Hathaway Inc.’s HomeServices of America and its related companies are not released under the settlement since the company is still litigating a key case.

Zillow Group Inc. shares fell 8.8% to $48.48 at 11:03 a.m. Friday in New York. 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 has argued 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 more details on agreement starting in the second paragraph, stocks in ninth.)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.