The 6% commission on the purchase or sale of a home is eliminated after the real estate association has agreed to settle the claim

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The 6% commission, a standard in home purchase transactions, no longer exists.

In a sweeping move that is expected to dramatically reduce the cost of buying and selling a home, the National Association of Realtors announced a settlement with groups of home sellers on Friday, agreeing to settle landmark antitrust lawsuits by paying $1,000 in damages $418 million and end the elimination of commission regulations.

The NAR, which represents more than 1 million real estate agents, also agreed to adopt a new set of rules. One bans the inclusion of agent compensation in listings posted on local centralized listing portals called multiple listing services, which critics say has led to agents pushing more expensive properties on customers. Another will eliminate the requirement that agents subscribe to multiple listing services — many of which are owned by NAR affiliates — that provide comprehensive viewings of homes in a local market. Another new regulation requires buyer agents to enter into written agreements with their buyers.

The agreement will effectively destroy the current business model for home buying and selling, in which sellers pay both their agent and a buyer's agent, which critics say has artificially inflated home prices.

Estimates suggest real estate commissions are expected to decline by 25% to 50%, according to TD Cowen Insights. This will open up opportunities for alternative models of property sales that already exist but do not have a large market share, including flat-rate and discount brokerages.

Shares of real estate firms Zillow and Compass both fell more than 13% on Friday as investors worried that lower commission rates for agents could lead to less business for real estate platforms.

In a 10-K filing last month, Zillow warned, “If agent commissions are significantly impacted, it could reduce real estate partners' marketing budgets or the number of real estate partners operating in the industry, which could adversely affect our financial condition and results of operations.” .”

Shares of real estate brokerage Redfin also fell almost 5%.

Meanwhile, homebuilder stocks rose on the news: Lennar shares rose 2.4%, PulteGroup shares rose 1.1% and Toll Brothers shares rose 1.8%.

For the average price of an American home for sale – $417,000 – sellers pay more than $25,000 in brokerage fees. These costs are passed on to the buyer, driving up the price of homes in America. That fee could drop by $6,000 to $12,000, according to TD Cowen Insights analysis.

“Although the settlement involves significant costs, we believe the benefits it will bring to our industry are worth those costs,” NAR President Kevin Sears said in a statement.

In November, a federal jury in Missouri found NAR and two brokerage firms owed $1.8 billion in damages for conspiring to increase brokerage commissions. Because this was an antitrust case, the NAR had to pay potentially three times the damages – $5.4 billion.

The NAR had promised to appeal the case, but other brokerage firms settled – and finally the NAR did too on Friday.

“NAR has worked hard for years to resolve this litigation in a way that benefits our members and American consumers,” NAR interim CEO Nykia Wright said in a statement. “Our goal has always been to preserve consumer choice and protect our members to the greatest extent possible. This agreement achieves both goals.”

The NAR had required home sellers to include agent compensation when they place a listing through a multiple listing service. Although NAR has long said commissions are negotiable and that the structure has helped make housing more affordable for buyers, critics have long argued that the fees were expected and home sellers felt they would lose buyers if they used them wouldn't offer.

Home sellers who have filed lawsuits against the NAR have argued that in a competitive market, the cost of the buyer's agent commission should be paid by the buyer who received the service, rather than the seller. The sellers who filed the lawsuit against the NAR and the brokerage firms said that buyers should be able to negotiate the fee with their agent and that sellers should not be required to pay the fee.

This settlement, which requires a judge's approval, opens the door to a more competitive housing market. Agents could now compete for commissions, allowing potential buyers to research prices before committing to buying a home. Brokers could start disclosing their fees so customers can choose cheaper brokers. The NAR did not specify a proposed fee in its announcement.

This is the biggest change in the real estate market in a century, said Norm Miller, professor emeritus of real estate at the University of San Diego.

“I’ve waited 50 years for this,” Miller said.

Although it's unclear what the future of the real estate market will look like, Miller said he expects home buying to pick up somewhat as costs for homebuyers fall dramatically.

“There are all kinds of models that we could see in the future and no one knows what they are,” he said, suggesting that some agents might, for example, charge a $3,000 fee to sell a home while others would offer a competitive commission.

The agreement will bring sweeping reforms to millions of Americans, said Benjamin D. Brown, managing partner of Cohen Milstein Sellers & Toll and co-chair of the antitrust division, who helped draft the agreement.

“For years, anti-competitive rules in the real estate industry have financially harmed millions of Americans,” Brown said.

Individual sellers often feel powerless to negotiate a better deal for themselves because of the risk that offering lower commissions could lead agents to steer buyers to other properties, said Robert Braun, a partner in Cohen Milstein's antitrust practice.

“For far too long, home sellers have faced a system that many viewed as patently unfair. This class action lawsuit and settlement provides justice for our customers and requires important changes that will help future home sellers,” said Braun.

Although most real estate agents are included in the settlement, brokerage firm HomeServices of America continues to fight in court, the NAR said.

The NAR said it fought to include HomeServices of America representatives in the settlement but was pleased to have more than a million of its members involved in the agreement.

“Ultimately, continuing litigation would have harmed members and their small businesses,” Wright said in a statement. “While there can be no perfect outcome, this agreement is the best outcome we could achieve under the circumstances.”

Miller said the deal could lead to a mass exodus of brokers from the industry – perhaps half of the roughly two million brokers in America.

Lower fees mean mediocre brokers are likely to leave the field, but top brokers get more business. “The good ones will definitely do better,” he said.

Fees in America are significantly higher than abroad, Miller noted. In Israel, Singapore and the United Kingdom, brokers charge between 1 and 2% for the same fee as brokers in the United States.

The NAR has been battling U.S. antitrust regulators and litigation for years over alleged anti-competitive practices. But the November ruling marked the association's biggest setback to date – and ultimately led to the overturning of the rules that had long protected its compensation model.

The association is also under the scrutiny of the U.S. Department of Justice, and it is unclear whether this settlement with sellers will impact government oversight of the brokerage industry.

There was also serious leadership unrest in the trading group last year.

In January, former NAR President Tracy Kasper resigned after she said she received a threat to disclose a past personal, nonfinancial matter unless it jeopardized her position at the NAR. Sears replaced Kasper earlier this year.

Kasper had just taken on the role in August 2023 after Kenny Parcell, the former president, resigned amid sexual harassment allegations first reported by The New York Times. NAR officials reportedly said Parcell touched her inappropriately and sent explicit photos and text messages. In the Times article, Parcell denied the allegations.

In November 2023, NAR CEO Bob Goldberg also resigned and was replaced by Wright. Goldberg resigned two days after the $1.8 billion verdict against the NAR.

This story has been updated with additional reporting and context. It has also been updated to clarify Norm Miller's comments on broker salary prospects.