The Potential Effects of the NAR Settlement on Housing Prices for Americans

The forthcoming overhaul of the entire US housing market could herald a significant benefit: potentially cheaper home prices. This anticipation arises from the $418 million settlement announced on Friday by the National Association of Realtors with groups representing homesellers.

Subject to judicial approval, the settlement aims to abolish the longstanding standard 6% commission paid by sellers, often embedded within the home’s listed price. Experts suggest that reduced commissions might consequently lead to lower home prices, offering relief amidst soaring housing costs fueling inflation nationwide, a trend exacerbated by the pandemic.

However, this transformation won’t occur overnight. Initial steps include judicial endorsement and the implementation of various new regulations. Notably, under these regulations, buyers’ agents showing homes listed on local centralized listing portals, known as multiple listing services, will not be privy to predetermined commissions if their clients proceed with purchasing the property.

While the NAR, representing over 1 million agents, refrained from commenting on potential price reductions resulting from the settlement, NAR President Kevin Sears asserted that “the benefits it will provide to our industry are worth that cost.”

This settlement follows a federal jury’s verdict in Missouri, holding the NAR and two brokerages accountable for $1.8 billion in damages for colluding to maintain artificially high agent commissions. The NAR’s settlement marks the final resolution in this legal saga.

Stephen Brobeck, a senior fellow at the Consumer Federation of America, estimates that Americans typically pay $100 billion annually in commission fees, suggesting potential savings ranging from a quarter to half of this sum if the settlement is finalized.

Nevertheless, informal mechanisms within the industry might attempt to uphold the prevailing 5 to 6% commission rates. Listing agents may continue advising sellers that paying the buyer’s agent’s fee can expedite home sales, thereby increasing compensation through fee splitting. Additionally, buyer’s agents may resist commission negotiations.

Tomasz Piskorski, a real estate professor at Columbia University, remains skeptical regarding the settlement’s impact on home prices. While acknowledging the move towards increased transparency for homebuyers, he suggests that lower commissions might incentivize more renters to become homeowners, potentially offsetting any price reductions.

Regardless of the settlement’s outcome, factors such as housing inventory, mortgage rates, and consumer savings rates will significantly influence the housing market, as emphasized by Brobeck.