Law Advisor Blog


National Association of Realtors Settlement May Change Landscape of Commissions

Janet M. Nesse

While homebuyers and sellers have been worrying about interest rates, something much more significant has been happening. A class action suit was filed in Missouri that effectively challenged the incredibly common 6% real estate commission that gets paid at the time of closing. In other words, if a person sells a home for $400,000, the realtors get paid approximately $24,000. Usually, the seller agrees to a commission of 6% for their agents, which is then split with a buyer’s agent 50-50. That is not the upper limit, however.

As a Bankruptcy Trustee, I recently sold a property for approximately $800,000. The 6% commission was equally divided between two agents, but for reasons that were not clear, the buyer’s agent was paid another $3,500 by their client. Many sellers’ agents also charge an additional “processing fee that can be as much as $500.00.”

The National Association of Realtors, which is one of the largest lobbying entities in the United States entered into a settlement for $418 Million Dollars, and an agreement to change the rule for compensation of real estate agents and brokers.

All commissions will be subject to negotiation and will have to be clear in advance what amounts are being paid by the buyer and the seller. It seems clear that commissions will likely drop but no one knows by how much and what the consequences will be in the future. It is also clear that if a seller is selling a townhouse exactly the same as one hundred others, the expertise required for a realtor is less than for the sale of a unique property. Troubled properties may also require more attention.

At first glance, it seems like all good news for home buyers and sellers. Who doesn’t like to save money? In the UK for example, the average agency fee is about 1%. There are online agencies there that charge only for particular services, such as showings or photos or drafting of the contract. Sellers there do legwork like taking pictures, funding buyers, and negotiating contracts. The question arises, is there less incentive for an agent to press for the highest prices for their client, if the commissions are very low, or certainly if a flat fee? Even the pricing of a property could be left to the seller.

One group that is concerned is veterans. One veterans’ organization is concerned that if commissions decrease, agents will move out of the VA loan market and the lower-price first-time homebuyer market in search of more lucrative sales. 

The settlement still must be approved by a judge, and the long-range consequences of this seismic change are still unknown. If you are a realtor who wishes to be proactive and is thinking of how to restructure a business, a seller or buyer who wants to determine what is a reasonable approach, a title company who needs to know how this will affect closings, or a lender who is trying to ascertain whether this will slow closings or have some other unanticipated impact on consumer loans, call one of our business, real estate, or restructuring attorneys to prepare for this new marketplace.