The NAR settlement could slash home prices for many Americans

The entire US housing market is about to get remodeled, and the end product could come with a big perk: cheaper home prices.

That’s due to a $418 million settlement the National Association of Realtors announced Friday with groups of homesellers.

The settlement, which is still subject to a judge’s approval, will eliminate the long-standing standard 6% commission paid by the seller. Those fees, however, are often baked into the listed price of the home. Lower commissions could therefore lower home prices, experts say.

And at a time when elevated housing costs are driving inflation across the country, reining in home prices could help bring price increases back to levels Americans experienced before the pandemic.

But none of that will happen overnight.

For starters, a judge still needs to sign off on the settlement, which also would put in place a slew of new rules. Among those, buyers’ agents showing homes that were listed on local centralized listing portals, known as multiple listing services, won’t have prior knowledge of the commissions they’ll receive if their clients end up purchasing it.

The NAR, which represents more than 1 million agents, declined to comment on whether home prices will fall as a result of the settlement. However, the president of the NAR, Kevin Sears, said Friday in a statement that “the benefits it will provide to our industry are worth that cost.”

The settlement comes months after a federal jury in Missouri found the NAR and two brokerages liable for $1.8 billion in damages for conspiring to keep agent commissions artificially high. The NAR was the last of the three parties to settle.

Decoupling commissions from home prices “will allow them to be removed and negotiated down, lowering both housing prices and overall consumer costs,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America, an umbrella group of non-profit consumer organizations.

He estimates that in a typical year (unlike the past one when home purchases dropped to nearly a 30-year low), Americans pay $100 billion in commission fees. Home buyers could stand to save anywhere between a quarter to half of that if the settlement is finalized.

Even if a judge signs off on the settlement “the industry is likely to use informal mechanisms to try to hold the line on 5 to 6% commissions,” Brobeck told CNN. For instance, listing agents will likely continue to tell sellers that their homes will be sold faster if they pay for the buyer’s agent’s fee. That would increase how much they’re compensated since the total fee ends up getting split between listing agents and the buyer’s agents. On top of that, the buyers’ agents “will simply refuse to negotiate their commission.”

Tomasz Piskorski, a real estate professor at Columbia University, is skeptical the settlement will move the needle on home prices at all.

It’s “a step in the right direction” in terms of increasing transparency for homebuyers who may have a limited understanding of how a seller arrived at their listing price given the commissions worked out behind the scenes, he told CNN.

But since the commissions act like a tax, lowering them could end up incentivizing more would-be-renters to buy homes. In turn, that may very well offset any price savings to be had from the new system, Piskorski said.

NAR settlement or not, factors such as housing inventory, mortgage rates and consumer savings rates will “play much larger roles,” said Brobeck.