The 6% commission on buying or selling a home is gone after Realtors association agrees to seismic settlement

CNN has reported a seismic shift within the real estate sector, as the long-standing tradition of a 6% commission in property transactions has been abolished. This decision marks a fundamental transformation in the industry, altering the traditional modus operandi for buying and selling properties.

This monumental change was announced by the National Association of Realtors (NAR), which represents over one million real estate agents. In an unprecedented effort to substantially reduce the costs entailed in property transactions, the NAR has unveiled a settlement with home sellers to terminate ongoing antitrust lawsuits. This resolution involves a compensatory payment of $418 million in damages and an abolishment of the existing commission rules.

This shift also led to new restrictions. One revolutionary change was stopping the tradition of including agents’ fees within property listings hosted in multiple local listing platforms. Observers believe that the previous approach facilitated real estate agents impulses to promote the more expensive properties to prospective buyers. As per the new set of guidelines, there is no expectation for brokers to subscribe to various listing services.

This paradigm shift decimates the existing framework wherein sellers are obliged to remunerate both their own and the buyer’s agent. Several critics argue that this structure caused an escalated and artificial inflation of property prices. As per estimates by TD Cowen Insights, this overhaul in the approach towards real estate sales could potentially result in a 25% to 50% reduction of real estate commissions. This opens the door wide for alternative sales models, such as flat-fee and discount brokerages, to capture a more significant market share.

This announcement led to a major upset in the stock market, with shares of real estate firms Zillow and Compass descending over 13%. Investors fear that reduced commission rates could lead to less business for real estate agencies. In contrast, homebuilders such as Lennar, Toll Brothers, and PulteGroup saw an upswing in their shares, gaining 2.4%, 1.8%, and 1.1% respectively.

The fundamental reshaping of the marketplace is expected to end in a mass exodus of brokers — potentially up to half of the recessive 2 million agents presently active in the U.S. Regardless, there might be a silver lining for consumers who can now have more autonomy in choosing agents based on advertising rates.

This groundbreaking settlement is yet to receive judicial approval, but industry figureheads believe it signifies the start of a fiercely competitive property market. Though the precise future may be uncertain, President of the University of San Diego, Norm Miller, believes that this fundamental systemic change could invigorate home buying as buyer’s costs are predicted to drop drastically.

Despite the palpable excitement, the looming question is how the U.S Department of Justice might react to this new change. Furthermore, this news arrives amidst leadership turmoil within the organization, and the NAR is still dealing with pending United States antitrust litigations, which further complicates matters. Despite these challenges, the organization remains hopeful for a better future.