A major settlement could spell an end to 6% realtor commissions

The National Association of Realtors has reached a nationwide settlement that could change the way real estate agents are compensated. Critics say the current system artificially inflates agents' commissions.

For years, sellers have effectively set the commission paid to buyers' agents as a condition of using the multiple listing service — a regional roundup of homes for sale. The combined commission — shared by buyers' and sellers' agents — is typically 5-6%, which is higher than in most other countries.

There's also a potential conflict in having the home seller decide how much the buyer's agent is paid, since they have different objectives in negotiating a home sale.

Under the settlement, commissions will be subject to more negotiation, which could lower the cost of buying and selling a home. It could also drive some real estate agents out of business. Home sellers can still offer a commission to the buyer's agent, but that will no longer be a condition of using the MLS.

Realtors lost a $1.8 billion dollar jury verdict last year and were facing other lawsuits over the commission structure. The penalty threatened to put the Realtors association into bankruptcy.

As part of the settlement, the Realtors association did not admit to any wrongdoing but agreed to pay $418 million over the next four years.

The settlement still needs approval from a federal judge. The changes to real estate commissions are set to take effect in July. [Copyright 2024 NPR]