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Settlement eliminates 6% realtor commission
The National Association of Realtors announced a settlement on Friday that eliminated its rules on sales commissions, which could lead to a drop in home prices in the U.S.
The National Association of Realtors announced a settlement on Friday that eliminated its rules on sales commissions, which could lead to a drop in home prices in the U.S.
The settlement was made to resolve lawsuits that claim homeowners have been unfairly forced to pay artificially inflated commissions to realtors when they sold homes. Real estate experts predict that this could trigger one of the most significant transformations in the market in the past century, driving down housing costs and reshaping the dynamics of buying and selling homes.
Lower real estate commissions
Currently, real estate agents working with a buyer and seller typically split a commission of around 6 percent. The fee is usually paid by the seller of the home, and is sometimes split between the seller’s agent and the buyer's agent. Experts predict that this change could lead to a substantial reduction in commissions, potentially by as much as 30%. This decrease in commission rates has the potential to drive down home prices across the board. For example, for a $1-million home, 6 percent means $60,000 in real estate commissions, so a 3 percent commission instead could save the seller $30,000.
Realtors' 6% commission on buying, selling homes eliminated: Here's why
The 6% commission, a standard in home purchase transactions, is no more, following a groundbreaking court settlement that will revolutionize the landscape of home sales in the United States.
How much will home prices drop?
According to the New York Times, economists estimate that commissions could be reduced by 30 percent, which should be reflected in lower home prices.
With that assumption, the cost of the commission on the $1-million home above would drop by $18,000, while the cost of the $412,778 home would drop by nearly $7,000.
"It may take some time for the changes to impact the marketplace, but our hope and expectation is that this will put a downward pressure on the cost of hiring a real estate broker," Robby Braun, an attorney in a federal lawsuit brought in 2019 in Chicago on behalf of millions of home sellers, told the Associated Press.
However, Realtor Doug Rudnick pointed out that the 6% commission has always been negotiable and warned that sellers may find, "you get what you pay for."
"Does the seller really want to reduce their price for that $10,000, $15,000, $20,000 that would have impacted it before? Human nature is usually not. But this is going to be a slow, educational process on both sides to make sense for everybody," he told LiveNOW from FOX.
If you're planning to sell your home soon, it may be beneficial to consider waiting to list until new lower-commission models emerge. Alternatively, you can negotiate commission rates aggressively with your real estate agent to maximize savings. The rule changes are set to go into effect in mid-July.
FOX Television Stations and the Associated Press contributed to this report.