MARY LOUISE KELLY, HOST:
The National Association of Realtors has reached a settlement that could spell an end to 6% commissions on home sales. The agreement comes after a jury last year found that realtors had conspired to keep those commissions artificially high. The settlement could lower the cost of buying and selling a home, but it could also drive some real estate agents out of business. NPR's Scott Horsley is here with details. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Mary Louise.
KELLY: Let's start with the problem they were trying to address. What's been the complaint with the way real estate agents have operated?
HORSLEY: Right now, the person who sells a home typically pays both their own real estate agent and the buyer's agent a commission that is based on the sales price. Typically, it's about 3% for the buyer's agent, 3% for the seller's agent, so 6% altogether. We're talking about many thousands of dollars. And sellers have to spell out those terms in order to advertise their home on the big electronic bulletin board that feeds into Zillow and every other real estate website. Ryan Tomasello, who follows real estate at Keefe, Bruyette & Woods, says, in effect, that told sellers, if you want to show up on the bulletin board, you're going to have to pay the going rate.
RYAN TOMASELLO: What that listing agent will say is we can offer something lower than the, you know, prevailing 3% rate. But if you do, you might risk buyer agents not bringing their home-shopper clients to your open house on Saturday.
HORSLEY: Last fall, a federal jury in Kansas City agreed the National Association of Realtors was artificially inflating commissions and awarded $1.8 billion in damages, which could have bankrupted the association. To settle this case, realtors have agreed to pay about a quarter of that, $418 million, and to change the way commissions are handled in the future.
KELLY: And do we know specifics yet, like how exactly it's going to change?
HORSLEY: Well, starting in July, home sellers will no longer have to spell out what the buyer's agent's commission will be in order to access the Realtors bulletin board. So instead of just being locked into a standard commission, there's going to be more room for negotiation. Some sellers may decide not to pay a buyer's agent, so buyers will have to pay their own or go without an agent. It's going to take some time to sort all this out. But ultimately, Steve Brobeck of the Consumer Federation of America says this should lead to lower costs.
STEVE BROBECK: Over time, the marketplace will become more price transparent, which will increase competition further and also tend to bring down average agent compensation.
HORSLEY: That 6% real estate commission that Americans are used to, Mary Louise, is significantly higher than people in most the rest of the world pay.
KELLY: Well, as someone looking to sell and buy a house this summer, I am riveted. Are there any downsides here - any downsides to the settlement?
HORSLEY: Well, for real estate agents, it could certainly cut into their income, and it may put some of them out of the business. It's also a potential challenge for buyers. You know, if a seller's no longer paying their agent's commission, they may have to pay out of pocket, and many first-time buyers already struggle to come up with a down payment. Eventually, there will likely be a way to roll that into the mortgage, so at least they can spread the cost out over time. And we may also see more innovation where people offer to represent both buyers and sellers for a flat fee rather than taking 6% of the selling price.
KELLY: NPR's Scott Horsley. Thank you.
HORSLEY: You're welcome.
(SOUNDBITE OF COMMON, KANYE WEST, AND JOHN LEGEND SONG, "THEY SAY") Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
