Massive reform coming to the real estate industry in the US.

The National Association of Realtors (NAR) has agreed to settle antitrust litigation on Friday, which accused brokerages of artificially inflating sales commissions. This settlement, amounting to $418 million, is poised to instigate significant changes in the real estate market, potentially leading to reduced costs for Americans buying and selling homes.

As part of the settlement, the NAR will do away with long-standing commission regulations, facilitating easier negotiation of fees between buyers and their agents or even opting to forego agents altogether. These adjustments are anticipated to stimulate more home sales by slashing typical commissions, offering relief particularly to individuals and families facing financial strains due to inflation or housing affordability issues.

However, the settlement may also dampen revenue streams for traditional real estate brokerages, potentially making employment in the sector less lucrative for the over 1 million members represented by the NAR. Real estate brokers, who currently earn an average of $90,000 annually, stand to experience a significant impact from these changes.

Analysts project that the settlement could lead to a reduction in commissions ranging from 25% to 50%. For an average American home, priced at the median of $417,700 in the last quarter of the previous year, this could translate to potential savings of up to $12,500.

The settlement comes after a federal jury in Kansas City, Missouri, ruled in favor of plaintiffs in a similar antitrust case, ordering the NAR and several brokerages to pay $1.78 billion in damages. Subsequent lawsuits across the country have underscored the gravity of the issue.

Notable defendants in these litigations include HomeServices of America, a subsidiary of Warren Buffett's Berkshire Hathaway, Compass, Douglas Elliman, Keller Williams, and Re/Max, among others. The announcement of the settlement caused share prices of several brokerages to decline, while some homebuilders' stocks, like Lennar and Toll Brothers, saw gains.

However, analysts caution that the full normalization of the market may take time, potentially adding financial strain on the residential brokerage industry, particularly with prevailing mortgage rates. Yet, some entities, such as CoStar and its Homes.com real estate portal, could stand to benefit from the settlement, according to industry experts.

The settlement mandates significant reforms, including the elimination of the practice of sellers paying combined commissions for both their agents and buyers' agents. Additionally, buyers' agents will be required to enter into written agreements with their clients, and details about commission payments will no longer be provided on the NAR's Multiple Listing Service.

While proponents of the settlement, represented by Cohen Milstein Sellers & Toll, believe these reforms will benefit American families, there are dissenting voices. Some industry insiders, like Judi Desiderio, CEO of Town & Country Real Estate in East Hampton, New York, fear that the changes could lead to confusion and potentially higher costs for buyers.