Aerial drone photo of a neighborhood in Brentwood.

Aerial drone photo of a neighborhood in Brentwood. Credit: Newsday/Steve Pfost

Long Island home sellers could potentially save thousands of dollars in commissions to real estate agents under a settlement announced Friday by the National Association of Realtors, which stands to change how agents are paid. 

The $418 million settlement, which is pending court approval, would end litigation from home sellers in the Midwest who had alleged the association conspired with large real estate brokerages to inflate commissions.

Under the settlement, NAR agreed to create a new rule that will prohibit agents representing sellers from offering compensation to buyers' agents on the multiple listing services, where the industry promotes available properties.

NAR also said buyers' agents participating in local multiple listing services will be required to enter into written agreements with buyers. If approved, the new policies would take effect in mid-July.

WHAT TO KNOW

  • The National Association of Realtors entered a $418 million settlement to resolve litigation alleging it had conspired with brokerages to inflate commissions. 
  • If approved by the court, the deal would prohibit listing agents from offering compensation to buyers' agents through multiple listing services.
  • The settlement could reduce costs for sellers but some experts doubted it would lower home prices. 

"This should be a positive for both buyers and sellers in terms of the ability to negotiate more openly," said Cristian deRitis, deputy chief economist at Moody's Analytics.

The agreement will reduce the $100 billion in real estate commissions Americans pay annually, according to an analysis last year by Keefe, Bruyette & Woods.

But will the settlement lead to lower home prices? Even though sellers could pay a smaller amount in commissions, there might not be any discount for buyers, at least not while the housing market is tilted toward sellers, deRitis said.

"I think the market is plenty competitive," deRitis said. "It's an additional factor but I don't see prices dropping precipitously."

Listing agents have typically charged 5% to 6% of a property’s sale price to home sellers and may  split that commission with a buyer’s agent. Local commissions tend to be lower because of greater competition. Realtor associations have long noted these fees are negotiable.

The agent also typically splits their commissions with a broker, who facilitates the transaction, according to their agreements. 

The settlement bars offers of compensation on a multiple listing service, such as OneKey MLS, which covers Long Island. But NAR said listing agents could continue to offer compensation to buyers' agents outside of the MLS through “negotiation and consultation with real estate professionals.”

A spokeswoman for OneKey MLS declined to comment Friday while the organization gathers more facts about the agreement.

Doreen Spagnuolo, CEO of the Long Island Board of Realtors, was unavailable to answer questions about the settlement, saying in a written statement that LIBOR "remains steadfast in supporting our members."

Industry shake-up

NAR agreed to the settlement after facing multiple federal antitrust lawsuits. A verdict last year in U.S. District Court in Kansas City awarded 260,000 home sellers in Missouri, Kansas and Illinois monetary damages of $1.78 billion. NAR had planned to appeal the verdict before reaching a settlement.

"It definitely came as a shock," said Jared Garcia, an associate broker at Weichert Realtors in Farmingdale. "I think across the industry, and my opinion included, was that this was going to get tied up in litigation. I thought for years."

Garcia said he doubts there will be any drop in home prices and also suspects sellers will continue to choose to pay buyer's agent commissions, at least in the near future.

"I could, in good faith, look at a seller directly in the eye and tell them I think offering buyer compensation is going to net them the most," he said of advising sellers to pay buyers' agent fees even though they will not be obligated to do so.

The new rules could lead buyers' agents to charge their clients directly for their services. Attorneys for home sellers in the Missouri case had suggested commissions for buyers’ agents should be paid by buyers’ themselves, not through shared commissions with listing agents. That would add an out-of-pocket expense for cash-strapped buyers.

If buyers opt to find homes themselves, the agents who tend to work with more buyers would have a harder time earning commissions. "It's definitely a possibility we see less people trying to become real estate agents," said Jovanni Ortiz, a real estate agent at Douglas Elliman in Rockville Centre

The new mandate does protect agents who help buyers with their search, Ortiz said. He already uses these type of agreements when he works with buyers. 

"If I’m going to invest my time, researching properties, going to show you properties, I want to make sure there’s some loyalty there," Ortiz said. "Without that agreement, I could show someone 30 houses, and they can see house 31 with another agent, and I get nothing." 

The association said Friday’s settlement would end litigation against NAR, more than 1 million NAR members, local Realtor associations, multiple listing services owned by Realtor associations and brokerages that belong to NAR that earn $2 billion or less in annual residential transactions. HomeServices of America, one of the country’s largest brokerages and a corporate defendant in an antitrust case, was not covered under the settlement. 

NAR said it denied wrongdoing related to the way agents have used multiple listing services to offer compensation to brokers who bring buyers to real estate deals.

“It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible," Nykia Wright, interim CEO of NAR, said in a statement. "This settlement achieves both of those goals.”

Changes to industry practices won't be immediate, with the need for court approval and a planned mid-July effective date, deRitis said. 

"The industry will have to change and adapt," deRitis said. "I would expect we will start to see some real changes later on this year as different realtors decide on which pricing model they are going to adopt."

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