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Greenville Business Magazine

NAR Settlement Could Drive Down Real Estate Agent Fees, in South Carolina, Elsewhere

Mar 15, 2024 01:04PM ● By David Dykes

By David Caraviello

It’s tacked onto the end of nearly every residential real estate listing in South Carolina: buyer’s brokerage commission 3 percent. And it will soon be a thing of the past, due to a landmark legal settlement reached Friday by the National Association of Realtors.

While the NAR agreed to pay $418 million to resolve nationwide claims brought against the association by home sellers, the larger impact of Friday’s settlement in South Carolina and elsewhere will come in the area of commissions — in the past, largely accepted at 3 percent of the sale price for each the buyer’s and seller’s agents. 

Going forward those commissions promise to be much more fluid, and the NAR will now mandate that its member agents enter into written agreements with buyers stipulating the commission amount.

Commission rates expressed through the Multiple Listing Service (MLS) — such as specifying at the end of the listing that a buyer’s or seller’s brokerage will receive 3 percent of the eventual sale price — will also be prohibited.

Although the NAR has claimed that it has no set commission rate for its member agents, 6 percent — 3 percent apiece for the buyer’s and sellers’ agents — has long been accepted as an industry standard, in South Carolina and the nation at large.

The NAR denied any wrongdoing in connection with the MLS cooperative compensation model rule that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation. 

Fees based on market forces?

Brokers in South Carolina were still digesting the news on Friday. But the general belief is that going forward, agent commission rates will be set on a client-to-client basis, with the market determining the exact percentages. 

The changes will go into effect in July.

“The forces of competition will be let loose,” Benjamin Brown, an antitrust attorney who helped hammer out the settlement, told The New York Times. “You’ll see some new pricing models, and some new and creative ways to provide services to home buyers. It’ll be a really exciting time for the industry.”

Commissions accrued over the course of a residential transaction can add up—on a home sold for $328,000, the median price in South Carolina in February, a 6 percent rate means buyer’s and seller’s brokerages would split a total of $19,680. 

And the NAR’s reach is extensive, given that the largest trade association in America has 1.5 million members, including nearly 30,000 in the Palmetto State.

In October, a federal jury in Kansas City found the NAR guilty of conspiring to artificially inflate commissions in home sales and ordered the group to pay $1.78 billion in damages. 

The settlement announced Friday, March 15, 2024, resolves those claims, according to the NAR, which chose to settle for the lesser amount after considering both an appeal and filing for Chapter 11 bankruptcy protection.

The settlement is subject to court approval.

“Ultimately, continuing to litigate would have hurt members and their small businesses,” said Nykia Wright, interim president of the NAR. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances. It provides a path forward for our industry, which makes up nearly one fifth of the American economy, and NAR. For over a century, NAR has protected and advanced the right to real property ownership in this country, and we remain focused on delivering on that core mission.”

Settlement paid over four years

The settlement covers NAR brokerages that in 2022 reported a residential transaction volume of $2 billion or less, and independent contractors at other brokerages who are NAR members. 

Brokerages with a residential volume above $2 billion have the option to buy into settlement coverage, with the cost determined by a formula based on the agency’s size. Those funds will be added to the $418 million, which will go into a trust fund designated for distribution by the court after the settlement is formally approved, and be paid out over four years.

But for South Carolinians in the home market, the far greater impacts of the settlement promise to come in the areas of agent commissions. 

Agents and buyers agreeing to a commission rate in writing, which had previously been an NAR recommendation, will soon become a mandate. There will be no more specifying commission rates in the MLS.

And as for those twin 3 percent commission rates, long seen as the standard in the industry? Going forward, those will be for the clients and the market to decide, raising the specter of brokers competing against each other to win over buyers and sellers—and consumers potentially paying less in commission fees in the process.

“There’s no doubt in my mind that this is going to bring about tremendous savings to homeowners,” Michael Ketchmark, a plaintiff attorney representing Missouri home sellers in one of the cases against the NAR, told The Washington Post.