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The American housing market is under renovation.
This month, the National Association of Realtors, a real estate trade group that represents more than 1.5 million members, agreed to settle several antitrust lawsuits by paying $418 million in damages. As part of the settlement, the association also eliminated some of its longstanding rules around agent commissions, a move that will transform the home buying and selling process.
For example, a seller’s agent can no longer offer to split commissions with a buyer’s agent on the databases commonly used to list homes, a practice that the home sellers in the lawsuits said had led to inflated commissions. As a result, buyers will most likely have to pay their agents.
Debra Kamin, a reporter on the Real Estate desk at The New York Times, has reported on the settlement and its potential effects on the industry.
“This is a historical moment for the housing industry,” Ms. Kamin said in a recent conversation. “We’ll probably look back on this moment and say that a lot of change came from this settlement.”
In an interview, she explained the broad power of the N.A.R. and the polarizing reaction to the changes. This conversation has been edited.
Can you explain the role of the National Association of Realtors?
The National Association of Realtors is a nonprofit that set the rules and regulations that have guided the housing industry for more than 100 years. If you are not a member, it is very difficult to do business as a real estate agent. It owns the trademark to the word “Realtor,” for example. If you want to call yourself a Realtor, you have to be a member, a distinction that many agents say offers them a badge of authenticity. Agents must also list homes or find homes for sale, and in order to do that, they need access to listing databases, most of which are only accessible to members of the N.A.R.
The group also sets rules for how to do business as an agent; some of them are related to ethics and guidelines around fair housing. What is notable in these recent lawsuits is that they revolve around a basic structure in real estate: how agents are paid for their work.
One effect of the settlement is that the 5 or 6 percent commission agents typically split in a home sale is no longer a requirement. That percentage is much higher than in places like Britain, where the standard is just above 1 percent.
The standard 5 or 6 percent commission was actually never written in stone. In repeated public statements about the lawsuits, N.A.R. has said that it does not set commission rates, nor has it stated that commissions are nonnegotiable. And technically, this is true. But in practice, plaintiffs in the lawsuit successfully argued, the system was designed so that consumers didn’t know they could negotiate.
Or if they wanted to negotiate, they were told by their agent that it would end up hurting them. The reason is that when you sell a home, you pay a commission to your agent. That agent then offers to split the commission with the agent representing the buyer. If you offer a smaller commission, the buyer’s agent is less motivated to bring potential buyers to your home.
The jury agreed with the plaintiffs in the lawsuits against the National Association of Realtors. So commissions have remained high because people want to sell their homes. Now that some rules will go away, there’s more room for competition. Agents may be willing to work for less, and therefore commissions will lower across the board.
Has there ever been such a huge power check against the N.A.R. like this?
N.A.R. has been this monolith of power in the real estate industry for a century. A lot of people have tried to check its power, including the U.S. government. The Justice Department opened an investigation in 2005, which is ongoing. And there have been many upstart companies that have tried to offer different commission models. They have not been successful because N.A.R. is so powerful. This particular case is surprising because the lawsuits involved six home sellers who said: “We sold homes and we didn’t know that we had to pay commission. We felt like we were forced to.”
How will this settlement change the home buying and selling process for consumers?
There’s no question that it will be easier for many consumers to negotiate an agent’s commission. There will be more transparency around the commissions before both buyers and sellers agree to pay these fees. I understand that for people working in the industry, this is a painful moment of transition. But for the average home buyer and seller, and for the housing market in the United States, this is a really important moment.
Many readers commented on your article on the settlement; some felt that their agents had done very little for them and were thrilled. Were you surprised by the reactions?
They were not at all surprising. There are high emotions around the settlement. After the article was published, I received a lot of notes from agents and brokers, and there was real pain behind them. They felt that they had been left on their own without guidance, and were understandably angry about the settlement.
All we can do is tell the story. But I do understand that most agents who pay dues to N.A.R. work as independent contractors, and don’t have support or employment protections. Their livelihoods are based on commissions.