Real estate agents may soon say goodbye to 6% commissions after a landmark ruling in Kansas City in October, according to a report.
Changes may soon come to the real estate commission rates paid to brokers after a Kansas City judge determined that the National Association of Realtors (NAR) and several large brokerages artificially inflated home commissions and conspired to keep them that way. The brokerages named in that lawsuit were found liable for $1.8 billion in damages.
The ruling, along with other similar lawsuits in several states, could overhaul the 6% commission and allow buyers and sellers to negotiate the rates with brokers as well as arrange who will be responsible for paying them after a deal is closed.
What Changes Have Already Occured Since the Ruling?
In the city of New York, for instance, listing brokers would no longer be permitted to make an offer of compensation to the buyer's broker, regardless of whether it is being made on behalf of the homeowner or seller. Listing brokers would also no longer be required to pay the buy-side compensation.
Additionally, the Real Estate Board of New York (REBNY) would require any compensation for the buyer's broker to come directly from the seller and not from another broker. The new rules will be implemented beginning Jan. 1, 2024.
In August, Bright MLS, which covers the housing markets in the Mid-Atlantic, made changes that now allow listing to offer a compensation of any amount, the lowest of which is $0.
In October, the NAR also changed its "Participation Rule" to allow listing brokers to offer $0 in compensation to buyer brokers, as first reported by Inman. Previously, the NAR required listing brokers to offer buyer brokers a commission of as little as one penny to list their property on the MLS.
How Real Estate Commissions Work?
Currently, brokers for the seller and the buyer typically split their commission, which is usually between 5% and 6%. The percentage depends on the conditions of the housing market.
For a home listed at $500,000, a 6% commission means the seller pays their broker $30,000 after the deal is closed. The seller-side broker then splits the commission with the buyer-side broker, which means each side earns $15,000 on the sale.
