Real estate stocks plunge as NAR agrees to landmark settlement that rewrites rules on commissions

• The National Association of Realtors announced a $418 million settlement to end antitrust lawsuits.
• The NAR agreed to a new set of rules, which will reset long-held standards on commissions. 
• Real estate stocks including Zillow and Redfin fell Friday after the announcement. 

Shares of real estate companies plunged on Friday following an announcement from the National Association of Realtors that resolves a lawsuit with home-selling groups and effectively nixes the standard 6% commission for home purchases.

In a landmark case, the NAR — which represents over one million real estate agents in the US —  said it would pay $418 million over four years to settle with home sellers and rewrite certain business rules for brokers and agents. 

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals,” Nykia Wright, interim CEO of NAR, said in a statement. 

Investors sold shares of public real estate listing sites and brokerages on Friday following the news:

In a case the NAR had said it would appeal, a jury found the group liable for $1.8 billion in damages for conspiring to keep commissions artificially high for agents. Other brokerages have since settled. 

Critics of the commission model in home purchases have said it makes property prices more expensive.

As part of the settlement, the NAR has agreed to prevent sellers’ brokers from determining the compensation for buyers’ agents. The Realtor group also agreed to end requirements for brokers to use multiple listing services, and moving forward will require multiple listing services participants to enter written agreements with buyers. 

Taken together the changes will rewrite the longstanding real estate business model which had sellers pay their broker and the buyer’s broker. 

“While the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” Kevin Sears, president of the NAR, said in a statement.