By Don DeBat

9-Dec-24 – Despite all the hubbub about the impact of federal court litigation, it appears real estate brokers in Chicago and across the nation will continue to collect about the same commissions as they did last year.

According to a new report from internationally recognized commission analyst Mike DelPrete, there has been no change in average buyer-agent commissions since the settlement went into effect in August. DelPrete is a global real estate tech strategist and a scholar-in-residence at the University of Colorado Boulder.

On November 28, a federal judge granted approval of a $418 million settlement agreement to resolve litigation against the National Association of Realtors (NAR) and its members. The litigation was brought on behalf of home sellers related to broker commissions.

Attorneys said they expected the litigation would lead to changes in the real estate brokerage community that would result in lower commission fees because agents will be forced to compete on service.

DelPrete’s research reported that average buyer-agent commissions nationwide were 2.62 percent when the settlement was announced on April 24. After brokerage commission changes were implemented on August 24, commissions averaged 2.59 percent.

“Historically, buyer-agent commissions fluctuate based on a variety of factors, including overall market conditions and seasonality,” said DelPrete (left). For reference, he noted that a 0.06 percent annual decrease in buyer-broker commissions equates to $245 on a median-priced $409,000 resale home in the United States.

“A big part of the commission lawsuit was about consumer selection, replacing a default path with more transparency and more choice around buyer-agent compensation,” DelPrete said. “The evidence to date doesn’t support the hype around this being a seismic shift in the industry. Consumers still value a buyer agent in the same way as before.”

NAR is now requiring real estate brokers to enter into written agreements – often referred to as “buyer agency agreements” – with prospective buyers. The agreement states how the buyer’s agent will be paid and the amount of their compensation.

NAR also directed member Multiple Listing Services (MLS) to remove all offers of compensation to buyer agents. The MLS is the main data platform used by real estate agents across the nation to market home listings. If brokers are not members of NAR, or do not use an MLS platform that adheres to NAR’s rules, they will not be subject to the rule changes.

The landmark federal verdict found NAR and several large brokerage firms conspired to artificially inflate commissions on home sales. The settlement will be paid over about four years to about 21 million home buyers nationwide, who will be eligible as long as the home was listed on the MLS after October 31, 2019, and commission was paid.

The recent settlement was for less than a quarter of the $1.8 billion issued by a Kansas City jury in March 2024. The final settlement is for $418 million, which after attorney’s fees, will likely be as low as $13 per seller.

Regardless of the national settlement, it doesn’t mean home sellers or buyers suddenly are protected from commission gouging, or brokers who overcharge for their services, warned consumer advocates.

Brokerage commissions typically are paid by home sellers. Commissions are generally in the range of 5 to 7 percent – roughly $20,000 or more on the sale of a $400,000 home.

When a buyer is represented by a Realtor, the seller’s agent usually agrees to split a portion of the commission with the buyer’s agent.

Historically, compensation offers have been listed on the MLS, but the court settlement will forbid this practice, which Realtors have used since the 1920s. For example, in 1923, the chair of the National Association of Real Estate Board’s (NAR’s precursor) “Committee on Commissions” claimed that the Chicago broker’s association had used a commission schedule for more than 40 years.

Critics say home sellers often feel powerless to negotiate a better deal for themselves because of the risk that offering lower commissions may cause brokers to steer buyers to other properties.

When you consider that NAR may be the biggest Congressional lobbyist group in the U.S., the court action truly is a landmark.

“Increasingly, compensation will reflect agent competence, experience, and the effect they make on a sale,” said Stephen Brobeck (left), Senior Fellow at the Consumer Federation of America.

“This agent commission change is long overdue,” said Gold Coast buyer broker Sara Benson, CRB, ABR, and president of Chicago-based Benson Stanley Realty. “Personally, I find the practice of a listing agent dictating the buyer agent’s compensation disconcerting at best – and reprehensible at worst.”

For decades, Benson noted that listing agents have been incessantly “chiseling” the offer of buyer-broker compensation.

“Rarely is the commission split 50/50. In many parts of Wisconsin, buyer agents who do not have a signed Buyer Agency Agreement are lucky to get a mere 35 percent of the total commission,” said Benson (right).

In Chicago, some listing agents are “offering” only 33 percent of the gross commission – or less – to buyer agents, and publishing that commission in the MLS.

In the past, a buyer’s agent meddling with the commission structure would have been considered “contract interference” and prohibited by NAR.

“Under the NAR settlement, buyer agents finally will be empowered to set their own rates and get paid what they are worth,” Benson said.

Next: How do home buyers find experienced buyer brokers to represent them?