Realtor group settles with DOJ in effort to make broker fees clearer to home buyers

(CNN) As part of a settlement with the Department of Justice, the National Association of Realtors has agreed to change several of its policies in order to increase competition among brokers and make agent fees clearer to home buyers.

On Thursday, the Department of Justice filed a civil lawsuit alleging that NAR "put illegal restraints" on the way agents who sell real estate can compete. These practices, according to the complaint, include concealing buyer's broker commissions, allowing them to misrepresent their services as "free," enabling them to filter listings based on the commission offered and limiting access to homes for sale solely to brokers who work for a NAR-affiliated listing service.

The DOJ's Antitrust Division simultaneously filed a proposed settlement that requires NAR to repeal and modify some of its rules. Those changes -- including more disclosure around buyer's broker fees -- are expected to increase competition among brokers and lower the fees paid by home buyers.

If approved, the Justice Department said, the settlement would enhance competition in the real estate market, resulting in more choice and better service for consumers, as well as boost innovation in the industry.

"Buying a home is one of life's biggest and most important financial decisions," said assistant attorney general Makan Delrahim of the Justice Department's Antitrust Division. "Home buyers and sellers should be aware of all the broker fees they are paying."

Delrahim said the settlement prevents traditional brokers from blocking competition, including by internet-based methods of home buying and selling, by providing greater transparency to consumers about the fees they pay to brokers.

"This will increase price competition among brokers and lead to better quality of services for American home buyers and sellers," he said.

Mantill Williams, NAR's vice president of communications, said its rules and policies have long sought to ensure fair and competitive real estate markets.

"While NAR disagrees with the DOJ's characterization of our rules and policies, and NAR admits no liability, wrongdoing or truth of any allegations by the DOJ, we have agreed to make certain changes to the Code of Ethics and MLS Policies while we remain focused on supporting our members as they preserve, protect and advance the American dream of homeownership," Williams said.

NAR is a trade association of more than 1.4 million members who are engaged in residential real estate brokerages across the United States. It has more than 1,400 local associations organized as MLS's through which agents share information about homes for sale in their communities.

Once published in the Federal Register, anyone can submit written comments regarding the proposed final judgment for 60 days. After that, if found to be in the public interest, a court may enter the proposed final judgment.

A 'win' for home buyers

Typically, when a homeowner puts their home up for sale, they agree to pay a commission -- often 5% to 6% of the sale price. The buyer's agent and the seller's agent agree to split the commission, usually 2.5% to 3% each, with some of that possibly going to a broker as well.

A home buyer does not pay up front for the services of seeing homes and purchasing one, and currently may be told that service is "free", but that is likely to change.

"Buyer's agents are going to have to start telling their buyers 'This commission doesn't pay me enough money for the services I offer, let's have an upfront conversation about what I charge,'" said Glenn Kelman, chief executive of Redfin. "And if you're delivering premium service, and want to charge a higher fee, say so. If you are more efficient and can lower your fee, that should also be intelligible to the consumer."

"It is a win for consumers overall," said Kelman. "There is an affordable housing crisis and the power of technology is there to make markets more efficient, but there is no way to make that work if no website can show the fees paid to an agent."

Kelman said Redfin aims to help buyers save money using a model in which buyers receive part of the agent's commission. But, he said, it has been challenging for buyers to understand Redfin is offering a savings on something many perceive as free.

"Even very savvy, affluent consumers do not understand how a buyer's agent is paid," he said. "Now, when they do, you'll see the same trend whenever there is price transparency: fees come down."