Fed: Requiring buyer agreements has no effect on commissions

A Federal Reserve analysis of real estate commissions from 1995-2023 indicates that the recent NAR antitrust settlement may not significantly impact commission rates. The study found a slight decrease in average commission rates over the past two decades, but this trend disappears when accounting for rising home prices, suggesting that higher prices offset the impact of lower rates; furthermore, the implementation of buyer representation agreements and rebate bans had no statistically significant effect on advertised commission rates. While the NAR settlement's prohibition on advertising commission rates through the MLS could potentially mitigate steering and collusion, workarounds and policy adjustments may limit its long-term effects.

Analysis

A Federal Reserve analysis suggests that the National Association of Realtors’ (NAR) nationwide antitrust settlement may not lead to significant changes in real estate commission rates. The study, examining data from 1995 to 2023, found that while average advertised buyer-agent commission rates declined modestly from approximately 3% in the late 1990s to 2.7% in 2023, this trend is largely negated when controlling for the substantial increase in home prices over the same period. Researchers Rupkatha Banerjee and Andrew Paciorek posit that higher selling prices have insulated agents from the financial impact of lower percentage rates. The analysis also revealed that pre-existing state-level requirements for buyer representation agreements and bans on buyer rebates had no material or statistically significant effect on advertised commission rates, raising doubts about the efficacy of similar provisions within the NAR settlement. Although the settlement introduces a novel prohibition on advertising buyer-agent commissions via the Multiple Listing Service (MLS), which could theoretically curb steering and collusion, the Federal Reserve researchers note that workarounds are already emerging, such as sharing commission information outside the MLS, and NAR has relaxed its Clear Cooperation Policy. These adaptations make the long-term impact on commission structures and business models difficult to predict, despite the persistence of a 6% total commission norm (split between buyer and seller agents) being partially attributed to the challenges low-commission properties face in the market, including longer selling times and reduced cooperation from larger brokerage firms.

Key Decisions for Investors

• Investors should temper expectations for a dramatic, widespread compression in real estate agent commission rates stemming directly from the NAR settlement, given the historical resilience of commission structures and the offsetting effect of rising home prices identified by the Federal Reserve.
• Monitor the practical implementation and enforcement of the MLS commission advertising ban, as the prevalence of workarounds and NAR's policy adjustments will be critical in determining any eventual structural changes to agent compensation models.
• While the industry norm of a 6% total commission may persist, investors should remain alert to potential shifts in market dynamics if the new MLS rules effectively disrupt current referral and cooperation patterns, despite the study suggesting low-commission models have historically struggled to gain significant traction against established full-commission brokerages.