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Last Friday marked 50 years since “May Day” — the day the New York Stock Exchange ended fixed-rate commissions.
Regulators forced the Big Board to let firms like Merrill Lynch compete on fees, leading to lower trading costs, the rise of discount brokers, and a more investor-friendly marketplace. If you’ve ever made a commission-free trade with Fidelity Investments or Robinhood, say thank you to the Securities and Exchange Commission.
Fast forward: The residential real estate market seemed poised for its own seismic shift last year after the National Association of Realtors settled antitrust lawsuits filed by home sellers alleging its rules artificially inflated agents’ commissions.
The plaintiffs’ lawyers said that changes laid out in the agreement would chip away at the longstanding convention of sellers paying a 5-6 percent commission to their broker, who then splits the money — typically 50/50 — with the buyer’s agent. The lawyers argued that sellers often seek to recoup commissions by baking them into asking prices.
Requiring buyers and sellers to pay their own agents directly, they said, would encourage more fee negotiations and help ease upward pressure on home prices.
“This will blow up the market and would force a new business model,” one real estate academic told The New York Times, which broke the settlement story.
What happened: As the spring selling season kicks into high gear, there’s still no May Day-style explosion.
While the NAR agreed to pay $418 million in damages and tweak its rules, the settlement didn’t ban fee-splitting or require buyers to compensate their agents.
It was a major win for the NAR. Its members can still share commissions but must make fuller disclosure of the terms to clients.
With just a few changes, the way we buy and sell homes is largely the same. Nearly eight months after new guidelines took effect, the 5–6 percent rate remains standard. Home prices continue to escalate.
“Not a lot has changed,” said Kim Powers, an agent with Coldwell Banker in Milton. “What has changed is the transparency.”
She was referring to the rule that prospective buyers sign a contract spelling out their agent’s compensation before seeing properties, something Massachusetts hadn’t required before.
Also new: Listing agents must get written client approval before offering to share a commission with a buyer’s broker.
A closer look: There’s a reason the status quo survived.
As part of the settlement, NAR agreed to remove commission-sharing terms from the multiple listing services run by its affiliates.
But agents can still work out splits by text or email, and contracts can specify that a portion of the seller’s fee goes to the buyer’s broker.
“The spirit of the agreement is no collusion among agents,” said Stephen Brobeck, a senior fellow at the Consumer Policy Center, an independent think tank. “There is still a lot of collusion going on.”
- A 5 percent commission comes to $46,500 on a $930,000 house, the median single-family sales price in Greater Boston in March.
- Each agent keeps about 50 to 70 percent of their take, with the rest going to their brokerage.
What’s next: Brobeck still expects commissions to fall over time, for two reasons.
First, the Justice Department’s antitrust division is investigating industry practices. The probe began after the department withdrew from a 2020 deal that would have required NAR to boost transparency around broker compensation.
“DOJ could put a lot of pressure on the industry. I wouldn’t be surprised if they ended up suing,” Brobeck said. The department didn’t reply to an email seeking comment.
Second, Brobeck said, broker surveys show more buyers are pushing for smaller fees. While commissions have always been negotiable, the new disclosure rules and publicity around the settlement are starting to have the desired impact.
“If a significant minority of consumers do tough negotiations, it will open up the floodgates. The only debate we will have is how quickly that erosion will take place,” he said.
Counterpoint: Theresa Hatton doesn’t share Brobeck’s view.
The chief executive of the Massachusetts Association of Realtors said the commission-splitting system has worked well for decades, especially for first-time and less-affluent buyers who struggle to scrape together a down payment. Piling on a broker’s fee would force many of them out of the market, reducing demand.
“It’s a beautiful theory, but it’s not happening in reality,” she said.
Final thought: It’s easy to say commissions should be lower — until you see how much work a good agent does for their client.
My wife and I have sold three houses since 1990. Our agents earned every dollar of the commissions we paid. I can’t speak for the sellers of the four homes we have bought, but our brokers deserved the share of the fees they received.
Go ahead — haggle with your broker if you’d like. Just know: you don’t get high-touch service at cut-rate prices.
Real estate apocalypse? What new rules for agents mean for buyers and sellers.Powerful realtor group agrees to slash commissions to settle lawsuitsSigns of new life this spring in Greater Boston’s housing market, but it’s not getting any cheaper
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