Americans will likely see a drastic drop in the cost of selling their homes after a landmark legal settlement will end the notorious commission system used by real estate agents.

The National Association of Realtors (NAR) agreed on Friday morning to pay $418 million in damages and to amend its controversial rules in order to settle a wave threatening lawsuits.

Experts say the change could cut costs by 30 percent, or around $20,000 on the sale of a $1 million home. 

As it stands, agents in the US make between 5 and 6 percent on the sale price of a home – far more than almost anywhere else in the world.

That’s because for decades they have relied on a controversial mechanism to keep their rates high and extract as much commission as possible from sellers.

Americans will likely see a drastic drop in the cost of selling their houses after a landmark legal settlement

The settlement agreed on Friday will still require approval from a federal court.

In a press release announcing it on Friday morning, the association denied doing any wrongdoing. 

Last year, the NAR and a number of brokerages were found by a federal jury in Missouri to have conspired to force home sellers to pay higher fees.

In the US, rules stipulated by the NAR mean sellers pay between 5 and 6 percent commission – which is split equally between the buyer’s and seller’s agents.

Plaintiffs argued that buyer’s agents were incentivized to steer their clients towards homes whose owners were paying higher broker’s fees because they would then earn more themselves.

Sellers were therefore incentivized to pay higher fees if they wanted their home to be shown to prospective buyers, the jury found.

In the wake of the Missouri ruling came a wave of ‘copycat’ lawsuits across the country.

The NAR is the largest trade association in the US and only its fee-paying members are allowed to call themselves ‘Realtors’. They are also the only people with access to its proprietary database of properties available for sale.

It is through those databases that agents list the amount of commission that is being paid for the sale of a home.