The NAR Settles Lawsuit for $418 Million

The National Association of Realtors (NAR) has agreed to settle commission lawsuits by paying $418 million in damages, as first reported by the New York Times.

NAR’s legal team approved the settlement early Friday, though it’s yet to be filed in court, pending anticipated submission in the coming weeks and subsequent court approval.

This settlement resolves litigation claims from home sellers, but not the ongoing home buyer lawsuits, known as Batton I and Batton II.

General Summary

Alongside the damages payment, the settlement prohibits NAR from establishing rules allowing seller’s agents to set buyer’s agent compensation. It mandates eliminating fields displaying broker compensation on MLSs and bans mandatory MLS subscription for compensation. Additionally, MLS participants working with buyers must enter written agreements. These changes are slated to take effect in mid-July 2024.

Nykia Wright, interim CEO of NAR, emphasized the association’s commitment to benefiting members and consumers, preserving choice, and protecting member interests. She stressed the settlement isn’t perfect but is the best achievable outcome.

The agreement isn’t an admission of guilt, and cooperative compensation remains permissible off-MLS. Buyer brokers still have various compensation avenues, including fixed fees, seller concessions, or a share of the listing broker’s compensation.

A letter to NAR members

In a letter to NAR members, President Kevin Sears highlighted that if approved, the settlement would resolve claims against NAR, state/territorial, and local Realtor associations, along with associated MLSs and brokerages with NAR-affiliated principals with transaction volumes up to $2 billion in 2022.

However, HomeServices of America and other high-volume brokerages aren’t covered. Yet, a mechanism allows them to obtain releases by opting into the settlement terms and paying a fee.

The commission lawsuit saga started in 2019, alleging collusion among real estate industry players, including NAR, to inflate agent commissions. In late October, a Missouri jury found Keller Williams, NAR, and HomeServices of America liable for collusion in the Sitzer/Burnett suit.

Before the trial, Anywhere and RE/MAX settled suits, with Keller Williams reaching agreements in early February 2024.

Besides the commission lawsuits, NAR faces an ongoing legal battle with the Department of Justice over commission rules. The DOJ intervened in the Nosalek lawsuit, expressing concerns over settlement terms. The parties dispute the DOJ’s arguments, with a final approval hearing for settlement agreements set for early May.

Read more: How appraisers can avoid Fannie letter

What This Means for Realtors

Practice Changes

• Consumers retain the option for cooperative compensation off-MLS through negotiation with real estate professionals.
• A new rule will prohibit offers of compensation on the MLS, effective mid-July 2024.

Implications for Members

• Buyer brokers can still be compensated in various ways, except through MLS communication.
• Compensation forms include fixed-fee commissions, seller concessions, or portions of listing broker compensation.

Implications for Home Buyers and Sellers

• Consumer choices regarding real estate services and compensation are preserved.
• Listing brokers can still offer compensation for buyer broker services, but not via the MLS.
• Sellers can communicate concessions through the MLS, excluding those tied to buyer broker payment.

Read more: NAR settlement could hurt first time homebuyers

New Rule about Written Agreements

• MLS participants working with buyers must have written representation agreements, starting mid-July 2024.
• Written agreements clarify services and value for consumers.

Implications for Members, Home Buyers, and Sellers

• MLS participants representing buyers need written agreements before touring homes.
• Such agreements ensure transparency in services and value for consumers.

For more details, you can see the NAR’s full statement

Read more: Impact of dual agency home sale prices

General Discussion

This will likely produce little meaningful change in the industry—all it will do is necessitate the creation of alternate networks by which cooperative compensation is offered; it might be as simple as buying agents having to email the selling agent to ask about cooperative compensation rather than seeing the offer listed directly in the MLS. This will, of course, increase busy work for realtors until a technological workaround is invented; one could imagine realtors using an “automated response email service” where the inquiring agent puts the MLS listing number and property address in the subject line and an email with the offer of cooperative compensation is immediately returned. Eventually “MLS viewing software” will arrive that can automatically make this inquiry and display it for the user while not technically being contained on the MLS.

For what it is worth, the NAR seems to have done an admirable job of protecting its members. However, it is not clear that the resulting agreement has left anyone other than the lawyers bringing the class action better off than they were during the status quo ante. Realtors will have to work harder to achieve the same results but, ultimately business is likely to occur in the same way as it did before, just with more friction. While the existence of buyer’s agent agreements should increase transparency in principle, it is unlikely that anyone ignorant of how real estate transactions happen will suddenly find himself imbued with a new understanding. It is much more likely they will simply sign and continue with life as they did before.

Conclusion

It seems very unlikely that buyers will start paying realtors out of pocket—as this would, effectively, increase buyers’ closing costs. While, economically speaking, costs are shared between buyers and sellers based on the supply and demand curves involved (in the case of real estate the seller writes the check, but the vast majority of the cost is actually passed on to the buyer) the fact that these costs are rolled into the home’s sale price allows the buyer to borrow the portion of the commissions he is really paying.

In short, the lawyers got rich, and the difficulties involved in negotiating a cooperative compensation agreement have increased, but a technological workaround is sure to emerge. That said, the buyers’ lawsuits, Batton I and Batton II, may still hold surprises for the industry.

Read more: NAR vs DOJ. More than a legal battle

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published March 19, 2024