“Everything changes now”: Here’s what NAR’s $418M settlement means for broker commissions

Resolution’s scrapped rules spell end of 6% commission

Here’s What NAR’s Landmark Commissions Settlement Means

From left: HomeServices of America's Gino Blefari, Gary Keller, Michael Ketchmark and NAR's Kevin Sears (Facebook, NAR, Getty)

Sheridan Wall

Mar 15, 2024, 6:04 PM

The National Association of Realtors is bowing out of the broker commissions fight.

The trade group agreed to pay $418 million in damages to settle the lawsuits brought by homesellers, according to a press release published Friday. In the deal, which is pending court approval, NAR also agreed to repeal the commission-sharing policy at the heart of the litigation.

It’s the clearest picture yet of how claims from homesellers can change the structure that has long dominated how brokers get paid.

“Everything changes now,” said Michael Ketchmark, attorney for the plaintiffs in Sitzer/Burnett, the first of the antitrust cases to head to trial. “[NAR] has agreed to these massive changes in the way homes are bought and sold, all designed to allow homeowners to take control.”

The Sitzer/Burnett lawsuit is just one of dozens centered on the trade group’s participation rule, which required listing agents to offer commissions to buyer’s agents on Realtor-controlled multiple listing services. The long-standing interpretation of the policy was that brokers could offer as little as one cent, though the group revised it to $0 ahead of the first trial.

While the move marked a huge development for homesellers, Ketchmark acknowledged it leaves a “lot of uncertainty” for brokers.

After the announcement, agents took to social media to express their frustration with the trade group, with some casting doubt on its leadership and others calling for members to leave the organization.

“So nothing changes, except [$400 million] of our dues now pay for this,” Hayden Moran, a Bay Area-agent, wrote in a comment on The Real Deal’s Instagram page. “Great job NAR.”

NAR has repeatedly denied any wrongdoing and continued to defend its commission-sharing policies. The group has routinely defined the system as a hallmark for consumer protection to ensure representation for buyers.

Who’s on the hook for the $418M?

Under the proposed terms, the organization will put the sum in a court-controlled trust fund to be paid out over four years. The money will first cover the costs of the plaintiffs’ attorneys’ fees and then be distributed to members of the class.

News of the settlement comes after NAR repeatedly vowed to appeal the $1.8 billion verdict handed down in the Sitzer/Burnett case in October. At the time of the decision, NAR, Keller Williams and HomeServices of America were named as defendants, but Keller Williams has since agreed to pay $70 million to settle the case.

NAR’s deal leaves HomeServices of America as the lone defendant.

“We’re calling on large corporate real estate companies like [HomeServices of America] to come to the table and agree to be part of the new world that doesn’t follow this compensation that’s rigged against homesellers,” Ketchmark said.

What’s changing?

If approved by the judge, NAR’s agreement will clear the claims against the organization and all of its members, state and local realtor associations and association-owned multiple listing services. It will also release brokerages with a NAR member as principal and a 2022 residential transaction volume of $2 billion or less.

The terms also lay out a path forward for firms and MLSs not included in the initial exemptions. Brokerages with a transaction volume exceeding $2 billion can buy into the settlement by contributing to the court-controlled fund. The payments will be determined through mediation with the plaintiffs or by a formula charging $100 per participant.

MLSs that are not owned or only partially controlled by an association can also opt in to the coverage, with payment amounts to be determined based on the proposed settlement in the case of MLS PIN, a lawsuit over a New England platform brought by homesellers.

Who does the deal apply to?

The deal comes with a few notable exceptions, namely NAR’s former co-defendant: The agreement doesn’t extend to HomeServices of America or any of its agents.

It also doesn’t apply to the class-action claims brought by homebuyers, including an Illinois-based lawsuit known as Batton II. The complaint, filed just days after the Sitzer/Burnett verdict, names Compass, Redfin, Douglas Elliman, eXp and two other brokerages as defendants.

What’s changing for brokers?

Under the terms, NAR is also barring listing agents from making offers of compensation to buyers’ agents through the MLS. Commission negotiations can still take place externally.

The rule change is designed to allow sellers to more effectively negotiate commission rates with listing agents without fearing that lower offers will prevent buyer’s agents from showing their homes to clients.

“For far too long, home sellers have faced a system recognized by many as blatantly unfair,” said antitrust attorney Robert Braun in a press release. “Sellers often feel powerless to negotiate a better deal for themselves.”

Braun and his firm, Cohen Milstein, represent the plaintiffs in the Illinois-based lawsuit known as Moehrl.

Buyer’s agents affiliated with association-owned MLSs will also be required to use buyer’s agreements to spell out the services they provide and their expected commission rate.

The rule changes will take effect mid-July.

Before the Sitzer/Burnett case went to trial, former defendants Anywhere Real Estate and RE/MAX both agreed to settle for $83 million and $55 million respectively. The agreements are still awaiting final approval from the judge, the hearing for which is scheduled on May 9.

What’s to come?

It’s unclear what effect, if any, the rule changes proposed in the settlement will have on the Department of Justice’s probe into the group.

The agency renewed its interest in the organization and its policies under the Biden Administration, withdrawing from a settlement agreement reached under President Donald Trump.

The DOJ is in the process of appealing a lower court decision barring it from reopening its inquiry. At a hearing in December, federal judges signaled support for the agency’s argument and pushed back against claims from NAR’s attorneys.

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