The National Association of Realtors has agreed to pay $418 million in damages to settle the real estate commission lawsuits. The trade group has also agreed to abolish the “Participation Rule” that required sell-side agents to make an offer of compensation to buyer brokers.
Taken together, the settlement and multiple rule changes will reshape how millions of sellers and buyers transact, and how their representatives get paid.
Some analysts and experts say the changes could wipe out billions in agent commissions in the coming years while accelerating a decline in the number of working real estate agents.
Settlement terms
NAR’s legal counsel approved the settlement agreement early Friday morning. It has yet to be filed in court. Lawyers for the trade organization anticipate the settlement will be filed in the coming weeks, however it will still be subject to court approval.
According to NAR, this settlement brings an end to all of the litigation claims brought by home sellers. However, the lawsuits filed by homebuyers, known as Batton I and Batton II, will continue.
The $418 million settlement will be paid over four years. The funds will be deposited into a trust that is controlled by the court. In settling, the plaintiffs in the landmark Sitzer/Burnett case in Missouri agreed to release NAR from the jury verdict. In exchange, the NAR will not appeal the case.
Rule changes for agents and brokers
In addition to the damages payment, the settlement also bans NAR from establishing any sort of rules that would allow a seller’s agent to set compensation for a buyer’s agent.
Additionally, all fields displaying broker compensation on MLSs must be eliminated and there is a blanket ban on the requirement that agents subscribe to MLSs in the first place in order to offer or accept compensation for their work.
The settlement agreement also mandates that MLS participants working with buyers must enter into a written buyer broker agreement. NAR said that these changes will go into effect in mid-July 2024.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals,” Nykia Wright, the interim CEO of NAR, said in a statement. “Ultimately, continuing to litigate would have hurt members and their small businesses. While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances. It provides a path forward for our industry, which makes up nearly one-fifth of the American economy, and NAR. For over a century, NAR has protected and advanced the right to real property ownership in this country, and we remain focused on delivering on that core mission.”
The trade group also noted that the settlement agreement is not an admission of guilt and that the practice of cooperative compensation is still allowed as long as it is pursued off-MLS.
According to the NAR, buyer brokers still have a variety of ways to be compensated, including via a fixed-fee commission paid directly by the buyer, concessions from the home seller or a portion of the listing broker’s compensation.
Large brokerages must fight their own battles
In a letter to NAR members obtained by HousingWire, trade group president Kevin Sears noted that if approved, the settlement agreement would resolve all claims against NAR, as well as all state/ territorial and local Realtor associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below.
“NAR fought to include all members in the release and was able to ensure more than one million members are included. Despite NAR’s efforts, agents affiliated with HomeServices of America and its related companies—the last corporate defendant still litigating the Sitzer-Burnett case—are not released under the settlement, nor are employees of the remaining corporate defendants named in the cases covered by this settlement,” Sears wrote in his letter.
While the agreement does not cover HomeServices of America or other brokerages with a total transaction volume of over $2 billion in 2022, NAR said it does provide a mechanism for all brokerages and non-Realtor owned MLS to obtain releases from these lawsuits if they wish to take that route. For MLSs that choose to use the release mechanism, Sears’ letter notes that they will have to opt into the MLS practice changes that are a part of the agreement and pay a per-subscriber fee to the overall Settlement Fund.
Who’s still on the hook?
The real estate industry commission lawsuit struggles began in March of 2019, when the Moehrl commission lawsuit was first filed in Illinois. A month later, the Sitzer/Burnett suit was filed in Missouri.
These, as well as the other commission lawsuits, allege that real estate industry players, including NAR and many large national firms, have colluded to artificially inflate real estate agent commissions. The lawsuits take aim at NAR’s Participation Rule which requires listing brokers to make a blanket offer of compensation to the buyer’s broker in order to list a property on the MLS.
In late October, a Missouri jury in the Sitzer/Burnett suit found Keller Williams, NAR, and HomeServices of America liable for collusion. So far, no other commission lawsuit trials have taken place.
Prior to the trial, Anywhere and RE/MAX settled the Sitzer/Burnett, as well as Moehrl and Nosalek suits. Keller Williams reached a settlement agreement in these and other lawsuits in early February 2024.
In addition to paying a collective $208.5 million, in their settlement agreements, the three national real estate firms agreed to no longer require agents to be members of NAR, or follow NAR’s Code of Ethics or the MLS Handbook, as well as practice changes, including that the firm will require or encourage agents to make it clear to clients that commissions are negotiable, that agents will have the freedom to set or negotiate commissions as they see fit, and that agents will not be required to make offers of compensation or accept offers of compensation from cooperating brokers.
All three of the settlements have received preliminary approval from Kansas City-based U.S. District Court judge Stephen Bough. A final approval hearing for the settlement agreements is set to take place in early May.
In addition to the commission lawsuits, NAR has also been locked in an ongoing legal battle with the Department of Justice over its commission rules. In early October 2023, the DOJ intervened in the Nosalek commission lawsuit — in which NAR is not a defendant — claiming to have “significant concerns” over the terms of a settlement agreement the plaintiffs reached with defendant MLS Property Information Network (MLS PIN).
After objecting to two amended settlement agreements, the DOJ filed a statement of interest in the suit in mid-February 2024. In its statement, the DOJ advocated for an end to the practice of cooperative compensation. On Tuesday, Judge Patti B. Saris, who is overseeing the suit, granted a joint motion filed by MLS PIN and the plaintiffs to file responses to the DOJ’s statement, as the parties said they “dispute the factual and legal arguments made in the DOJ’s Statement of Interest.”
James Kleimann contributed reporting.