In what will certainly be one of the most important moments and choices in the history of organized real estate, the National Association of REALTORS® (NAR) has chosen to end its legal fight against a flood of commission lawsuits that have roiled the industry over the last five years, paying $418 million in damages and agreeing to eliminate its guidance around commissions.
The New York Times was first to break the story, with the deal not yet finalized.
Big real estate brokerages have already paid a total of $208 million to settle these same claims by recent homesellers, who allege that NAR created and enforced rules in tandem with big real estate companies in order to inflate commissions.
“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,” said Nykia Wright, Interim CEO of NAR in a statement.
Mike Ketchmark, lead attorney for plaintiffs who won an initial judgment of $1.8 billion against NAR, HomeServices and Keller Williams back in October, tells RISMedia that the choice to settle “shows tremendous leadership in helping find a way forward for its members and for the industry as a whole.”
“It’s going to be beneficial for everyone involved in the process,” he said.
Notably, the settlement only covers lawsuits filed by sellers. A source familiar with the agreement said that it does not cover a potential class that could still be certified in lawsuits filed by recent homebuyers. Those lawsuits will continue, the source said.
NAR is also still facing an aggressive Department of Justice (DOJ), which has pushed for changes beyond the scope of even this settlement.
In a statement, NAR did say that the agreement would require the removal of compensation offers from the MLS—something long pushed for by regulators and consumer advocates. The settlement also requires MLS participants to enter into written agreements with buyers.
The settlement covers “all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below,” and negotiated a method for those outside that agreement to pay based on a formula and join the settlement, according to a source familiar with the agreement.
That source added that there are approximately a dozen other changes in the agreement that NAR agreed to, and that everything will go into effect in July. The source said that “clear cooperation,” the rule that requires agents and brokers list properties on NAR-affiliated MLSs as soon as they begin marketing them, was not changed or repealed.
That rule was the subject of another lawsuit directed against big MLSs that also recently settled, and also targeted in the DOJ investigation
Despite all the major shifts coming out of the settlement, Ketchmark says he does not expect there to be any major “turmoil” as the industry adapts.
“Agents who want to help Americans buy and sell homes are going to transition into the new world that’s going to exist, and the free market, and do a great job at it. I’m not worried about that at all,” he said.
When asked about the impetus for these lawsuits and pushing for change in a system that has been around for decades, Ketchmark points to the legal process.
“It’s a product of the power of our jury system. When average Americans got together and sat on a jury and heard the evidence and heard the facts, they demanded accountability, they demanded a change. And to NAR’s credit, they’re listening,” he says.
Broker Anthony Lamacchia, who has been one of the most outspoken members of the real estate community in pushing back against the lawsuits, said he was somewhat disappointed in NAR’s choice.
“Truthfully, I would have preferred to see NAR take this to appeal because I and many experts feel strongly that they would have prevailed, but I can understand them settling given the fact that many just don’t have the stomach to fight on and tolerate the constant media barrage that the plaintiffs counsel has launched on our industry that is full of lies and misinformation,” Lamacchia told RISMedia via email. “In the end, these changes that the plaintiffs attorneys will be taking a victory lap on won’t bring down commissions and actually make things less transparent. This puts the settlement pot over $600 million, which means the plaintiffs lawyers will get paid over $200 million in what is now the biggest legal shake down of an industry in history. The good news is I have no concern about the real estate brokerage business living on and continuing to be alive and well. Buyers and sellers have wanted the assistance of REALTORS® for over 100 years and this won’t change that a bit.”
In its statement, NAR emphasized that the choice to settle was made to end what has been a threat hanging over the industry—and nearly everyone who practices it—for years, and ends that uncertainty.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” said Wright. “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.”
Editor’s note: this story was updated at 11:31 a.m. eastern time with more information about the settlement agreement.
This is a developing story. Stay tuned to RISMedia for updates.
I don’t believe that this ends the uncertainty by any means. The original lawsuit and the threat of those to come exist because the door was open due to the failure of the original legal team to win. And no industry is hungrier for an easy buck than the legal system. Class actions running amuck like the ambulance chasers they are. Now don’t get me wrong, that level of greed exists in every industry. The quick buck at the expense of the people. It’s just more obvious in law. The battle needed to be fought by NAR to show that a significant portion of the real estate industry operates in good faith and in the consumer’s interest. Now, with the settlement, what will the fallout be for the buyers? They were receiving services from agents reimbursed from the sale proceeds through the seller’s side. Should we put that fee for service on the buyer? If so, first-time buyers will suffer the most in a market that has already penalized them through FHA guidelines and restrictions.
In most cases where sellers paid the buyer side commission, it was explained in their listing contract that a portion of their commission would pay for that cooperation. How difficult could that have been to explain to a jury? However, there is some fault to NAR for looking the other way at the “standardized commission rate” that was allowed to lurk in the shadows. And for that, they should be penalized, and that in and of itself may be the reason they felt inclined to settle. However, there is still a great deal to discuss moving forward, especially regarding the buyer representation fees.