NAR Agrees to Major Rule Changes Beginning in July, Pays $418M to Settle Commission Suits

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.

Notably, the settlement only covers lawsuits filed by sellers. A source familiar with the agreement said that it does not cover a potential class of homebuyers that could still be certified in ongoing, parallel class-action claims. 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.

While the settlement will need to be approved by a judge, the broader real estate industry will be forced to quickly digest significant—though hardly unprecedented—changes to their business, with the potential effects on revenue, commissions and operational structures still theoretical.

NAR said 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.

What the settlement isn’t, though, might be just as important. John Featherston, founder and CEO of RISMedia, points out that many mainstream outlets are mistakenly characterizing the settlement as an agreement by NAR to lower standard commission rates.

“Statements like this, and much of the foundation of these lawsuits, in my opinion, show just how little the media, the lawyers and their clients who brought these suits to court either did not understand our industry, or simply illustrates how these people used the perception of our industry to leverage their positions and extract an astronomical settlement,” he says.

While the industry has long resisted many of the changes agreed to by NAR, in recent months, more and more brokers and leaders in real estate have begun to accept that change is coming, and that adaptation, not annihilation, is the likeliest outcome.

Jessica Edgerton, chief legal officer of Leading Real Estate Companies of the World, says that this morning’s NAR settlement is progress.

“I’m conservatively optimistic that we are leaning in the right direction, but I think there is a lot of work that will need to be actively done.” She adds that she is not surprised about the forthcoming rule changes. “Those rule changes are what we’ve been anticipating and preparing for; it’s what we’ve been telling our folks to be doing for months and years.”

That aside, Edgerton warns against the potential other shoe to fall. “My main concern in terms of the initial settlement is that it does not address the buyer-side cases. Until that gets directly addressed, we are still very much in the thick of it.”

Those cases include one consolidated, national suit that is seeking to encompass all homebuyers going back to 1996. That lawsuit recently took a major step forward, and could potentially implicate all the major real estate brokerages and NAR regardless of previous settlements.

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 he believes 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.

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.

On today’s announcement by NAR, Art Carter, Chief Executive Officer of CRMLS, the nation’s largest Multiple Listing Service, sent RISMedia the following statement:

“CRMLS has been anticipating these possible outcomes of the proposed NAR global settlement for quite some time, and we are well prepared to execute the proposed changes,” Carter stated. “In the short term, it is of the utmost importance to support CRMLS users, communicate with complete transparency, and keep everyone continuously informed.

Carter added, “We support NAR in taking the necessary steps to recognize and take action on what plaintiffs’ attorneys and consumer advocates were asking. CRMLS will continue with the cooperative spirit of our industry to assist and support our agents, brokers, and consumers.”

Carter and Ed Zorn, CRMLS Vice President and General Counsel, issued a video Friday, discussing the possible outcomes of the NAR settlement.

According to another source familiar with NAR’s thinking, the organization was considering filing for Chapter 11 bankruptcy ahead of the settlement, based on the financials of the $1.8 billion judgement handed down in October. The settlement ends any appeal in that case, according to the source.

Featherston, while continuing to decry the lawsuits as deeply misguided and more about enriching lawyers than helping consumers, adds that it is “time for our industry to move on and repair whatever reputational damage (real estate) may have suffered during this ordeal.”

“The damage to our industry and several entities that chose to settle prior to today’s NAR decision, is already history. The attorneys will divide up the spoils, with an alarmingly minor amount earmarked for each consumer on whose behalf these lawsuits were brought,” he says. “But the mission hasn’t changed. Perhaps the clarity and definition of what we actually do for our clients will lead to a better relationship and a clear understanding of our value.”

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 on March 13 with more information about the settlement agreement, and again at 1:45 p.m. eastern time with more industry commentary.

This is a developing story. Stay tuned to RISMedia for updates.

Source link

About The Author

Scroll to Top