The National Association of REALTORS® (NAR) announced last Friday that it had agreed to pay $418 million and quickly enact major changes to commission structures rather than continue battling an increasingly aggressive and complex legal assault by recent homesellers.
NAR has admitted no wrongdoing, but rather than face more claims that it enacted rules to inflate agent compensation, it will remove any hint of compensation from the MLS, with sources familiar with the negotiations telling RISMedia that change will be implemented this July.
Apart from these changes, there are a bevy of other issues that notably are—or aren’t—included in the settlement that will materially affect the practice of real estate now or later on down the line.
Here are the most important takeaways from the NAR settlement:
The settlement does not include buyer lawsuits
The two lawsuits that are explicitly part of the agreement—known as Moehrl and Burnett—were both filed by recent homesellers, as were most of the copycat cases that popped up in the wake of a $1.8 billion judgment handed down last October. But at least four commission-focused class-action lawsuits filed on behalf of recent homebuyers are currently pending in courts around the country.
These plaintiffs (somewhat paradoxically) are claiming that the same NAR rules and actions that inflated commissions for sellers also harmed buyers. But so far, judges have allowed these lawsuits to move forward, with the largest and oldest—known as Batton—largely surviving attempts by defendants to have it thrown out.
Importantly, no judge has actually certified a class of homebuyers in a commission-related case, which means Batton and the other buyer suits could still fizzle. The judge overseeing Batton also recently ruled that plaintiffs cannot ask for injunctive relief—meaning even a victory for plaintiffs in that case would not automatically result in more rule changes by NAR or big brokerages.
If a judge does certify a class in line with what plaintiffs in Batton have sought, the damages could potentially dwarf everything paid, discussed or handed down so far. Specifically, these recent homebuyers want to include every buyer in the country who purchased a home going back to 1996 (the year NAR enacted the “participation rule” requiring offers of buyer compensation on the MLS).
Jessica Edgerton, chief legal officer for Leading Real Estate Companies of the World®, called the buyer lawsuits a “main concern” in the wake of NAR’s settlement, saying that industry “(is) still very much in the thick of it” until they are resolved.
Not everyone is covered
The settlement protects all NAR members and brokerages with an NAR member as a principal, including REALTOR®-affiliated MLSs and local REALTORS® associations, if they had a transaction volume below $2 billion during 2022. Companies with a transaction volume above $2 billion—if they have a REALTOR® as principal or an MLS participant—have to separately opt-in to the settlement, and depending on whether the entity is a brokerage or an MLS, will have to pay an additional fee themselves to be included in the settlement.
Also, HomeServices of America, the last defendant still fighting Burnett and Moehrl is explicitly and comprehensively excluded from the settlement, with no option to opt-in. That includes all subsidiaries, affiliates and franchises of the company.
The process for MLSs and brokerages to opt-in, if they aren’t covered by the settlement, is also laid out. Besides agreeing to all the rule changes that NAR is agreeing to, brokerages must pay an additional 0.25% of their average annual total transaction volume over the most recent four years, with that money being added to the total settlement fund.
MLSs not affiliated with NAR that want to opt in must pay $100 for each subscriber they claimed in calendar year 2023, using the T360 real estate almanac to define that number.
It is not clear exactly which companies will be excluded in the end, but some of the largest—Compass, eXp, Douglas Elliman, United Real Estate and Weichert, among others—will certainly not be a part of the settlement. Many of those brokerages are still facing Burnett copycats, and are also named in the buyer lawsuit, Batton, which NAR is also still contending with.
A representative from HomeServices previously declined to comment on the settlement.
Rule changes are limited to compensation
While the Department of Justice (DOJ) has taken a broader approach to its investigation of NAR and organized real estate, scrutinizing other MLS rules and industry practice, the settlement agreement does not include any major changes to rules besides those governing offers of compensation.
Notably, “clear cooperation,” the rule requiring agents to list properties on REALTOR®-affiliated MLSs as soon as they begin marketing them, was not changed. That rule was referenced many times during the Burnett trial, and also by the DOJ, which could still seek to continue its inquiry.
Along with removing any offer of compensation from the MLS, NAR agreed to make buyer contracts mandatory, and make sure both those agreements “conspicuously disclose” the amount or rate of compensation the buyer is agreeing to, and where it is coming from. The same applies to listing agreements, and the settlement specifically notes that any offers of compensation to anyone—like a real estate attorney—must be disclosed and approved by the seller in writing, in advance.
Buyer contracts must also be signed before a home tour, the agreement demands.
This does not end “cooperative compensation,” however, as theoretically either party could negotiate a situation where seller agents pay buyer agents a part of their commission.
But the settlement also explicitly allows potential future interventions by the DOJ or other regulators to trump it, saying that NAR “may comply” with “any practice changes that are inconsistent with the practices or changes required by this settlement agreement” if they come from the DOJ, the FTC or another agency with similar authority.
NAR is on a payment plan
A source familiar with NAR’s negotiations told RISMedia the REALTOR® advocacy organization considered Chapter 11 bankruptcy during the last six months, as posting a bond to appeal the Burnett verdict could potentially have been unviable, depending on how much the judge required.
The settlement amount of $418 million will be paid out over the next four years or so, with the bulk coming at the beginning—$197 million paid out 90 days after the settlement is approved, and $5 million as soon as there is a motion for approval of the settlement.
The remaining balance will be paid in $72 million installments every year for three years, with the final payment likely coming in 2028.
NAR also affirmed as part of the agreement that it is “not insolvent within the meaning of applicable bankruptcy laws,” but that is explicitly excluding the potential obligation of the Burnett verdict.
NAR and any opt-ins will have to cooperate against remaining defendants
Similar to settlements agreed to by RE/MAX, Keller Williams and Anywhere, NAR is agreeing to work with the plaintiffs in any relevant cases to provide documents and testimony, and also agreeing to withdraw their own arguments and experts in those cases.
Notably, that includes an upcoming hearing on consolidating all the copycat commission cases—a hearing that could potentially include buyer lawsuits. NAR will be required to withdraw its response in that case.
NAR also agreed to provide six employees to sit for depositions if requested by plaintiffs’ attorneys—more than the other brokerages agreed to in their settlements—and also produce any documents requested by the plaintiffs that are non-privileged.
NAR will also cease assisting other defendants in commission cases, unless it is to comply with a subpoena or other “compulsory” measure.
Any brokerage or entity that opts in to the settlement will have to agree to similar conditions, according to the agreement.
Read the full settlement agreement here.
