It’s official: A legal settlement that will rewrite the way many real estate agents in the United States get paid has received final approval from a federal judge.
Judge Stephen R. Bough of the Western District of Missouri on Tuesday approved an agreement between the National Association of Realtors and a group of home sellers who sued the real estate trade group over longstanding rules on broker commissions that they say it has enforced. that they have to pay excessive fees.
It was the final step in an eight-month process that was set in motion when NAR, the nation’s largest trade association, agreed to the landmark deal on March 15. It was also largely a formality: Bough gave preliminary approval to the agreement in April. On August 23, the rule changes outlined in the settlement went into effect on August 17, forcing officers across the country to adjust the way they do their jobs.
NAR reached an agreement in March to settle the lawsuit, as well as a series of similar claims, by committing to implement the changes and pay $418 million in damages to a settlement fund. That saved them significant money: In October 2023, a jury agreed with homeowners who argued that NAR’s rules for broker commissions forced them to pay excessive fees when they sold their properties, reaching a verdict that would have required the organization to least to pay. Damage of 1.8 billion dollars.
The trade group, based in Chicago and with 1.5 million members, has exerted enormous influence on the real estate industry for more than a century. But Missouri home sellers, whose lawsuit against NAR and several real estate agents was followed by multiple copycat claims, successfully argued that requiring a seller’s agent to make a commission offer to a buyer’s agent led to high fees, and that a different rule requiring real estate agents to list homes on databases controlled by NAR affiliates stifled competition.
By requiring that commission to be split between seller’s and buyer’s agents, NAR (and the brokers who required their agents to be members of NAR) violated antitrust laws and created an industry-wide default commission that hovers around 6%, according to the lawsuits. Now agents are essentially blocked from discussing commission splits, a shift that some early market research suggests has lowered commissions across the board. Several economists who spoke to the Times expect the changes will eventually lower home prices.
The settlement makes clear that agents can no longer discuss division compensation in the online databases, called the Multiple Listing Service or the MLS, that they use to advertise homes.
In a statement Tuesday evening, NAR President Kevin Sears called the approval “an important moment for NAR members, home buyers and sellers, and the real estate industry.”
“As consumer champions, NAR members have worked tirelessly to implement the practice changes the settlements needed and to guide consumers through this transition period,” he said. “The principles of transparency, competition and choice are at the core of the settlement agreement and allow real estate professionals and consumers to negotiate the services and compensation that work for them.”
But even as NAR has moved to implement the rule changes across the industry, NAR’s legal team and leadership have encouraged members to maintain the status quo and move the compensation discussions to another location.
That guidance led to a flurry of conversations among agents about how exactly to discuss compensation. Facebook groups for agents are filled with conversations about how to keep talking about split commissions, ranging from calling each other to posting coded messages about commission rates in listing photos.
“If there is one thing I know about members, they will figure out how to communicate the information efficiently to see if there will be any compensation,” Sears said in an official video message distributed on March 23.
These solutions are now also expressly prohibited. After University at Buffalo law professor Tanya Monestier filed a 136-page objection to the settlement earlier this year, prosecutors clarified what types of officer conduct are not allowed.
“Someone will have to force NAR’s hand to disseminate this information,” Monestier said in an interview.
Michael Ketchmark, the Kansas City attorney who served as lead counsel in the lawsuit, warned that agents who try to move the committee meeting to other locations could be opening themselves up to new legal battles. “Anyone who thinks they can continue to set commissions on new websites or side deals is foolish and wrong,” he said. “We will take legal action to enforce the settlement agreement. It’s time to finally make the free market work.”
The Ministry of Justice is also watching and may not be satisfied. After the settlement, a years-long investigation into NAR was reopened. On Sunday, the department released a statement of interest, warning that the settlement would not protect the group from further government investigation.
This article originally appeared in The New York Times.
Get more real estate and business news by signing up for our weekly newsletter, On the Block.
Originally published: