The National Association of Realtors agreed last week to pay $418M and change key policies related to broker commissions to resolve multiple class-action lawsuits. The jury in the Missouri Sitzer-Barnett case ordered the defendants to pay almost $1.8B in damages — potentially $5B+ if the court awarded the plaintiffs treble damages.

Policy changes agreed to by NAR include the prohibition of publishing offers of broker compensation on any MLS (Multiple Listing Services) databases affiliated with the NAR.

This is an evolving situation. Unsettled lawsuits are still pending, industry experts are working to interpret the way changes will be applied to practice, and court decisions have not been finalized.

Consumers should research new rules themselves. There are differing opinions on potential outcomes and interpretations of the rules themselves. These are our takes, which will be updated as new information becomes available.

Under the terms of the NAR settlement, brokerages affiliated with NAR can opt in by paying the average of their total volume from 2020 to 2023 multiplied by 0.0025. That’s an insanely expensive equation, and out of line with other settlements.  Qualifying brokerages would have only 60 days after the first motion for preliminary approval is filed to opt in, and pay within 120 days of approval. NAR negotiated a 4 year payment plan for itself.

Compass brokerage chose to negotiate its own settlement terms and will pay $57.5M (as opposed to the projected $570M under the NAR opt-in) to resolve class action lawsuits brought by sellers. The brokerage agreed to reinforce or alter some business practices to ensure clients can more easily understand how brokers and agents are compensated for their services, and will comply with NAR settlement provisions relating to cooperative compensation, and other required terms.

Depending on which media report you believe to be most accurate, there were between 87 and 94 brokerages left out of the NAR settlement.

Keller Williams Realty, Anywhere Real Estate Inc. and Re/Max had already settled in February and, as noted above, Compass (with the top transaction value of all brokerages) settled in late March.

Top-level brokerages still pending settlement as of this post are:

• HomeServices of America
• eXp Realty
• Douglas Elliman
• Redfin
• Howard Hanna Real Estate
• @properties (includes RLAH)
• HomeSmart
• Weichert Realtors 
• United Real Estate
• William Raveis
• Fathom Realty
• The Real Brokerage
• John L. Scott Real Estate
• Brown Harris Stevens
• Realty One Group
• The Agency
• Samson Properties
• The Keyes Company – Illustrated Properties
• BHHS PenFed Realty

Our regional MLS is Bright MLS, a for-profit companiy affiliated with NAR. Read about relationship to brokerages and consumers of real estate below. We’ll be writing our own synopsis soon, and replacing this link.

• The new ‘off MLS rule” for cooperative compensation creates increased potential for inequity, equal housing abuses and preferential treatment. NAR settlement terms specify that there may be no requirement that offers of compensation be blanket, unconditional or unilateral. Publishing commissions on MLS currently has had the positive effect of offering cooperative compensation to all fairly, thereby minimizing abuses;
• Replacing the MLS safeguard with private, case-by-case negotiation eliminates transparency, reduces data collection, and ultimately will result in higher, not lower home prices. Why? Because there’s no way to determine which sales accommodated cooperative compensation, to what degree, or how the compensation was applied. The market will therefore treat the rule changes as irrelevant to price, and continue its upward trajectory.

One positive aspect of the lawsuits and settlement is increased education and disclosure.  This will not be discretionary. Agents who have previously avoided discussion of commissions will now be forced to address the topic. Increased education will not just benefit home buyers and sellers, but the industry as well.

Another positive effect the rule changes may have is that many agents and brokers who weaken the industry by skirting rules and failing to uphold professional standards will likely leave the practice of real estate.

We’ll still be here, helping clients achieve their goals, offering free education on the market, tools for success, and transparency in our practice.

To force one linchpin change to the current system–banning the publishing of commissions on MLS–the plaintiffs in these cases, and the DOJ influencing change, are decreasing transparency and data, promoting greater liability for all parties in real estate transactions and laying a foundation for discrimination and abuses, while favoring the wealthy and enriching attorneys through the inevitible onslaught of litigation.

Massive settlement fees and the promise of a new litigation revenue stream isn’t enough for profit-hungry lawyers, though. In one particularly egregious “article,” a digital media outlet quotes a salivating lawyer from Minnesota (identified as having helped launch the actions that led to the NAR settlement) as saying “Now you can hire an attorney for $1,500, instead of paying a $50,000 commission.”

Not only is that a baseless cost comparison, it’s irresponsibly misleading. Why specify a $1500. fee, is that a fixed price? What services are provided for that fee?  Why compare a $1,500. legal fee to a real estate broker commission of $50k? It’s deceptive. And is that lawyer ignorant of the fact that the option of hiring an attorney (at any price) isn’t new? Home buyers have always had that choice. Most elect not to opt for alternatives to a full-service agent because they know others can’t replicate the services a skilled real estate agent offers.

For fun, let’s game out what happens if you hire a $1500. lawyer 😂 for your transaction in lieu of a licensed real estate agent in Washington DC–one of the nation’s most aggressive, complicated and expensive real estate markets:

• You may find that $1,500. doesn’t even cover a full review of your purchase agreement, let alone the numerous other vital services and functions involved in a transaction. A lawyer wouldn’t be providing you with a needs assessment, help obtaining pre-approvals or funds verifications, education on market practices, trends and options, off-market property search tools, active listing search tools, per-listing research on cooperative compensation and its negotiation on your behalf.
• Lawyers also won’t offer the expert step-by-step guidance from property search to offer, contract, and settlement that licensed agents provide, including neighborhood information, market data and sales trends, property histories, tour coordination and showings, comparative market analysis and property price evaluation, strategy and negotiation guidance, offer packaging and presentation, along with the ten to twenty additional steps that follow.
• Listing agent’s ministerial duties are limited to such acts as sending or forwarding forms, and providing access for inspectors.

So, you’ll be largely on your own, while the seller enjoys the advantage of an experienced representative employed to position the seller ahead of you each and every step of the way. If that sounds disadvantageious, it’s because it would be.

The afore-mentioned article attributes a good deal of hyperbole to unnamed “experts,” and claims the NAR settlement rules put more buyers “in the driver’s seat,” when in fact it accomplishes just the opposite. The majority of buyers won’t have more rights, options or advantages than they did before, they’ll have fewer. And now they face the probability of having to pay broker commission in full or part, out-of-pocket, in addition to down payment, closing costs and other upfront costs like inspection, appraisal and lender fees–while the seller outlays little or nothing.

The article also flippantly suggests that buyers replace agents with ‘low cost’ alternatives like real estate lawyers, appraisers or “someone else” with knowledge of the housing market. Who would that “someone else” be?

Real estate lawyers are not only far from ‘low cost’, they are not licensed to perform the majority of real estate duties. They do not possess the training, licensing, knowledge, tools, software and hardware, or skills, expertise or experience to do so. Appraisers are even less qualified. They also aren’t licensed or trained to perform any duties aside from appraisals. “Someone else” with “knowledge of the housing market” would also not be licensed or equipped to provide the real estate functions and services and valuable guidance real estate agents do.

🤔 Why are lawyers and some media outlets pushing for home buyers to relinquish qualified representation under the guise of affordability? Why should sellers benefit from having a qualified expert advising them and negotiating on their behalf, while buyers go it alone or settle for an unqualified “someone else” who will put them at a genuine disadvantage during their home search and the most expensive transaction of their lifetime?

These lawyers are promoting their own services, egged on by inept media outlets who are uninformed, misinformed, or willfully ignorant about real estate practices and laws, the value skilled real estate agents offer, and the scope of our services.

The number of so-called “experts” spinning this topic, or just getting it plain wrong aptly illustrates the importance of hiring an industry professional for your transaction.

The core premise of these class action suits–that artificial inflation of home prices is due to real estate commissions–is largely inaccrate.

The Urban Institute’s Jan. 2024 paper confirmed that home prices are primarily determined by the supply and demand for housing units and by changes to that supply and demand. Commissions, along with every other cost to a real estate transaction, have only minor impact.

Without question, the biggest factor in Washington DC home price inflation is competitive price escalation (bidding wars), a product of low inventory (supply and demand).

We agree with David M Dworkin, President and CEO of the National Housing Conference, the nation’s oldest housing coalition:

“What appears to be clear, is that most of the positive outcomes will be awarded to wealthy, financially sophisticated consumers who are multi-generational homeowners, lawyers involved in the case, and the National Association of REALTORS®, despite their having to pay over $400M in damages. The biggest losers, however, will be low- and moderate-income first-time, and especially first-generation, homebuyers already confused by an often byzantine process tied directly to their financial future.”

• Buyers should monitor the timeframe for class notice and implementation of new rules. Purchasing ahead of implementation affords buyers counting on sellers’ cooperative contributions a better chance of receiving them.
• Buyers who intend to purchase after implementation can track offers of commission vs listing and sold prices in the meantime, to understand market shifts.
• Buyers should choose an agent based on their demonstrated willingness and ability to provide transparency, disclosure, advocacy and education, as well as their skill and experience levels.

In fact, very few of these rules are new. Most simply reenforce pre-existing rules and standards, or ensure that they’re applied to all members.

• Brokers may not make any offers of compensation to a buyer’s agent on MLS or its affiliated sites and multiple listing services must remove any field or mechanism that facilitates this. The intent of this provision includes use of code words or imagery that conveys commission offers (new)
• NAR and MLS may not create secondary sites or use the data they have to facilitate the communication of cooperative compensation (new)
• Buyer brokers and agents may not claim that buyer representation is “free” since it is factored into listing and sold prices (not new)
• All offers of cooperative compensation from listing agents and brokers must be expressly pre-approved by sellers and clearly disclosed to sellers by listing brokers (not new)
• Brokers and agents must disclose to sellers and buyers in conspicuous language that commissions are not set by law and are negotiable (not new)
• Listings may not be filtered by offers of compensation to buyers (not new)
• Multiple Listing Services must eliminate all fields relating to broker compensation (new)
• Agents cannot be compelled to join MLSs to transact or receive payment of commissions (new)
• Subject to jurisdiction, buyers must sign a Buyer Agency Agreement prior to touring properties (or beginning substantive work) with a real estate agent. Such agreements must specify compensation. This rule also notes that brokers may not receive any amount in excess of that specified in the agency agreement, even if offered by the listing side (new).

Section 59 of the NAR settlement offer states that all provisions contained in paragraph 58 of the settlement agreement go into effect ‘as soon as practicable but not later than the class notice’ and terminate 7 years after the class notice date.

The class notice date is expected to be in mid-July, but could fall earlier or later in the year.

Not all real estate brokeratges are members of NAR. While some articles maintain that this settlement will likely apply to real estate agents whether or not they are members of NAR, an official determination has not yet been published.

This post represents the opinion of The Isaacs Team LLC, and is not endorsed by the Compass brokerage or Domo of Compass. Its content is intended as educational, informational, and author opinion, and should not be considered legal, financial or judicial advice or interpretation.