By: Rhonda Duddy, Esq., Massachusetts and New Hampshire Underwriting Counsel, Stewart Title
The recently proposed NAR settlement comes after several years of litigation. The plaintiffs in the lawsuits are home sellers alleging that NAR and other organizations participated in a conspiracy to raise, fix, maintain, or stabilize real estate commissions in violation of Section 1 of the Sherman Act and corresponding state law.
In 2023 the jury awarded the plaintiffs $1.8 billion. Although NAR denies the allegations, they announced on March 15, 2024 that they wished to settle the matter rather than move forward with an appeal. Defendants Keller Williams, RE/MAX and Anywhere Real Estate settled earlier this year. The sole remaining defendant is Home Services of America.
The total monetary settlement amount that NAR has proposed is $418 million, broken down as follows:
Within 30 days following the filing of the first motion for preliminary approval of the Settlement Agreement, NAR will deposit $5 million into escrow; within 90 days following final approval of the Settlement Agreement, NAR will deposit $197 million into escrow; no later than 1 year after the initial $197 million payment, NAR will deposit $72 million in principal, and no later than 2 years after the initial $197 million NAR will deposit another $72 million in principal. No later than 3 years after the initial $197 million payment, NAR will deposit into escrow the remaining principal, along with interest on each of the installment payments. The obligation to make these installments will be evidenced by a promissory note.
The practice changes NAR has proposed to implement are primarily outlined in Paragraph 58 of the 108-page Settlement Agreement and include the following:
- Eliminate and prohibit any requirement by NAR, any Realtor® MLS, or Member Boards that listing brokers or sellers must make offers of compensation to buyer brokers or other buyer representatives and eliminate and prohibit any requirement that such offers, if made, must be blanket, unconditional, or unilateral;
- Prohibit Realtor® MLS participants, subscribers, other real estate brokers, other real estate agents, and their sellers from (a) making offers of compensation on the MLS to buyer brokers or other buyer representatives or disclosing on the MLS listing broker compensation or total broker compensation;
- Require each Realtor® MLS to eliminate all broker compensation fields on the MLS and prohibit the sharing of the offers of compensation to buyer brokers or other buyer representatives;
- Eliminate and prohibit any requirements conditioning participation or membership in a Realtor® MLS on offering or accepting offers of compensation to buyer brokers or other buyer representatives;
- Agree not to create, facilitate, or support any non-MLS mechanism for listing brokers or sellers to make offers of compensation to buyer brokers or other buyer representatives;
- Require that all Realtor® MLS participants working with a buyer enter into a written agreement (before the buyer tours any home) with the following provisions:
1. The agreement must specify and conspicuously disclose the amount or rate of compensation it will receive or how this amount will be determined;
2. The amount of compensation reflected must be objectively ascertainable and may not be open-ended; and
3. Such a Realtor® or participant may not receive compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer. - Prohibit Realtors® and Realtor® MLS participants from representing to a client or customer that their brokerage services are free or available at no cost to their clients, unless they will receive no financial compensation from any source for those services;
- Require Realtors® and Realtor® MLS participants acting for sellers to conspicuously disclose to sellers and obtain seller approval for any payment or offer of payment that the listing broker or seller will make to another broker, agent, or other representative acting for buyers (such disclosure must be in writing, provided in advance of any payment or agreement to pay to another broker acting for buyers and specify the amount or rate of any such payment);
- Require Realtors® and Realtor® MLS participants to disclose to prospective sellers and buyers in conspicuous language that broker commissions are not set by law and are fully negotiable;
- Require that Realtors® and Realtor® MLS participants and subscribers must not filter out or restrict MLS listings communicated to their customers or clients based on the existence or level of compensation offered to the buyer broker or other buyer representative assisting the buyer;
- Rescind or modify any existing rules that are inconsistent with the practice changes reflected in the Settlement Agreement; and
- Develop educational materials that reflect and are consistent with each provision in these practice changes and eliminate educational materials, if any, that are contrary to it.The Agreement also provides that the practice changes shall not prevent offers of compensation to buyer brokers or other buyer representatives off of the multiple listing service, nor will it prevent sellers from offering buyer concessions on a Realtor® MLS (e.g., buyer closing costs) so long as such concessions are not limited to or conditioned on the retention of or payment to a cooperating broker, buyer broker, or other buyer representative.
The Settlement Agreement further states that these practice changes will terminate 7 years after the class notice date.
The Settlement Agreement is still pending the federal court’s approval. We will continue to keep you updated as more information becomes available. If the Settlement Agreement is approved, the changes will go into effect within 60 days.