Realtor Assn. to Pay $418 Million in Lawsuit Over Commission Fees

By Lizzie Kane, Chicago Tribune (via TNS).

The Chicago-based National Association of Realtors will pay $418 million as part of a settlement agreement to resolve litigation against the organization and its members brought on behalf of home sellers related to broker commissions.

The settlement comes after a Missouri federal jury issued a landmark $1.8 billion verdict in October of last year, finding the National Association of Realtors and several large real estate brokerages conspired to artificially inflate commissions on home sales. A similar case was expected to go to trial this year in Illinois federal court.

The settlement resolves NAR’s role in both of those suits plus two other class actions, which are ongoing against other defendants, according to attorneys representing the plaintiffs.

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” said Nykia Wright, interim CEO of NAR, in a Friday news release announcing the settlement. “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.”

The settlement will be paid out over approximately four years and is subject to court approval. The agreement is expected to fundamentally change how homes are bought and sold by removing the assumption that buyers’ and sellers’ agents will split a 5%-6% commission on home sales, which had been standard practice in the industry.

“For years, anti-competitive rules in the real estate industry have financially harmed millions of Americans,” said Benjamin Brown, co-chair of the Cohen Milstein Sellers & Toll antitrust practice group, one of the law firms representing home sellers in the settlement agreement. “This settlement will bring sweeping reforms that will help countless American families.”

The lawsuits claimed the compensation practice for brokers was anti-competitive because it incentivized buyers’ agents to steer their clients toward sellers who were offering higher commission rates in their listings on the Multiple Listing Service, or MLS.

Historically, the seller set the commission rate when listing the home for sale and then paid the fee to their agent, who typically split it 50-50 with the buyer’s agent.

Under Friday’s settlement, MLS listings will be prohibited from including offers of broker compensation. Real estate professionals can still discuss broker compensation with their clients off of the MLS.

Additionally, NAR will require MLS participants working with buyers to enter into written agreements with buyers. These agreements dictate how real estate professionals will be paid and are already in use in Illinois.

Attorneys say they expect the changes will lead to lower commission fees because agents will be forced to compete on service. NAR says its members’ clients have always been able to negotiate.

Around 50 million people will be eligible to receive money from Friday’s settlement, with some individuals also eligible for money from settlements that have been reached against other defendants in the litigation, Brown said.

Brown told the Tribune it will take months for NAR, local MLSs and brokerages to put these changes into effect and develop new alternatives and models for broker compensation, predicting that consumers will start to see benefits in at least some markets within a year and others within the next couple of years.

Wright, the former CEO of the Chicago Sun-Times who was appointed interim CEO of NAR in November, said continuing to litigate would “have hurt members and their small businesses.”

“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,” Wright said in the news release.

Real estate firms RE/MAX and Anywhere Real Estate (formerly known as Realogy Holdings Corp.) already agreed to settle both the Missouri and Illinois cases. Anywhere agreed to pay $83.5 million, and RE/MAX agreed to pay $55 million.

Brown’s firm still has ongoing litigation related to broker commissions against HomeServices of America, an affiliate of Berkshire Hathaway, as well as a handful of other real estate groups such as Compass and Redfin.

The litigation has come to a head amid internal turmoil at NAR, which has recently undergone a series of leadership changes. Over the past several months, NAR has seen two presidents and a CEO resign following allegations of sexual harassment against its former president Kenny Parcell.

“NAR is focused firmly on the future and on leading this industry forward,” said Kevin Sears, NAR’s president, in the news release. “This will be a time of adjustment, but the fundamentals will remain: buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care, and diligence to protect the interests of their clients.”

Chicago Tribune’s Brian J. Rogal contributed.

Small Business