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July 19, 2024
PI Global Investments
Real Estate

Proposed NAR Settlement Could Put an End to The Real Estate Industry’s Commission Structure

The National Association of Realtors just announced that the largest trade organization in the United States had reached an agreement that would end the troublesome litigation and claims brought by home sellers in the Sitzer/Burnett class-action suits.

Should it be approved by the court, NAR’s agreement would resolve claims against the more than 1 million members of NAR, all state/territorial and local Realtor associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below.

According to a recently released statement from the organization, the agreement makes clear that NAR continues to deny any wrongdoing in connection with the MLS cooperative compensation model rule introduced in the 1990s in response to calls from consumer protection advocates for buyer representation. Under the terms of the agreement, NAR would pay $418 million over approximately four years.

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” NAR interim CEO Nykia Wright said in a statement. “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 timing of the agreement has sparked some incredulity after NAR had previously planned an appeal and vigorous defense against the class-action suits. However, many have speculated that the money for such a continued fight just wasn’t there.

“Ultimately, continuing to litigate would have hurt members and their small businesses,” said Wright. “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, which makes up nearly one-fifth of the American economy, and NAR. For over a century, NAR has protected and advanced the right to real property ownership in this country, and we remain focused on delivering on that core mission.”

Release of Liability

According to the statement, two critical aspects of the deal are the release of most NAR members and industry stakeholders from liability and that cooperative compensation remains a choice for consumers when buying or selling a home.

“NAR also secured in the agreement a mechanism for nearly all brokerage entities that had a residential transaction volume in 2022 that exceeded $2 billion and MLSs not wholly owned by Realtor associations to obtain releases efficiently if they choose to use it,” the statement said.

However, there are some who will not benefit from NAR’s deal. While the organization said they fought to include all members in the release, “agents affiliated with HomeServices of America and its related companies — the last corporate defendant still litigating the Sitzer-Burnett case — are not released under the settlement, nor are employees of the remaining corporate defendants named in the cases covered by this settlement.”

Keeping Compensation Offers Off MLS

Besides the financial payment, NAR promised to put a new rule in place that would prohibit offers of broker compensation on the MLS. “This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals,” the statement said.

The argument for continuing to allow cooperative compensation outside the MLS is one that NAR stands by in almost every public statement: Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers.

Making Compensation Clear

“Further, NAR has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with their buyers. NAR continues, as it has done for years, to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much,” the statement said.

All of these policy changes will go into effect in mid-July 2024.

“NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” said Kevin Sears, NAR President. “NAR is focused firmly on the future and on leading this industry forward. We are committed to innovation and defining the next steps that will allow us to continue providing unmatched value to members and American consumers. 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.” 

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