Judge approves settlement that changes rules for real estate agents

It’s official: A legal settlement that will rewrite the way many real estate agents are paid in the United States has received final approval from a federal judge.

Judge Stephen R. Bough of the Western District of Missouri on Tuesday approved a settlement between the National Association of Realtors and a group of home sellers who sued the real estate trade group over its longstanding rules on agent commissions , which they say forced them to pay excessive fees.

It was the final step in an eight-month process that began when NAR, the nation’s largest trade association, agreed to the historic deal on March 15. It was also largely a formality: Bough gave preliminary approval to the deal in April. Aug. 23, and the rule changes detailed in the regulations took effect Aug. 17, forcing officers across the country to begin adjusting how they do their jobs.

NAR reached an agreement in March to settle the lawsuit, along with a series of similar claims, agreeing to make the changes and pay $418 million in damages to a settlement fund. This saved them a lot of money: in October 2023, a jury ruled in favor of owners who claimed that NAR’s rules governing agent commissions forced them to pay excessive fees when they sold their properties, and reached a verdict that would have required the organization to pay at least $1.8 billion in damages.

This Chicago-based trade group with 1.5 million members has had immense influence on the real estate industry for more than a century. But Missouri home sellers, whose lawsuit against NAR and several brokerages was followed by multiple copying claims, successfully argued that requiring the seller’s agent to make an offer commission to the buyer’s agent led to inflated fees, and another rule requiring agents to list homes on databases controlled by NAR affiliates stifled competition.

By requiring that the commission be split between the seller’s and buyer’s agents, NAR (and the brokerages that required their agents to be members of NAR) violated antitrust laws and created a industry-wide standard commission. sector which hovers around 6%, according to the lawsuits. Now, agents can virtually no longer discuss commission splits, a change that has driven down commissions across the board, according to some early market surveys. Several economists who spoke to the Times expect these changes will eventually lower housing prices.

The settlement makes clear that agents can no longer discuss sharing compensation on online databases, called multiple listing service or MLS, that they use to list 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 required by the institution and guide consumers through this transition period,” he said. “The principles of transparency, competition and choice are at the heart of the settlement agreement and allow real estate professionals and consumers to negotiate the services and compensation that are right for them.”

But even as NAR decided to implement the rule changes industry-wide, its legal team and leadership encouraged its members to maintain the status quo and move compensation negotiations to another venue.

This advice led to a series of conversations between agents about exactly how to discuss compensation. Facebook groups for agents have been filled with conversations about how to keep talking about split commissions, from calling each other on the phone to slipping coded messages about commission rates into listing photos.

“If there is one thing I know about the members, they will figure out how to communicate information effectively to see if there will be compensation for cooperation,” Sears said in an official video message distributed March 23.

These workarounds are now also expressly prohibited. After Tanya Monestier, a law professor at the University at Buffalo, filed a 136-page objection to the settlement earlier this year, the plaintiffs clarified what type of behavior by officers is not allowed.

“Someone is going to have to force the NAR’s hand to release this information,” Monestier said in an interview.

Michael Ketchmark, the Kansas City attorney who served as lead counsel in the suit, warned that officers seeking to move the commission’s conversation to other venues could open themselves up to new legal fights. “Anyone who thinks they can continue to set commissions on new websites or side deals is stupid and wrong,” he said. “We will take legal action to enforce the settlement agreement. It’s time to finally let the free market work.”

The Justice Department is also monitoring the situation and may not be satisfied. After the settlement, he reopened a year-long investigation into NAR. On Sunday, the ministry issued a statement of interest, warning that the settlement did not protect the group from further government investigation.