NAR changes commissions rules with $418M settlement

The National Association of Realtors will change some of its commissions rules after agreeing Friday to pay $418 million to settle home sellers' litigation claims.

The association said it will prohibit offers of compensation to be made on Multiple Listing Services and mandate written agreements between Realtors and clients. Commissions can still be offered outside MLSes. The rules will go into effect in July, while the settlement absolving NAR of various home seller lawsuits is subject to court approval. 

The agreement won't affect commissions payments themselves, attorneys on behalf of NAR emphasized Friday.

"The expectation that people have that there's going to be a significant impact on commissions is not our expectation," said a lawyer Friday morning on behalf of NAR. "Our expectation is that commissions are set based upon local market conditions and the discussions between brokers and their clients, and that will continue with or without the settlement."

As details of the settlement were unfolding Friday, mortgage industry trade groups said they were monitoring the news. The Mortgage Bankers Association said it would watch for commission updates, while the Community Home Lenders Association said Friday's announcement was consistent with its previous calls to regulators. 

Marty Green, a principal at Polunsky Beitel Green and veteran industry attorney, said the industry will be in transition for several months as market players digest multiple upcoming settlements. 

"This uncertainty impacts not just the real estate community, but also consumers, as mortgage underwriting guidelines have looked at real estate commissions based on how they have historically been paid," he said in a statement Friday. 

The organization's over 1 million members already offer various agent compensation structures such as flat fees, its attorneys said. Counsel also disputed earlier media reports suggesting commission fees would be reduced. They noted commissions in the Kansas City area, the focus of last year's trial, varied and weren't always the traditional 6% of a home sales price. 

NAR chose to settle to end uncertainty and liability risks among its members, mired in numerous lawsuits similar to the Sitzer/Burnett case. The association mulled filing for Chapter 11 bankruptcy protection, as it couldn't have afforded a bond payment it would have to make during an appeal of the Sitzer/Burnett case. 

A successful appeal would have also only prompted a new trial, prolonging the uncertainty for Realtors, attorneys said. 

The announcement leaves HomeServices of America as the sole remaining defendant who has yet to settle claims from last October's $1.78 billion verdict against real estate players in a Kansas City case. HomeServices parent Berkshire Hathaway Energy, which was added to pending commissions litigation earlier this month, was not involved in Friday's announcement.

The settlement also covers NAR member-owned brokerages that had transactional volume of $2 billion or below in 2022, and independent contractors who are NAR members at other brokerages. For brokerages with more than $2 billion in transactions, NAR said they can opt for payment under a formula, an amount under mediation or continue to fight any claims. 

MLSes not wholly owned by a local Realtor association aren't also automatically covered but can buy into settlement coverage under a separate Massachusetts case, in which an MLS is poised to finalize an agreement with consumers. 

Should Friday's settlement be approved, NAR will pay the $418 million to home seller plaintiffs over four years. The agreement, according to attorneys, contains around a dozen other rules changes that weren't published Friday; the court filing is expected in a few weeks, NAR said. NAR will also continue to battle separate lawsuits from home buyers, who are not a part of the class tied to Sitzer/Burnett.

Friday's news also didn't mention the Department of Justice, which is attempting to reopen an investigation into NAR. Feds are awaiting a U.S. Circuit Court's decision, expected later this month, regarding its effort. The DOJ last month also criticized the proposed settlement between an MLS and consumers in Massachusetts, calling for the abolition of commissions altogether.