The headquarters of the National Association of Realtors in Chicago. N.A.R. is the largest professional group in the country, with 1.5 million members and more than $1 billion in assets.
Credit...Jamie Kelter Davis for The New York Times

Judge Approves National Association of Realtors Lawsuit Settlement

Following a lawsuit, the National Association of Realtors was ordered to rewrite its rules governing agents’ commissions and pay $418 million in damages.

by · NY Times

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

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

It was the last step in an eight-month process that was set in motion when N.A.R., the nation’s largest trade association, agreed to the landmark deal on March 15. It was also largely a formality — Judge Bough gave preliminary approval to the agreement on April 23, and the rule changes detailed in the settlement took effect on Aug. 17, forcing agents across the country to begin adjusting how they do their jobs.

N.A.R. reached the agreement in March to settle the lawsuit, as well as a series of similar claims, by committing to make the changes and to pay $418 million in damages to a settlement fund. That saved them significant money: In October 2023, a jury had agreed with homeowners who argued that N.A.R.’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.

The trade group, which is based in Chicago and has 1.5 million members, has wielded immense influence over the real estate industry for more than a century. But home sellers in Missouri, whose lawsuit against N.A.R. and several brokerages was followed by multiple copycat claims, successfully argued that requiring a seller’s agent to make an offer of commission to a buyer’s agent led to inflated fees, and that another rule requiring agents to list homes on databases controlled by N.A.R. affiliates stifled competition.

By mandating that commission be split between agents for the seller and buyer, N.A.R. (and the brokerages that required their agents to be members of N.A.R.) violated antitrust laws and created an industrywide standard commission that hovers near 6 percent, the lawsuits said. Now, agents are essentially blocked from discussing commission splits, a shift that has lowered commissions across the board, according to some early surveys of the market. Several economists who spoke to The Times expect the changes will eventually force down home prices.

The settlement makes clear that agents can no longer discuss splitting compensation on the online databases, called the multiple listing service or the M.L.S., that they use to list homes.

In a statement Tuesday evening, N.A.R. 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’s members have been working tirelessly to implement the practice changes required by the settlement and shepherd consumers through this period of transition,” he said. “The principles of transparency, competition and choice are core to the settlement agreement and empower real estate professionals and consumers to negotiate the services and compensation that work for them.”

But even as N.A.R. has moved to implement the rule changes across the industry, its legal team and leadership have encouraged members to maintain the status quo and move compensation talks to another venue. That guidance led to a flurry of conversations between agents about how, exactly, to discuss compensation. Facebook groups for agents have been filled with conversations about how to continue talking about split commissions, ranging from calling each other on the phone to slipping coded messages about commission rates into listing photos.

“If there’s one thing I know about members, they will figure out how to efficiently communicate the information to see if there will be any cooperating compensation,” Mr. Spears said in an official video message distributed on March 23.

Those workarounds are now expressly forbidden, too. After University of Buffalo law professor Tanya Monestier filed a 136-page objection to the settlement earlier this year, the plaintiffs clarified what sort of behavior from agents is not allowed.

“Someone is going to have to force N.A.R.’s hand to disseminate this information,” Ms. Monestier said in an interview.

Michael Ketchmark, the Kansas City attorney who served as lead lawyer in the lawsuit, cautioned that agents who seek to move the commission conversation to other venues may be opening themselves to new legal fights. “Anyone who thinks they can continue to fix commissions on new websites or side deals is foolish and wrong,” he said. “We will take legal action to enforce the settlement agreement. It’s time to let the free market finally work.”

The Department of Justice is watching, as well, and may not be satisfied. After the settlement, it reopened a yearslong investigation into N.A.R. On Sunday, the department released a statement of interest, issuing a warning that the settlement did not shield the group from further government inquiry.

The State of Real Estate

Whether you’re renting, buying or selling, here’s a look at real estate trends.