National Association of Realtors to pay $418M, settling lawsuit over agent commissions

The Chicago-based National Association of Realtors agreed Friday to a settlement that could affect Americans’ cost to buy or sell homes.

The association — resolving claims over broker commissions — intends to pay $418 million over four years and to implement rules that ensure agents’ commissions are negotiable.

The settlement, subject to court approval, would end litigation that last year brought a staggering $1.8 billion verdict against the association and could have been tripled under U.S. antitrust law.

Plaintiffs in the case alleged association rules for putting homes on various multiple listing services in effect fixed commissions at high rates and discouraged sellers from seeking better terms. In its settlement, the NAR did not admit wrongdoing.

Other litigation continues against the NAR, which has 1.5 million members and broad control over access to MLS systems. Plaintiffs said the settlement sets up a framework to resolve those disputes.

Broker commissions are paid by home sellers. The commissions typically are in the range of 5% to 6%, $20,000 or more on a $400,000 sale. When a buyer is represented by a Realtor, the agent usually agrees to split the commission with the seller’s agent.

Compensation offers have been listed on the MLS, but the settlement forbids that practice.

“For far too long, home sellers have faced a system recognized by many as blatantly unfair. Individual sellers often feel powerless to negotiate a better deal for themselves given the risk that offering lower commissions will cause brokers to steer buyers to other properties,” Robert Braun, a lawyer for the plaintiffs and partner at Cohen Milstein, said in a news release.

“This class action and settlement provide justice for our clients and will require important changes that help future home sellers,” Braun said.

The association’s CEO, Nykia Wright, said the settlement helps consumers and removes uncertainty from a potentially long appeal.

“Ultimately, continuing to litigate would have hurt members and their small businesses,” she said in an NAR release. “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.”

Commission practices overseas vary, with prevailing rates in some countries higher than those in the U.S.

Those suing the NAR alleged that U.S. commissions have remained artificially high despite online systems that reduced the role of buyers’ agents and broadened access to home listings.

Some experts in the industry have said standard commissions could plummet and upend the industry, similar to the way online booking sites disrupted the travel agent business.

But others think changes could be minimal as people adjust to new rules.

“I think it’s going to be a re-education for the buyers and the sellers and the agents,” said Jim Kinney, vice president of luxury home sales at Baird & Warner in Chicago. “Obviously, no one is going to work for free.”

Kinney, who had not seen the settlement terms, said commissions always have been negotiable and arguments against the current system are flawed. “But we’re living in an age of disclosure,” he said.

Stephen Brobeck, senior fellow at the Consumer Federation of America, who has researched the home sales process, said better disclosure will help buyers and sellers, “eventually lowering agent commissions by tens of billions of dollars a year and helping align agent compensation and services rendered. Increasingly, this compensation will reflect agent competence, experience and the effort they make on a sale.”

Brobeck said any impact will take several years to be felt.

Brokers working for buyers would have to disclose commissions in writing, according to the agreement.

The NAR said the settlement affects more than 1 million of its members. It said it does not cover agents affiliated with HomeServices of America and its related companies, which remain in litigation.

Rule changes involving the MLS are supposed to take effect in mid-July. The settlement involves a federal lawsuit filed in Missouri but covering a nationwide class of homeowners.

The association has been roiled by controversies, including charges of sexual harassment against a former president, whose replacement resigned after about four months because of what the organization called a blackmail threat. Its longtime CEO also took early retirement as the association’s troubles grew.