Realtors Reach Historic $418m Settlement, Upending Lucrative Commission System

The National Association of Realtors has agreed to settle a barrage of lawsuits by paying $418 million in damages and eliminating a rule underpinning a lucrative commission system at the heart of the housing market.

The deal, which still must be approved in federal court, would mark an end to all the litigation claims the powerful lobbying group is facing from home sellers, according to NAR. It comes as soaring housing costs and stagnating home sales have caught the eye of the White House.

The association, which could still face an investigation by the Justice Department, had faced a wave of legal challenges over its “cooperative compensation” policy, which requires sellers’ agents to provide a blanket offer of compensation to buyer-brokers to be able to show the home on the Realtors’ Multiple Listing Service, where 88 percent of sellers listed homes for purchase last year.

Critics say the system locks in high commissions — typically the agents for the seller and buyer split a commission of 5 percent to 6 percent — that inflate the cost of housing even as technology has allowed consumers to find homes online.

The trade association, which represents 1.6 million real estate agents nationwide, said in a statement Friday that it continues to deny wrongdoing on the rule.

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers," said Nykia Wright, NAR’s interim CEO. "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 rule changes will take effect in July if the deal is approved. The agreement could bring commissions down by between 25 and 50 percent later this year, according to a research note by Jaret Seiberg of TD Cowen Washington Research Group. NAR said commissions will not fall significantly since they are set by the market.

The changes mark “a big step forward for consumers,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America and longtime critic of the compensation rule.

The settlement will release NAR from a jury verdict in Missouri finding NAR and two corporate brokerages liable for $1.8 billion in damages.

Michael Ketchmark, lead attorney for the plaintiffs in that case, cheered the deal.

“The reset button was hit today in the housing market,” Ketchmark said. “Homeowners are no longer required to make offers of compensation to buyers' agents when they’re selling a home in our country. The $1.8 billion verdict we obtained made this possible, and it will bring about tremendous benefits to anyone who owns a home or dreams of owning one.”

The rule changes would benefit sellers more than buyers. NAR and its allies had warned in the past that asking buyers to pay their agents’ commissions directly up front could hurt first-time and minority home buyers who already have trouble scraping together a down payment.

DOJ did not immediately respond to a request for comment on whether the deal would impact its investigation of NAR.

The Realtors had reached a settlement with the Trump-era DOJ to end a sweeping investigation in November 2020, but the Biden administration withdrew from the deal less than a year later. A court rejected the withdrawal, and DOJ challenged that ruling. The appellate court in Washington will decide whether the agency can proceed with the probe.