Who's out: The brokerages not covered in the NAR settlement

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More than 90 real estate brokerages would not be covered under the $418 million settlement agreement the National Association of Realtors reached with the plaintiffs in major antitrust commission suits nationwide, though most do have the option of buying in to the deal.

The proposed settlement, which has not received final approval from the court, would settle claims from a case known as Sitzer | Burnett as well as others against NAR, for more than 1 million (or about two-thirds) of its members, all state and local Realtor organizations, all multiple listing services owned by Realtor associations, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or less, per the T360 Real Estate Almanac.

“[The $2 billion] was a negotiated number with NAR and it seemed to be the number that made sense,” Michael Ketchmark of Ketchmark & McCreight, lead counsel for the Sitzer | Burnett plaintiffs, told Inman.

The plaintiffs still wanted bigger companies to pay their share, according to Ketchmark.

“The focus is on the large corporate real estate brokers,” he said. “That seemed to be the logical place for the cut-off. The biggest thing is that they need to agree to these practice changes and they need to agree to change the way that they’re doing things.”

Under the proposed settlement, NAR would agree not to create rules that allow listing agents to set compensation for buyer brokers, and offers of compensation wouldn’t be displayed in Realtor-affiliated multiple listing services.

Brokers would be required to work with buyers to enter into written buyer representation agreements before touring homes and could still negotiate pay via fixed-fee commissions paid directly by consumers, concessions from sellers or a portion of the listing broker’s compensation.

Regarding the $418 million NAR would have to fork over, under the proposed deal, 30 days after the motion for preliminary approval of the settlement agreement is filed, NAR would deposit $5 million into an escrow account that would serve as a settlement fund. Should the settlement receive final approval, NAR would have to deposit $197 million into the escrow account within 90 days of that approval. Within three years of that $197 million payment, NAR would have to deposit $72 million per year into that account, plus interest.

However, according to the Almanac, 93 brokerages would not be automatically covered by NAR’s deal, among them some of the biggest names in real estate including Compass, eXp Realty, Douglas Elliman, Redfin, Howard Hanna Real Estate, @properties, HomeSmart, Weichert Realtors, United Real Estate, William Raveis, Fathom Realty, The Real Brokerage, John. L. Scott Real Estate, Brown Harris Stevens, Realty One Group, The Agency, and Baird & Warner.

Many of the brokerages not automatically covered are current defendants in the commission lawsuits that proliferated after a landmark verdict in October in Sitzer | Burnett awarded $1.78 billion in damages to about 500,000 Missouri homesellers after a jury found that the NAR, Keller Williams, RE/MAX, Anywhere, HomeServices and two of its subsidiaries, BHH Affiliates and HSF Affiliates, conspired to inflate broker commission rates.

These are the brokerages with more than $2B in annual sales volume in 2022 that are not automatically covered by the settlement agreement:

Source: Real Estate Almanac

According to Ketchmark, the Almanac’s list “is a pretty good guidepost for the industry to see who’s covered by what,” but it doesn’t show all the brokerages that have already made deals to resolve the cases.

“Every single day, brokerages are reaching out to us and setting up mediations and reaching resolutions of these cases,” Ketchmark said.

“As you would expect, it takes time, from the time when we reach a settlement to where we get it finalized. So when agents are looking at that and wondering if they’re covered, oftentimes, they might be, it just hasn’t made it to the list yet.”

The proposed NAR deal includes a mechanism by which all but those affiliated with HomeServices of America — whose companies are the only ones still fighting the Sitzer | Burnett commission suit — can buy into the settlement.

Asked how many brokerages have reached out saying they want to buy in, Ketchmark said he wasn’t able to share details.

“My phone is ringing off the hook is all I can say,” Ketchmark said. “Quite a few of these companies are publicly traded, so there’s SEC regulations that are in place that govern what I can and can’t say, and there’s federal rules in the court system that govern what I can and can’t say.

“But this is something that has the attention of the industry, and brokerages that care and that are concerned about protecting their members are moving swiftly to find a resolution to this.”

Under the settlement’s “Appendix C — Brokerage ‘Opt In’ Agreement,” brokerages not automatically covered by the deal have two options:

• Option 1: Within 120 days after the NAR settlement is preliminarily approved by the court, deposit into an escrow account an amount equal to 0.0025 multiplied by the brokerage’s average annual total transaction volume over the most recent four calendar years. For instance, a brokerage with $2 billion average annual total transaction volume would be required to pay $5 million.
• Option 2: If a brokerage has a “good faith belief” that it does not have the ability to pay the amount required under Option 1, the brokerage agrees to participate in a non-binding mediation with the plaintiffs’ attorneys within 110 days after preliminary approval of the settlement — at the brokerage’s cost.

“I think that the goal in the industry is going to be to find a find a way to button this up and get releases for everybody and that is what NAR tried to do,” Ketchmark said.

“I’ve been talking with a lot of the defense lawyers and a lot of the leadership in these brokerages and I think it’s important for them to know that NAR and the lawyers for NAR fought hard for them.

“They’ve put in place a mechanism for them to reach resolution. The folks that are out there who don’t have a release, there’s a vehicle set forth in the settlement with NAR for them to accomplish that. We’re literally every day setting up meetings and scheduling mediations to get that accomplished.”

There seems to be confusion from at least one of the brokerages about whether it is eligible for the buy-in. Howard Hanna spokesperson Lindsay Kovach told Inman, “As I am sure you are aware, we are a defendant in Umpa, and none of the Umpa defendants are eligible for the buy-in, per paragraph 18h.”

But according to Ketchmark, the defendants in Umpa and another commission case called Gibson “are absolutely eligible to participate. They just need to get a hold of us. That’s a narrow reading of things.”

“Howard Hanna would absolutely be eligible to opt into the settlement and join in if they agreed to follow the practice changes and reach a monetary settlement,” he added.

“We’re willing to engage in settlement discussions with any of the brokerages and any of the defendants in any of this litigation. Our main focus is, are they willing to change the way they’re doing things and are they willing to return some of the money that we believe was wrongfully taken?”

Compass, United Real Estate, William Raveis, Fathom Realty, John L. Scott Real Estate and Brown Harris Stevens declined to comment for this story.

Redfin, Douglas Elliman, The Agency, The Real Brokerage, HomeSmart, @properties and Weichert Realtors did not respond to requests for comment.

“We have reviewed NAR’s proposed settlement and are currently evaluating our options and next steps,” said Laura Ellis, chief strategy officer and president of residential sales at Baird & Warner, in a statement.

“Once we have completed our assessment and decided on the best course of action for our brokerage, our agents and our clients, we will share it as appropriate.”

Jennifer Zimmerman, spokesperson for eXp Realty, told Inman, “We are confident in our legal position but cannot share specifics while we are before the courts.”

Realty One Group CEO Kuba Jewgieniew told Inman, “This is a developing story. We’ll comment very soon.”

Email Andrea V. Brambila.

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