HGAR Stages Informational Session on $418-Million NAR Broker Lawsuit Settlement

WHITE PLAINS—To no one’s surprise since it is among the top topics of discussion in the real estate industry along with hoped-for interest rate cuts, the meeting room at the headquarters of the Hudson Gateway Association of Realtors was filled to capacity on April 3 to learn the latest on the National Association of Realtors’ broker commission lawsuit settlement and its implications for the real estate industry going forward.

The program was presented by HGAR’s Broker-Owner-Manager Committee, which is co-chaired by Rey Hollingsworth Falu and Tanya Riggs, and featured Matt Troiani, Senior Counsel, Director of Legal Affairs for the National Association of Realtors. Other presenters included: New York State Association of Realtors Director of Legal Services S. Anthony Gatto, Esq.; HGAR Chief Executive Officer Lynda Fernandez and Brian Levine, General Counsel and Professional Standards Administrator for HGAR.

The National Association of Realtors announced on March 15 a proposed settlement agreement that if approved by the court, would end litigation of claims brought on behalf of home sellers related to broker commissions. NAR has agreed to settle the cases for $418 million.

The agreement, if finalized, would release NAR, over one million NAR members, all state/territorial and local Realtor associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below from liability for the types of claims brought in these cases on behalf of home sellers related to broker commissions.

The session covered a host of topics including: a review and update from NAR on the settlement litigation and its impact on Buyer Agency, Exclusive Right to Sell, as well as state regulatory issues concerning the Property Condition Disclosure Statement and MLS listing form changes, presented by NYSAR’s Gatto and HGAR’s Levine.

NAR’s Troiani told the attendees that the association is trying to clear up misconceptions reported by some media outlets in connection with the settlement.

“We want to acknowledge the false representation or suggestion we are seeing in the media that NAR requires a standard 6% commission,” Troiani said. “We are seeing many journalists and others get this point wrong and it is important to reinforce the fact that NAR does not and has not set commissions. Commissions continue to be negotiable.”

He offered the following highlights of the NAR settlement:

Release of Liability 

• The agreement would resolve claims against NAR, over one million NAR members, all state/territorial and local Realtor associations, all association-owned Multiple Listing Services, and all brokerage entities with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below.
• The agreement provides a mechanism for nearly all brokerage entities that had a residential transaction volume in 2022 that exceeded $2 billion to obtain releases efficiently if they choose to use it.

 Who is Covered by the Settlement?

• If you are a Realtor and are affiliated with a brokerage group that is not discussed below, you are covered (even if your brokerage may not be covered)
• Affiliated with any of the following brokerage groups, and are an independent contractor, you are covered (even if your brokerage may not be covered)—At World Properties, LLC; Compass, Inc.; Douglas Elliman, Inc.; Douglas Elliman Realty, LLC; eXp Realty, LLC; eXp World Holdings, Inc.; Hanna Holdings, Inc.; HomeSmart International, LLC; Howard Hanna Real Estate Services; Real Broker, LLC; The Real Brokerage, Inc.; Realty ONE Group, Inc.; Redfin Corporation; United Real Estate; and Weichert, Realtors.

Note: The only entity not covered by the settlement and who at present cannot opt into the settlement is HomeServices of America and its related companies—the last corporate defendants in the broker commission lawsuits.

 Written Agreements for MLS Participants Acting for Buyers

• The settlement provides that MLS participants working with buyers must enter into written agreements with those buyers.
• This change will go into effect in mid-July 2024.

Settlement Payment 

• Under the terms of the agreement, NAR would pay $418 million over approximately four years.
• NAR’s membership dues for 2024 and 2025 will not change because of this payment.
• Troiani said he does not expect a final decision to be rendered on the court settlement until December 2024 at the earliest.

NAR Continues to Deny Any Wrongdoing 

• The settlement, which is subject to court approval, makes clear that NAR continues to deny any wrongdoing in connection with the MLS cooperative compensation model rule (MLS Model Rule) that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation.

 Offers of Compensation Prohibited from the MLS

 NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS.

• There will continue to be many ways in which buyer brokers could be compensated, including through offers of compensation communicated off MLS—as NAR has long believed that it is in the interests of the sellers, buyers, and their brokers to make offers of compensation—but using the MLS to communicate offers of compensation would no longer be an option.
• The types of compensation available for buyer brokers would continue to take multiple forms, depending on broker-consumer negotiations, including but not limited to:
• Fixed-fee commission paid directly by consumers.
• Portion of the listing broker’s compensation.

This change will go into effect in mid-July 2024.

Written Agreements for MLS Participants Acting for Buyers 

• The settlement provides that MLS participants working with buyers must enter into written agreements with those buyers before touring a home.
• NAR has long encouraged its members to use written agreements because they help consumers understand exactly what services and value will be provided, and for how much.

 Next Steps in the Settlement Process 

• The settlement is subject to court approval, which is a process that NAR expects to take several months or more and will include an opportunity for interested parties to object.
• To opt into the settlement, Realtor-owned MLSs, brokerages above the $2-billion threshold who are opting in, and non-Realtor MLSs need to execute an appendix.
• The practice changes will go into effect in mid-July 2024.
• NAR will move to have litigation about the MLS cooperative compensation Model Rule stayed, or paused, as to NAR pending the settlement approval process.

HGAR’s Levine related that NAR reported that as part of the opt-in process there are a number of options available for brokers:

1. A brokerage can elect to pay an amount based on a pre-determined formula based on that brokerage’s residential transactional volume.
2. A brokerage can elect to participate in non-binding mediation within 110 days following the preliminary approval of the settlement.
3. They can choose not to settle.

 Levine added that for non-association MLs, they have three options as well:

1. The MLS can elect to pay an amount based on a pre-determined formula based on the number of MLS participants.
2. The MLS can elect to participate in non-binding mediation within 110 days following preliminary approval of the settlement.
3. They can choose not to settle.

In terms of the new Property Condition Disclosure Statement, which went into effect on March 20, 2024, Gatto and Levine advised that all licensees must use the new PCDS for any “residential property,” meaning any one to four-family improved dwelling being used as a residence or home. It does not include unimproved land, condos, co-ops, or property that is part of an HOA that is not owned in fee-simple by the seller that goes under contract of sale.

In anticipation of the change, the state has provided the new form and HGAR members can find the new form and the old form in the HGAR Document Library. For more information on the Property Condition Disclosure Statement, please go to Levine’s recent column in Real Estate In-Depth.

After the presentations, a lively Question and Answer session concluded the Broker-Owner-Manager event.

Sponsors of the program were: ASAP Mortgage Corp., OneKey MLS, SDK Heiberger LLP Attorneys at Law and O’Donnell & Cullen Property Tax Consultants.