Mere hours after news broke that Judge Stephen R. Bough had granted preliminary approval of the National Association of Realtors’ nationwide commission lawsuit settlement agreement, NAR President Kevin Sears took to the stage at HousingWire’s The Gathering to pull back the curtain on how the agreement came about.
“It was a very intense negotiation session and the plaintiffs kept moving the finish line,” Sears said of the settlement agreement creation process.
Despite the challenges, the parties were able to reach an agreement, the terms of which include a requirement for NAR to pay $418 million into a settlement fund. They also bar the trade group from establishing any sort of rules that would allow a seller’s agent to set compensation for a buyer’s agent.
Additionally, all fields displaying broker compensation on MLSs must be eliminated, and there is a blanket ban on the requirement that agents subscribe to MLSs in order to offer or accept compensation for their work.
The settlement agreement also mandates that MLS participants working with buyers must enter into a written buyer broker agreement.
Sears announced that the plaintiffs have asked for a final approval hearing for the settlement on Nov. 26, 2024. In a follow-up interview, Sears told HousingWire that the November approval date will have no impact on the mid-July implementation of the business practice changes outlined in the settlement agreement.
“The biggest influence for the rule changes is class notification,” Sears told HousingWire. “With the class notification going out mid to late August, we need to make sure that the rule changes are implemented by then. The reason being that if we waited until after the class was noticed to change the rules, then there was potentially a time period where there could still be liability, as the crux of the case were the rules that they said led to what the jury found us liable for. So, if we change the rule, then that liability goes away.”
Sears told attendees at The Gathering that some of the most intense negotiations centered around trying to protect as many members as possible.
“The plaintiffs kept moving the finish line and I was sad as president of the National Association of Realtors not to be able to protect everybody, but at the end of the day we realized we need to be able to protect the most people that we can, and in this proposed settlement, that was what we were able to do,” Sears said.
While the settlement protects roughly 1 million NAR members and hundreds of real estate brokerages nationwide, it does not provide protection for firms that recorded more than $2 billion in residential transaction volume in 2022, meaning that the nation’s largest brokerages are not protected.
But the settlement does provide a mechanism for brokerages to opt in to the agreement if they so choose, or they can negotiate their own settlement, as Compass and The Real Brokerage have recently done.
If firms with a transaction volume of less than $2 billion in 2022 (or non-Realtor member agents) wish to obtain the protection of NAR’s settlement agreement, they now have 60 days to join NAR, as per the settlement timeline.
Sears also noted that it was important that the settlement agreement continued to provide consumers with choices in how they can compensate their agents, if they choose to work with a real estate agent.
“Offering cooperative compensation is legal in all 50 states and the four territories that we have Realtor associations, so we didn’t want to usurp state laws,” Sears said.
Sears told HousingWire that news of the settlement agreement achieving preliminary approval was “very satisfying.”
“The sooner that we can get this final approval in, the sooner we can let our agents have this in the rearview mirror and they can continue to work and continue to help consumers navigate what is likely the biggest financial transaction of their lives,” Sears added.
The trade group president was not the only one pleased by the preliminary approval news, as many in the industry feared the Department of Justice would look to jam up the approval process now that the D.C. Circuit Court of Appeals has ruled that the government can reopen its investigation into NAR.
While Sears would not hazard a guess at whether the DOJ will look to get involved, he noted that even if it files a brief in the suit, it is up to the judge to grant the final approval.
“They weighed in on the Nosalek case in Massachusetts and they said they wanted a complete decoupling of compensation — they even floated the idea that buyer reps could work at an hourly rate,” Sears said.
“With the rule changes we are talking about, some of their concerns go away. But the DOJ still cannot stop this settlement. They can weigh in and offer their opinion, and the judge can take that in and do with it what he sees fit, but they cannot stop the settlement based on their advocacy efforts.”
As the November hearing date approaches, Sears said NAR and its members should be focused on making sure the settlement agreement clears this final hurdle. In an effort to take control of the narrative and the information being circulated about NAR, commissions and the settlement agreement, Sears said the group has appointed hundreds of Realtors across the country to be media surrogates.
“When it comes to the national media, as disappointing as the coverage is, what I really care about is the local media,” Sears said, alleging that the The New York Times broke the embargo on the settlement agreement and included false information in its coverage of the news.
“Local media understands what the Realtors in the community do. We are at the PTA meetings, on the Little League fields, volunteering at the local soup kitchen. We are the fabric of the community, and we now have the opportunity to talk with not only elected officials and regulators in our local communities, but also the media about the value that we bring to the transaction,” Sears added.
While the November hearing deadline is still several months off, Sears is already beginning to look to the future.
“We need to make sure that we get this settlement across the finish line for final approval, because if we do that, then it will offer some stability for our membership,” Sears said. “I became president on Jan. 8, and shortly thereafter I was able to have a conversation with the entire staff of the National Association of Realtors, and I just talked about my philosophy.
“As a former athlete, I believe when you are in a slump, what you need to do is get back to basics and focus on the fundamentals, so I believe we need to get back to what our core mission is, which is to make our members more successful.”
