Federal Judge Stephen Bough on Tuesday granted final approval to the Chicago-based National Association of Realtors’ $418 million settlement agreement to resolve litigation against the organization and its members brought on behalf of property sellers. houses linked to broker commissions.
He gave preliminary approval to the deal in April.
The payment comes after a federal jury in Missouri returned a historic $1.8 billion verdict in October last year, concluding that the National Association of Realtors and several major real estate brokerages conspired to artificially inflate commissions on home sales. A similar case is expected to go to trial this year in Illinois federal court.
The settlement resolves NAR’s role in these two lawsuits as well as two other class actions, according to lawyers representing the plaintiffs. NAR continues to deny any wrongdoing, according to the association. Some real estate brokerage firms have chosen to resolve their own disputes before and after the NAR agreement.
“This is an important time for NAR members, home buyers and sellers, and the real estate industry,” NAR President Kevin Sears said in a news release Tuesday. “The principles of transparency, competition and choice are at the heart of the settlement agreement and allow real estate professionals and consumers to negotiate the services and compensation that are right for them.”
The payment will be paid on approximately four years. The deal is expected to fundamentally change the way homes are bought and sold by removing the assumption that buyers’ and sellers’ agents would split a 5 to 6 percent commission on home sales, which had been a common practice in the industry.
Group of real estate agents to pay $418 million to settle dispute over broker commission fees
Some of the changes arising from the trial are already in force starting August 17. NAR now requires prospective buyers to enter into written agreements – often called buyer agency agreements – with their agent, stating how the buyer’s agent will be paid. NAR also removed compensation offers to multiple listing service agents. The MLS is the primary tool used by real estate agents across the country to market real estate listings.
If a broker is not a member of NAR or does not use an MLS platform adhering to NAR’s rules, it will not be subject to these rule changes.
The lawsuits claimed that the broker compensation practice was anticompetitive because it incentivized buyers’ agents to steer their clients to sellers who offered higher commission rates in their MLS listings. Real estate professionals can always discuss broker compensation with their clients outside of the MLS.
Historically, the seller set the commission rate when listing the home, then paid the fee to their agent, who usually split it 50-50 with the buyer’s agent.
The lawyers say they expect changes will result in lower commissions as agents will be forced to compete on the service. NAR says its members’ clients have always known how to negotiate.
The process of buying and selling a home is changing. Here’s what you need to know in Illinois.
About 50 million people will be eligible to receive settlement money, with some people also eligible to receive money from settlements reached against other defendants in the litigation, said Benjamin Brown, co-chair of Cohen Milstein Sellers’ antitrust practice. & Toll. group, one of the law firms representing the home sellers in the settlement agreement.
Brown told the Tribune in an interview Tuesday that while there were industry surveys which have been published suggesting that commissions are already falling due to the rule changes, it will take a year or two for the market to find new competitive pricing models.
“We believe the settlement does justice to our clients and that the changes required by the settlement agreement are significant and will help home sellers in the future benefit from more competitive commission structures,” Brown said.
For Jeff Baker, CEO of Illinois Realtors, the state’s trade association that represents about 50,000 real estate agents, Tuesday’s announcement was also welcomed and allows buyers and sellers to move forward with certainty on the new changes came into effect in August.
“We can get back to continuing our work of educating consumers about the home buying process and educating real estate agents on how to continue to be the most valuable professional in a real estate transaction,” said Baker told the Tribune in an interview Tuesday.
Baker said his organization’s budget would not be affected by the national payment.
The dispute came to a head amid internal turmoil within the NAR, which has seen a series of leadership changes. Over the past year, NAR has seen two presidents And a CEO resigns following allegations of sexual harassment against its former president Kenny Parcell.
NAR recently announced on its website 11 recommendations from its Commission Working Group on Cultural Transformation These are “the latest steps taken by the organization to set expectations for conduct, foster professionalism, and promote accountability among members, volunteers, officers, and staff.”
Following the announcement, the New York Times reported last week on the costly benefits of the professional association for its executive staff and officers.
Two days before Tuesday’s hearing, the Justice Department issued a statement of interest in the case, saying the settlement does not protect the association from further government investigations and confirming its ongoing investigation into the practices of the real estate sector.
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