The NAR Settlement Is Reshaping Real Estate

The real estate industry is undergoing one of its most significant shifts in decades, driven by a landmark lawsuit and a historic settlement with the National Association of Realtors (NAR). At the center of this change is the Sitzer-Burnett case, which challenged long-standing practices around real estate commissions and sparked nationwide debate. In this first installment, we’ll break down what happened, why it matters, and how the $418 million settlement is reshaping the way agents, buyers, and sellers interact.

Overview of the Sitzer-Burnett Lawsuit

In 2023, the Sitzer-Burnett class-action lawsuit (Class Action Number 29-cv-332) was filed in Missouri federal court by a group of home sellers in the state against NAR and other defendants, including Anywhere, Berkshire Hathaway HomeServices, Keller Williams and RE/MAX. The plaintiffs claimed that real estate commission rates were too high, buyers’ representatives are paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to inflated commission rates.

At the October 2023 jury trial, the plaintiffs took particular issue with cooperative compensation, i.e., when a listing broker makes an offer of compensation to the cooperating broker. Offer of compensation does not mean that a specific amount must be paid, the offer can be any amount, including in many cases, $0. NAR introduced evidence to show how the real estate marketplace works and how cooperative compensation benefits consumers. NAR also showed that its rules prohibit anticompetitive behavior and encourage the free market and competition. However, the jury found for the plaintiffs and issued a verdict in the amount of $1.78 billion.

While NAR and the other named defendants believed the verdict was unsupported and was largely driven by legally erroneous rulings by the judge, including legal instructions that prohibited the jury from considering the vast procompetitive benefits that result from NAR’s policies and cooperative compensation practice, these arguments were not persuasive to the jury.

Prior to agreeing to settle the case, NAR investigated appealing the court decision and/or filing Chapter 11 bankruptcy which would only have assisted NAR and not the other named defendants in the lawsuit. Ultimately, while NAR continued to believe that it was not liable for the home seller claims related to broker compensation and that it had strong arguments challenging the Sitzer-Burnett verdict, NAR decided to reach a settlement to put claims to rest for over one million NAR members and other parties who would be released under an accepted settlement.

In order to obtain a national resolution to Sitzer-Burnett judgment and the numerous copycat lawsuits across the United States, the initial Plaintiffs and Defendants in the Burnett-Sitzer case settled their dispute in the amount of $418 million over 4 years (the “Settlement Agreement”).

The $418 Million Settlement Agreement

The key takeaways from the settlement are as follows:

1. The Settlement Agreement released NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all REALTOR® MLS, and all brokerages with an NAR member as principal whose residential transaction volume in 2022 was $2 billion or below, from liability for the types of claims brought in these cases on behalf of home sellers related to broker commissions. While not all members were released, more than one million members were included in the release. HomeServices of America and its related companies were not released under NAR’s settlement, nor are employees of the remaining corporate defendants named in the cases covered by this settlement; however, all the remaining defendants secured their own releases subject separate settlement agreements.
2. The Settlement Agreement also provided a mechanism for nearly all brokerage entities that had a residential transaction volume in 2022 that exceeded $2 billion, and MLS not wholly owned by REALTOR® associations to obtain releases.
3. Individual members and all brokerages with a NAR member as principal whose residential transaction volume in 2022 was $2 billion or below are released by the Settlement Agreement and not required to opt in.
4. The Settlement Agreement requires NAR to pay $418 million over approximately four years. While NAR has stated it will not raise membership dues, paying this significant amount will require NAR to cut back on services and ultimately they may have to increase membership dues.
5. There were brokerages who were not covered by the Settlement Agreement if they had residential transaction volume in 2022 that exceeded $2 billion. Those excluded brokerages were required to establish that they fell below the $2 billion dollar ceiling, agree to opt into the Settlement Agreement, comply with the relevant practice changes for five (5) years after the final judgment approving the proposed Settlement Agreement and the time for appeal of such judgment has run; and not assert any claims against NAR, Member Boards, or REALTOR® MLSs based on any of the practice changes or on facts underlying the broker commission litigation or for seven (7) years after the Class Notice Date.

Based on the Settlement Agreement, the NAR Code of Ethics and Rules were modified by restructuring the manner in which real estate agents’ compensation is paid in an effort to create more transparency in the real estate transaction. The new rules are fairly straightforward.

Shortly after the settlement was announced, it appeared that there would be a total shift with buyers and sellers each paying their respective agents. This just did not occur as sellers were still willing to pay all or a portion of the buyer’s agent compensation in order to attract the most offers for their properties.

The NAR settlement marks a pivotal moment in real estate history, setting the stage for greater transparency and consumer choice. While the lawsuit and $418 million settlement may sound complex, the ultimate goal is simple: to create a fairer, more competitive marketplace. These changes are already reshaping industry practices and understanding them is key for anyone planning to buy or sell a home.

Next Up:
In Vol. 2, we’ll dive into the key changes to real estate compensation rules and what they mean for buyers and sellers.

Need Legal Advice?

Real estate matters can be complex and emotionally charged. Hoffman Forde, Attorneys at Law, A.P.C. provides experienced counsel to help clients make informed real estate decisions.

Contact Hoffman Forde today at 619-614-2172 or intake@hoffmanforde.com. We handle a wide variety of residential real estate issues for our clients ranging from transactional issues to informal dispute resolution and litigation. Regardless of your specific needs, trust that our residential real estate attorneys will address your situation with quality, cost-effective solutions.

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Written By

Hoffman Forde, Attorneys at Law