Real Estate

Countdown As Firms Not Covered By NAR Settlement Face Tough Choice

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The deadline is rapidly approaching for brokerages large and small to opt into a settlement agreement with attorneys representing homesellers in a case that is all but certain to transform how agents are compensated in the U.S.

Brokerages and multiple listing services have until 11:59 p.m. CST to signal their willingness to enter mediation and reach agreements that would resolve antitrust claims brought by homesellers targeting broker commissions. That deadline was determined by the settlement agreement brokered by the National Association of Realtors in March.

While some of the nation’s largest brokerages and franchisors have made headlines with nine-figure settlement agreements totaling approximately $1 billion in recent months, dozens of brokerages and hundreds of MLSs have been working up to the deadline to decide whether to settle and obtain a release of liability from current and potential future lawsuits.

While NAR’s settlement covered much of the industry, it didn’t include brokerages that conducted more than $2 billion in residential sales volume in 2022. That included a list of over 90 firms that weren’t covered from liability. But the settlement agreement provided a pathway for brokerages that weren’t covered to reach their own agreements.

In the days leading up to the deadline, Inman contacted each of the more than 90 brokerages that were on the original list of firms not covered by the proposed settlement by the National Association of Realtors.

Opting into the settlement meant potential protection for the brokerages and their agents, but it also meant a potential settlement fee that some independent brokerages on the list fear they can’t afford to pay.

Representatives from some brokerages said they had already taken the steps to opt in to the settlement. Others said they were planning to mediate. And still others are in a limbo and facing an uncertain path forward, they told Inman.

And with less than 24 hours before the deadline, some brokerages, like JohnHart Real Estate in California and ARC Realty in Alabama, were still uncertain if they would be forced to incorporate under NAR’s settlement, while others among the dozens of brokerages still on the sidelines Tuesday afternoon were scrambling to decide what to do next — before time runs out.

“We have been actively preparing for several months to comply with the terms of the settlement that involve contracts, disclosures, and policy changes,” Nebraska Realty CEO Andy Alloway told Inman, noting that he asked plaintiffs’ attorneys to allow him to opt in without paying anything. “We simply do not have the money to pay a settlement.”

The opt-in process 

June 18 was chosen as the deadline because the plaintiffs filed a motion for preliminary approval of the NAR settlement on April 19, triggering a 60-day opt-in deadline.

Brokerages that want in must fill out a form known as Appendix C, which includes boilerplate language that the brokerages and plaintiffs would agree to and a few boxes to fill out and sign.

Those who opt in must send an email with the signed Appendix C form to co-lead plaintiffs’ attorneys at the law firm Cohen Milstein Sellers & Toll, NAR and the legal administrative firm JND.

By about mid-August, the settling brokerages must pay the agreed upon amount based on one of two payment options they chose, which is outlined in the appendix.

NAR will establish new rules for the industry by Aug. 17, and the settling brokerages must agree to follow those rules by no later than Sept. 16.

The brokerage would attest that they transacted over $2 billion in residential sales volume in 2022. That $2 billion threshold has already proven to be a likely path out of litigation for a handful of brokerages, Inman has learned.

Brokerages near the $2B cutoff

Several brokerages said they shouldn’t have been included on the T3 Sixty list of firms that transacted more than $2 billion in sales volume in 2022, each with their own unique explanation.

It’s not immediately clear whether the firms’ claims will be accepted by plaintiffs’ attorneys. The settlement agreement said the 2023 T3 Sixty Real Estate Almanac, which includes a roundup of the total volume by brokerages for the year 2022, would be the “irrebuttable” source for determining whether a brokerage did in excess of $2 billion in transactions.

“We should have never been incorporated on that list,” said Brittany Porter, general counsel for JohnHart Real Estate, a California-based brokerage that the Real Estate Almanac showed transacted $2.67 billion in 2022. “On May 22 we sent out correspondence to all those attorneys informing them that we were included on that list erroneously. Surprisingly we never heard back.”

Robert Glaser | CEO of Smith & Associates

Robert Glaser, CEO of the Florida-based Smith & Associates, said the Real Estate Almanac initially included commercial sales transactions for his brokerage. With those included, the almanac showed Smith & Associates reached $2.06 billion in sales volume in 2022. Without including commercial sales, his firm doesn’t reach the $2 billion threshold and therefore doesn’t need to mediate, he said.

Beau Bevis leads the Alabama-based ARC Realty, which the Real Estate Almanac showed transacted $2.11 billion in 2022. He said Monday his firm hadn’t yet responded to litigators, but that he didn’t plan to settle.

Instead, Bevis too said the almanac included data from acquiring a competing Alabama brokerage, Capstone Realty, in early 2022.

“We did not close on that asset purchase until March 2022,” Bevis said. “If you deduct January and February 2022, we are under the 2 billion threshold. This is our stance in the situation.”

Beau Bevis | CEO of ARC Realty

Nebraska Realty, for example, said it achieved more than $2 billion in sales only after including “For Sale By Owner” transactions that it helped facilitate.

“These were not MLS transactions, and thus we are asking to be included under the terms of the settlement for brokers under $2B in sales volume,” Alloway said.

Uncertain futures

Michael Ketchmark of Ketchmark & McCreight, lead plaintiffs’ counsel in one of the major commission suits that the NAR settlement is partially resolving, Sitzer | Burnett, didn’t respond to a list of questions about the brokerages that said they were in contact with plaintiffs’ attorneys about their unique situations. Instead, he said that nearly all of the MLSs and brokers had opted into the settlement.

Michael Ketchmark | Lead plaintiffs’ attorney

“We are in settlement talks with a number of brokers and remain confident that most of [the] smaller and mid-sized brokers who have not already settled will ultimately agree to the settlement and comply with the terms of the NAR settlement,” Ketchmark said.

He declined to share a list of settling brokerages until his firm had filed the settlements with the court, which he said would likely be sometime in July.

“I suspect you will see that almost all of the brokers above $2 billion will have reached agreements, and if not, they will likely be added as defendants,” Ketchmark said.

Most of the brokerages that responded to Inman declined to comment, either directly or through an attorney. Many didn’t respond at all.

Some of the biggest brokerages — eXp, HomeSmart, Fathom Realty, Brown Harris Stevens and Samson Properties — declined to comment. EXp cited ongoing litigation as its reason for not commenting.

Others didn’t respond to multiple requests for comment, including Howard Hanna, Weichert Realtors, United Real Estate, Raveis and others.

The California-based Seven Gables Real Estate quickly reached its own settlement agreement after NAR. CEO Michael Hickman said his firm was the first in California to reach a settlement after NAR. He said the plaintiffs’ attorneys hadn’t yet signed the agreement.

Sources familiar with the strategy at Signature Premier Properties, a New York brokerage that transacted $3.56 billion in 2022, told Inman that the brokerage had reached a settlement agreement.

Hilton & Hyland also confirmed it plans to settle through mediation.

Opting in doesn’t guarantee that Judge Stephen R. Bough will give final approval of the NAR settlement after a Nov. 26 hearing. And there’s no guarantee other plaintiffs — particularly past homebuyers — wouldn’t try their hand in court.

Andy Alloway | CEO of Nebraska Realty

Alloway’s independent brokerage could show the potential pitfalls facing brokerages that transacted over $2 billion, but who are independently owned and significantly smaller than the nation’s top brokerages.

Alloway said he was preparing to comply with the terms of the settlement agreement, but that his firm didn’t have the money to pay monetary damages and thus was asking to opt in without paying.

“We are an independently owned company (I have been the sole owner for the past 15 years) that does not have deep pockets,” Alloway said. “We operate on a business philosophy that works on slim margins choosing to put as much money as possible back in the pockets of our clients and agents.” 

Who’s in?

While it’s difficult to get a complete picture of the firms that have opted into the settlement, several noteworthy brokerages have made publicly or privately acknowledged their fates.

Among them:

  • Compass: Compass is the largest brokerage by volume to settle. It agreed in March to pay $57.5 million.
  • HomeServices of America: Agreed to pay the largest known settlement amount aside from NAR. It will pay $250 million.
  • Keller WilliamsThe franchisor agreed to pay $70 million to settle the Sitzer | Burnett case. A buyer is appealing the settlement.
  • Anywhere Real EstateAnywhere agreed to pay $83.5 million before the Sitzer | Burnett case went to trial. A buyer is appealing the settlement.
  • RE/MAXAgreed to pay $55 million to settle before the Sitzer | Burnett case went to trial. A buyer is appealing the settlement.
  • NAR: Agreed to pay $418 million to settle, rather than move forward with an appeal of the Sitzer | Burnett verdict.
  • Douglas EllimanAgreed to pay $17.75 million to settle suits against it.
  • RedfinAgreed to pay $9.25 million.
  • @propertiesAgreed to settle for an undisclosed amount.
  • The Real Brokerage: Agreed to pay $9.25 million.
  • Realty One GroupAgreed to settle for an undisclosed amount.

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