Compass to pay $57.5 million, make changes to settle real estate commission lawsuits

March 23, 2024

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By Alex Veiga | The Associated Press

Real estate brokerage company Compass Inc. will pay $57.5 million as part of a proposed settlement to resolve lawsuits over real estate commissions, the company said in a regulatory filing Friday.

The New York-based company also agreed to change its business practices to ensure clients can more easily understand how brokers and agents are compensated for their services, according to the filing with the Securities and Exchange Commission.

Among the policy changes Compass agreed to make, the company will require that its brokerages and their agents clearly disclose to clients that commissions are negotiable and not set by law, and that the services of agents who represent homebuyers are not free. It also agreed to require that its agents who represent homebuyers disclose right away any offer of compensation by the broker representing a seller.

The terms of the settlement must be approved by the court.

Compass follows several big real estate brokerages and the National Association of Realtors in agreeing to settle federal lawsuits brought on behalf of home sellers across the U.S.

Keller Williams and Anywhere Real Estate, which owns brokerage brands such as Century 21 and Coldwell Banker, have reached separate settlement agreements that also include provisions for more transparency about agent commissions for homebuyers and sellers.

The central claim put forth in the lawsuits is that the country’s biggest real estate brokerages have been engaging in business practices that unfairly force homeowners to pay artificially inflated agent commissions when they sell their home.

The plaintiffs argued that home sellers listing a property for sale on real estate industry databases were required to include a compensation offer for an agent representing a buyer. And that not including such “cooperative compensation” offers might lead a buyer’s agent to steer their client away from any seller’s listing that didn’t include such an offer.

Last week, the NAR agreed to pay $418 million and make policy changes in order to resolve multiple lawsuits, including one where in late October a jury in Missouri found the trade group and several real estate brokerages conspired to require that home sellers pay homebuyers’ agent commissions. The jury in that case ordered the defendants to pay almost $1.8 billion in damages — and potentially more than $5 billion if the court ended up awarding the plaintiffs treble damages.

NAR also agreed to several policy changes, including prohibiting brokers who list a home for sale on any of the databases affiliated with the NAR from including offers of compensation for a buyer’s agent.

The rule changes, which are set to go into effect in mid-July, represent a major change to the way real estate agents have operated going back to the 1990s. While many housing market watchers say it’s too soon to tell how the policy changes will affect home sales, they could lead to home sellers paying lower commissions for their agent’s services. Buyers, in turn, may have to shoulder more upfront costs when they hire an agent.

Compass’ $57.5 million settlement is about a tenth of what the brokerage would have paid were it to opt in to the NAR’s settlement, according to data from Ladera Ranch-based consulting firm T3 Sixty.

NAR’s settlement provides coverage for large brokerages — those that generated $2 billion or more in home sales in 2022 — if they pay 0.25% of every dollar they generated in home sales into NAR’s settlement fund. T3 Sixty estimates Compass generated $227 billion in sales in 2022, which means it would have paid about $567 million to join the NAR settlement.

At least 80 big real estate brokerages have the option of paying into the NAR settlement fund or seeking their own settlement with class-action attorneys, according to T3 Sixty.