Compass proposes settling commission suits for $57.5M
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 late last week.
The New York-based company also agreed to change its business practices to ensure that 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 for a seller.
The court must approve the settlement terms.
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 such brokerage brands as Century 21 and Coldwell Banker, have reached separate settlements that include provisions for more transparency on agent commissions for buyers and sellers.
The central claim 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 homes.
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 in October in which 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 database affiliated with the NAR from including offers of compensation for a buyer’s agent.
The rule changes, set to start in mid-July, represent a major shift to the way agents have operated, going back to the 1990s. While many say it’s too soon to tell how the policy changes will affect home sales, they could lead to sellers paying lower commissions for their agent’s services. So buyers may have to shoulder more upfront costs when they hire an agent.