How a national real estate settlement could affect things in Connecticut [The Hour, Norwalk, Conn.]

Apr. 2—For his part, Joe Cafasso Jr. has already had a handful of calls with clients of Cafasso Group eXp Realty on how broker commissions might affect Connecticut real estate sales on the heels of the last week's landmark settlement by the National Association of Realtors.

Cafasso knows this is only the beginning, as home buyers — particularly those who are stretching their resources for down payments and other costs in buying a house for the first time — try to deduce if they might have to pick up more of the commission tab in any purchases this year.

On March 15, the National Association of Realtors announced a $418 million settlement to resolve a class-action lawsuit dubbed Sitzer-Burnett, over the question of how sellers are charged "cooperative" commissions that end up being paid to brokers who help people purchase their homes. A group of plaintiffs sued in Missouri federal court over the widespread industry practice, arguing that in too many instances sellers lacked a full understanding of how their commissions were being shared with buyers' representatives.

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"When NAR settled last week, it really threw everybody on their heels saying, 'Now what?'" Cafasso said. "How does this affect first-time home buyers? If you have never bought a house before, it's a daunting process and you can't go into this not having representation at all."

The division of labor between the sale and purchase of a home is very different, with selling agents covering the cost of listing homes as part of the fees they charge home owners, in addition to arranging myriad details like pricing advice, inspections, evaluating bids and ensuring documentation is completed correctly during the process.

For buying agents, a substantial amount of time is spent making the rounds of property listings with prospective buyers and preparing bids, including any assistance with the steps needed to obtain a mortgage.

The settlement in the lawsuit is subject to a judge's approval, with NAR not expecting the process to be completed until later this year. While individual buyers, sellers and their respective brokers can still negotiate their own commission arrangements, any such side arrangements must be fully disclosed to all parties, NAR officials say.

Seller's brokers will no longer be able to include offers for cooperative commissions on the multiple listing services like SmartMLS that function as clearing houses for property listings and sales, though they can do so on own web sites or through non-MLS communications like email, text and phone, provided they clearly spell out the terms.

On Friday, the president of NAR addressed the implications of the settlement in an online webinar to members and the public.

"NAR has long maintained — and we continue to believe — that cooperative compensation and NAR's current policies are good things that benefit buyers and sellers," said Kevin Sears, president of NAR and a longtime broker in Springfield, Mass. "They promote access to property ownership, particularly for lower- and middle-income buyers who can have a difficult enough time saving for their down payment. With this settlement, we are confident that NAR and our members will still achieve all of those goals."

The original verdict had been for $1.8 billion as delivered by a jury in Kansas City, Mo., with NAR agreeing to withdraw pending court motions as a condition for obtaining the smaller sum. On last week's webinar, NAR's chief legal officer said a Chapter 11 bankruptcy might have been the outcome of any extended appeals process. NAR maintains it did not participate in any wrongdoing.

Besides NAR, other big real estate brokerage companies reaching earlier settlements in the same case included Keller Williams, RE/MAX and Anywhere Real Estate, which has several brands operating in Connecticut, including Coldwell Banker and William Pitt Sotheby's International Realty.

The settlement would extend to independent contractors affiliated with Douglas Elliman, eXp, Redfin and Weichert among others active in Connecticut. After the NAR announcement, Compass reached a separate settlement covering its own contractor brokers, with Compass tops in dollar volume sales last year in the United States according to Real Trends.

Brokerage firms with 2022 volume above $2 billion can opt into the settlement, with a formula to determine their ultimate share of their financial commitment. As an alternative, those companies can agree to nonbinding mediation toward a potential future agreement.

Berkshire Hathaway HomeServices of America did not sign on to the settlement offer, and in February filed a request for the Supreme Court to compel arbitration as an alternative to the court proceedings. William Raveis Real Estate, the largest based in Connecticut with 2023 volume topping $15 billion according to Real Trends, has yet to post any public comment on its website about its intentions in the legal context of cooperative commissions.

About 20,600 Connecticut agents have active licenses with the state, not including nearly 2,700 more who live in other states like New York, Massachusetts, Rhode Island or Florida. Another group of 1,950 people have licenses categorized as "pending" according to the most recent records on file with the Connecticut Department of Consumer Protection.

"There are many commission structure options provided in various real estate business models now that will continue to be options going forward such as, cooperative compensation, flat fees, fees for specific services, or hourly rates," Carl Lantz, a West Hartford broker with Coldwell Banker and president of the Connecticut Association of Realtors said. "Real estate compensation amounts are negotiable between a real estate broker and the client, that is not new."

In a February study of Connecticut home purchase data last year, Connecticut Realtors reported that one of every five buyers in Connecticut find saving for a down payment one of the most difficult aspects of buying property, according to surveys last year by Connecticut Realtors. The median down payment amounted to 8 percent of the purchase price of a home.

Lantz did not say how many queries CT Realtor has received from its members, but said it has been keeping members informed through multiple channels. Last week, Lantz told members "we're all in this together" in a short video posted to Vimeo and social media.

"The proposed settlement of the class action lawsuits against National Association of Realtors are sure to bring change to our business — but we're not 100 percent sure what those changes will be," Lantz said on the video.

To be protected under the settlement, agents and brokers need only abide by the terms set out in the agreement, with no other action required on their part, according to Katie Johnson, chief legal officer of NAR who joined Sears on the webinar. In order to benefit from the settlement, MLS entities must complete and file paperwork, she said.

Several other cases are pending nationally addressing the question of broker commissions, including one filed in Illinois representing a purported class of home buyers who say their commissions helped underwrite sellers' costs.

"Obviously now there are new, copycat lawsuits that have been cropping up across the country, drawing in additional defendants," Sears said during the NAR webinar.

Some fear any major changes to buyer broker commissions could winnow the ranks of agents new to the real estate industry. Industry newcomers often rely on buyer representation to gain experience, then leverage that early track record to get hired to list homes, which bring bigger commissions.

"The lack of inventory is by far the greatest problem for new agents," Lantz said. "It's hard to enter an industry where you are most likely only paid for a transaction that closes when there are so few properties available and such buyer competition for those properties."

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