Compass settles commission lawsuits for $57.5 million

Compass has joined the National Association of Realtors, Anywhere, Keller Williams and RE/MAX in settling the commission lawsuits.

In a document filed with the Securities and Exchange Commission on Friday morning, the Robert Reffkin-helmed firm announced that it had reached a nationwide settlement in relation to the Umpa and Gibson suits on Thursday. 

As part of the settlement, Compass has agreed pay $57.5 million into the settlement fund, adding to the $626.5 million total from the four other settlements. According to the SEC filing, 50% of the settlement amount will be deposited into the account within 30 days of the court’s preliminary approval of the agreement, which Compass said it expects to be in Q2 2024. The remaining 50% of the settlement amount will be deposited into the fund within one year of the court’s preliminary approval.

Additionally, like the three other large brokerage firms that have already settled, Compass has agreed to make changes to its business practices as part of the settlement. These changes include that Compass offices will require or encourage agents to make it clear to clients that commissions are negotiable, that agents will have the freedom to set or negotiate commissions as they see fit, and that agents will not be required to make offers of compensation or accept offers of compensation from cooperating brokers.

“The settlement payment and other agreements resolve all nationwide claims home sellers made against Compass and we do not expect this to have any impact on our ability to serve you,” Reffkin wrote in an email. “By settling, Compass is not saying that we did anything wrong. The reason we have chosen to settle is so we can minimize distractions and focus on serving you and your clients.”

The settlement is still subject to final court approval. The settlement agreements reached by RE/MAX and Anywhere are scheduled to have final court approval hearing in early May, 2024.

While NAR’s nationwide settlement agreement announced last Friday covers over a million Realtors and many brokerages, the trade group did not provide protection for brokerages that recorded over $2 billion in transaction volume in 2022. Compass recorded $227.977 billion in sales volume in 2022, according to RealTrends data. However, NAR’s settlement agreement did provide a release mechanism for firms like Compass that fall into the over $2 billion category.

Under the terms of NAR’s settlement, a firm that wishes to utilize the negotiated released must deposit into an escrow account an amount “equal to 0.0025 multiplied by its average annual Total Transaction Volume over the most recent four calendar years.” Based on this formula, Compass would be on the hook for roughly $570 million, a little less than 10 times what it is paying under the terms of the settlement agreement it negotiated independently.

Unlike the three other brokerage firms that have settled so far, Compass was not named as a defendant in the original commission lawsuits, Sitzer/Burnett, Moehrl and Nosalek. Compass’ commission lawsuit challenges did not begin until a few hours after a jury found NAR, Keller Williams and HomeServices of America liable for colluding to artificially inflate agent commission in the Sitzer/Burnett trial, when the lead plaintiffs’ attorney Michael Ketchmark filed the Gibson suit.

Just like the Sitzer/Burnett suit, the Gibson suit takes issue with NAR’s Participation Rule. Other defendants in the suit include eXp World HoldingsRedfin, Weichert RealtorsUnited Real EstateHoward Hanna and Douglas Elliman. NAR was also named as a defendant in the lawsuit, but pending the approval of its nationwide settlement agreement, it is no longer part of the suit.

This story is developing.

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