“NAR threw 81 of their largest firms under the bus,” Steve Murray, the co-founder of RealTrends Consulting, said. “Those firms represent roughly 500,000 of their members, or a third of their membership, and over 50% of the business done.”

NAR’s settlement, which includes terms like mandatory buyer agency agreements and a ban on displaying offers of cooperative compensation on MLS platforms, only covers real estate brokerages that recorded $2 billion or less in transaction volume in 2022.

Firms that are not covered by the settlement include industry giants like Compass ($228 billion in sales volume in 2022), eXp Realty ($159.1 billion), Douglas Elliman ($42.8 billion), Hanna Holdings ($36.7 billion), and @properties ($29.5 billion). Each of these firms were ranked in the top eight of the 2023 RealTrends 500, which are based on 2022 sales volume figures.

Although NAR’s settlement agreement does not cover these firms, the trade group has noted that its lawyers managed to negotiate a release for these larger volume firms to use if they so choose.

In a letter sent to NAR members, trade group president Kevin Sears wrote that “NAR fought to include all members in the release and was able to ensure more than one million members are included.”

Math doesn’t pencil out

On the surface, the release NAR negotiated for the larger firms may seem like a great option, but things get more complicated when looking at the math.

In the settlement, the parties agreed that within 120 days following the preliminary approval, a firm that wishes to take this route 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 $570 million, Douglas Elliman for $107 million and @properties for $74 million.

In comparison, NAR has agreed to pay $418 million spread over four years as part of its settlement. The three other defendants that have settled — Anywhere, RE/MAX and Keller Williams — have agreed to pay $83.5 million, $55 million and $70 million, respectively.

According to industry analyst Rob Hahn’s calculations, if every firm agrees to use NAR’s negotiated release mechanism, the settlement fund pool would jump from $626 million (which includes the settlement amounts from NAR and the three brokerages) to roughly $3 billion.

“NAR is paying just over 10% of the total damage pool, and they get to do that over four years. Nobody else gets those favorable terms,” Hahn wrote in the March 16, 2024, edition of his NotoriousROB email newsletter. “So, when I wrote in my previous dispatch that NAR has won a Total Victory… yeah, that’s kinda true. But it’s a pretty big loss for the industry as a whole.”

Deal is unlikely

Industry analysts believe that it is highly unlikely that firms with more than $2 billion in annual sales volume will take this deal.

“For Compass, it certainly doesn’t make sense,” said Soham Bhonsle, an analyst at BTIG. “Based on $200 billion gross transaction volume, that is like $500 million of settlement, and that is like two-and-a-half times more than the combined settlement of the three brokerages that have settled.”  

Ryan Tomasello, an industry analyst at KBW, shares similar thoughts.

“Just given simple math, some of these payouts are unfeasible for these companies,” Tomasello said.

According to an analysis by RealTrends Consulting, based on conservative estimates, the 81 brokerages in the cohort of $2 billion-plus transaction volumes would be facing a total settlement amount of $2.1 billion.

“This represents close to 50 times the pretax earnings of all those firms in 2023,” Murray said. “It is also equivalent to over 100% of all the company revenue of all those brokerages for all four years in question.”

Exploring other options

With hundreds of millions of dollars or more potentially on the line, analysts believe the majority of firms will try to negotiate their own settlements. But as Bhonsle said, this could lead to a “wide range of outcomes.”

While firms know what their settlement amounts will look like if they follow the path NAR negotiated, many unknowns and questions arise if they choose to negotiate on their own. But James Dwiggins, the CEO of NextHome, has a theory.

In a LinkedIn post, Dwiggins posited that the firms could estimate their settlement amounts by using the same “formula” that RE/MAX, Anywhere and Keller Williams may have used to settle. This equated to approximately 50% of their cash on hand, which he described as “the best case scenario” for many firms.

Based on Dwiggins’ calculations, eXp (which had $126 million cash on hand at the end of Q4 2023) would be on the hook for $63 million. The Real Brokerage, which had $33 million at the end of Q4 2023, would be looking at $16.5 million to settle. Compass, which had $166 million at the end of 2023, would face an amount of $83 million.

Over at BTIG, Bhonsle agrees with Dwiggins’ assertion that the companies will be looking for a route separate from NAR’s agreement to settle. But he had his own take on how a firm could arrive at an estimated settlement figure.

“Anywhere and RE/MAX settled back in September, but Keller Williams is the one to really watch out, because they settled after they lost the trial and I think it will be the precedent,” Bhonsle said.

Bhonsle suggests that firms looking to settle could estimate their figures by dividing Keller Williams’ $70 million settlement by their agent count and then applying that amount to their own agent counts.

“The firms could then take that number and say, ‘Look, Keller Williams just did this and it was after the Sitzer/Burnett loss. Why are we now being asked to settle for that much more?’” Bhonsle said.

Relationship woes

While much of the attention on NAR’s settlement agreement has been placed on how the terms of the agreement will impact agents’ and brokers’ businesses, some in the industry are wondering how the $2 billion sales volume threshold NAR set will impact the trade group’s relationship with some of the industry’s largest players.

“What at first take looked like a massive win for NAR and the industry turns out to be something quite a bit less. Not because of what the plaintiff lawyers did, but because of what NAR did — or more precisely, did not do,” Hahn wrote in his newsletter. “Failing to consult … actually, failing to even inform … some of the most powerful, most important and most outspoken leaders in the industry during negotiations is an enormous mistake.”

At the Real Estate Services Providers Council, president and executive director Ken Trepeta is wondering if some of these firms may ultimately decide to turn on NAR.

“A firm could all of sudden throw NAR — who is one of their co-defendants in a suit — under the bus and say, ‘You made this rule and you made us follow this rule,’” Trepeta posited. “The gate could now be open for this type of lawsuit because they could claim that NAR imposed the rule and that it should be responsible for the damages.”

No matter what the firms in what Hahn called the “Two Billion Club” decide to do, their legal professionals still have their work cut out for them.