LawPulse

A massive jury verdict against the National Association of Realtors has attorneys discussing the fallout.

A federal jury in October sided against the National Association of Realtors (NAR) and top real estate firms in a class-action suit exposing antitrust practices in the residential real estate market. But the nearly $1.8 billion verdict, which could triple after all damages are assessed, may not force meaningful residential real estate reforms anytime soon, say Illinois real estate attorneys who have been following the case and similar lawsuits.

On October 31, a jury in the U.S District Court for the Western District of Missouri found against the NAR and various brokers for antitrust and price-fixing violations involving commission agreements between agents representing sellers and buyers. The suit was filed by sellers required to pay commissions to agents representing buyers—a nonnegotiable aspect for listing homes in ubiquitous Multiple Listing Services (MLSs).

The arrangement is problematic for several reasons, including the relatively high commissions sellers must pay to buyers’ agents in the U.S.; the rules sellers and agents must follow to participate in an MLS, which is often the only way to find homes for sale in an area; and the private NAR’s powerful grip on the rules of residential real estate transactions.

The NAR has stated it is appealing the Western District of Missouri case. Meanwhile, the plaintiffs are considering pursuing an injunction curtailing NAR practices at the heart of the lawsuit. Complicating matters, the U.S. Department of Justice has recently attempted to reopen its own antitrust investigation of the NAR. Lawsuits similar to the one in the Western District of Missouri are making their own way through the courts, including one filed a few years ago in the Northern District of Illinois.

Big case, little impact

Attorneys contacted by the Illinois Bar Journal suggest that the buyer’s agent’s commission is more a symptom than a cause of a dysfunctional real estate system. (All attorneys quoted in this article belong to the ISBA’s Real Estate Law Section Council.)

“The focus on the buyer’s agent’s premium is kind of a red herring here and is why I don’t think the jury verdict from Western Missouri is going to cause a huge disruption in the marketplace,” says Downers Grove-based real estate attorney Kevin Camden, who notes that the ruling wouldn’t even affect the many VA-funded homebuyers who don’t pay commission.

“The dragon, to the extent you believe it needs to be slayed, is the MLS,” Camden says. “It’s the 800-pound gorilla. If you’re looking for a disruptive event, it’s going to be getting the monopolistic control of the MLS away from the NAR.” (See, for example, news of real estate firm Redfin announcing its split from the NAR in October, which took place before the Western Missouri jury verdict.)

“What’s clear is that this isn’t really an action against individual Realtors on the buyer side. It’s really against the MLS and the way the NAR’s rules restrict competition,” says Chicago attorney Joseph Rogul. “But I don’t think the MLS will go away.”

Clarity in a murky market

One lesson for attorneys is that for consumers, the real estate market remains a place where lessons are often learned the hard way. Attorneys have an opportunity to prove their worth by advising clients who might ask how these lawsuits could affect their agreements with real estate agents and the sale or purchase of a home.

“Lawyers should know about the case so that they could explain to their clients that just because NAR got whacked with this big judgment doesn’t necessarily reflect on any individual realtor or agent involved in the transaction,” Rogul says.

“Attorneys need to provide information and options to sellers, so that they make decisions based on a clear representation of the options available,” says Joliet attorney Gary Mueller. “No matter how many deals a buyer or seller has been through, the current contract or situation is always new. Make sure, as the attorney, your client knows you are with them throughout the entirety of the journey,” says Mueller. Mueller adds that these lawsuits may spur the reemergence of exclusive and nonexclusive representation forms for buyer agents, rarely used today because such forms have been seen as a competitive disadvantage for buyer agents.

Many other dragons to slay

Mueller, Rogul, and Camden say that the real estate market is complex, with many other needs for improvement in such areas as improving title industry transparency and unformity; limiting the use of wire transfers; cracking down on junk fees and cyber fraud; and stopping nonlawyers from advising clients on the legalities of contracts, inspections, and financing.

Referring to the title industry, Rogul, who cochairs an ISBA Real Estate Law Section legislative subcommittee with Camden, says the section is committed to improving the system, but it’s difficult.

“I think it’s existentially required for the residential real property bar to help reform dysfunctional competition,” he says. “There seems to be a satisfaction with the status quo among a lot of players, including a lot of the lawyers.”

Pete Sherman is managing editor of the Illinois Bar Journal.
psherman@isba.org