Customers of six Montgomery County realtors convicted in 1977 of price-fixing are questioning whether they can recoup their paper losses through the scrip system that has been proposed as a means of compensation.
A few of the 3,300 county homeowners who sold houses through the six firms between 1974 and 1977 raised the question last week in U.S. District Court in Baltimore. They were attending a hearing into the adequacy of a proposed settlement of a class action customers have brought against the realtors. In all, 125 homeowners have raised objections to the proposed settlement.
The firms that were convicted in 1977 of raising commission fees from 6 to 7 percent are Shannon & Luchs, Jack Foley Realty, Colquitt-Carruthers, Robert L. Gruen, Schick & Pepe Realty and Bogley, Inc.
The proposed settlement in a companion civil suit calls for homeowners who sold property through the realtors to accept -- in lieu of cash -- certificates guaranteeing that they will be charged commissions of 5 percent if they should sell their houses again. The convicted realtors originally charged 7 percent or higher of the sales prices as their commissions.
As proposed, the compensatory scrip could be sold to other home sellers using the six firms. The certificates would expire in 1985.
The settlement in question would avoid a trial of the civil case. If it came to a trial, the home sellers would be entitled under the law to sue the realtors for triple damages that could go as high as $5 million. The settlement must be approved by the court.
Attorneys for the six companies, the state of Maryland and for the customers all argued that four out of the six realtors would be bankrupted if they had to make cash restitutions.
One plaintiff in the class action, Thomas A. Ladson, of Sandy Spring Road in Onley, told District Court Judge C. Stanley Blair that he was not pleased with the proposed settlement. Ladson, who sold his $225,000 house through Shannon & Luchs in February 1977, said that even if he were able to sell his scrip to another home buyer he would be lucky to recoup half of what it was worth to him. Based on what he got for his house, the scrip would be worth $2,250, the 1 percent difference between commissions of 6 and 7 percent commission.
Ladson said that he was also told by a Maryland Assistant Attorney General, Charles Monk, that if he did not sell the certificate before December 1985 it would be worthless.
Under the terms of the settlement, the realtors would set up a clearinghouse to help owners who want to sell their scrip. The clearinghouse would also advertise the scrip monthly in Washington newspapers. If 30 percent of the scrip were not sold in two years, the attorney general of Maryland would reevaluate the settlement.
Attorneys for the real estate companies contend that the value of the scrip will rise with inflation and will probably be worth,1,580 by 1985.
They also said that because 30,000 sales of existing houses are handled each year by brokers in Northern Virginia and suburban Maryland, there would be a potential of 200,000 transactions the scrip could be used on before it expires in 1985.
Since only 1,871 of the 3,300 customers affected by the price-fixing conspiracy have been located, and since only an estimated 1,000 certificates would actually be used, there would be a large market for the remaining 800 certificates, the realtors' attorneys argued.
Monk said that not all of the affected home sellers could expect to get back the equivalent of 1 percent of the sales price. He acknowledged that the system was weighted in favor of those who sold lower-priced houses. Of the potential scrip buyers he said, "Nobody but a fool would pay 1 percent to get 1 percent" (off on a house sale commission.)
But he said he felt that $400 to $500, or 1/2 percent, was a fair return. A nominal value of the scrip today would be $790, or 1 percent of $79,000, the average sales price in Montgomery County.
Despite the objections of sellers such as Ladson, the scrip concept seems likely to be approved. Lawyers for both sides didn't appeared inclined to work out a cash settlement.
Of equal concern to the customers is a provision in the settlement requiring them to do business with the same realtors if they wish to use the 5 percent certificates to sell their houses.
"Would you hire an embezzler to do your accounts?" asked Howard Cohen of Rockville, who paid Shannon & Luchs an 8 percent commission in April 1976 to sell his $61,500 house. "If they (the realtore) were dishonest before, why deal with them again?" he asked rhetoricallly in court.
He said he was afraid that if he tried to use the scrip, realtors would not try very hard to sell his house because the commission would be low.
Other objections to the settlement were raised by attorney Paul Niemeyer, who represented 28 real estate brokers who do business in Montgomery but were not party to the suit. As writtern, he declared, the agreement steers business to the convicted realtors that they might not otherwise get. He said that owners holding scrip should b e able to sell their houses through any broker.
He also suggested that the scrip be made valid for a simple 1 percent discount off the prevailing commission rate. With the scrip worth a flat 5 percent, other country brokers fear they would have to meet the competition by charging only 5 percent themselves, he said.
The convicted realtors maintain that 1 percent discounts would lower the scrip's worth to the consumer if the prevailing brokerage fee goes above the current 6 percent.
The 28 brokers asked that in any cooperative sales with the six convicted broders where scrip is used that the convicted brokers get a smaller share of the commission instead of the usual equal split. In this way the nondefendant brokers would not be financially "punished" for the offenses of the others, they said.
James Mercurio, attorney for Shannon & Luchs, responded that the nondefendant brokers who accepted scrip worth, say $500 on a $50,000 sale, would probably save it up for redemption a far more expensive cooperative sale. This could result in the nondefendant broker receiving $2,000 instead of $500 from the defendant broker. The idea of one broker making money off the other caused the courtroom to erupt in laughter.
In the end, the convicted real estate companies rejected the sharing arrangements proposed by the 28 other brokers. They did agree to permit others to redeem the scrip, provided they do so under the same court terms, to prevent consumers from being defrauded.
Judge Blair is expected to rule within a couple weeks on whether to accept the settlement or to make changes in it.