Real estate brokers in six California counties have been charged in class action law suits with price fixing and maintaining monopolies in the selling of homes. The plaintiffs have asked for $1.4 billion to cover refunds of commissions for houses sold over the past four years and for other damages.
The suits, filed recently by attorney David Barry of San Francisco on behalf of homeowners in the six counties, charge that brokers have conspired to stifle competition through the use of multiple listing services - catalogues of current listings, often computerized, that most local real estate boards across the country produce for the exclusive use of their members.
Charged in the California cases are the real estate boards of San Francisco, Sacramento, San Fernando, Marin, Contra Costa and San Mateo counties, the National Association of Realtors and the California State Association of Realtors. The largest single suit - asking for $500 million - was filed in San Francisco.
In addition, a petition for injunctive relief will be heard in Los Angeles on Aug. 20. It seeks to have the multiple listing service there opened immediately to the public.
The California actions are the latest in series of suits against realtor organizations across the country.
Government cases against multiple listing services are pending in Iowa, New Jersey and Washington State.After it filed a suit two years ago, the Justice Department obtained a consent decree opening up the multiple listing service in Oregon. A criminal conviction for price fixing is being appealed to the Supreme Court by six realty firms in Montgomery County, Md.
The San Francisco attorney is bringing the suit on behalf of home sellers in the last four years in all the counties named. Approximately 50,000 people qualify as plaintiffs in San Francisco alone, according to Barry, who says the system makes the public dependent on brokers and "results in hundreds of millions of dollars of over-charges in real estate commissions."
Barry became interested in multiple listings when he tried to sell his own house and could not place it on the listing without going through a broker. He says he agrees with realtors that the listing service is the most efficient means of selling a property.
A placement in the MLS might cost a broker $20, but a comparable ad in a local paper, running for the average sale time of two months, could cost $12,000, Barry calculated. That puts a major sales advantage in the hands of brokers, and the suits claim this stifles competition by freezing out private owners who want to sell property without a broker's aid.
The suit attacks a practice called "tying," where sellers who want to be in the MLS first must sign an agreement making the broker sole agent for the property. This joining of listing and sales services "results in a gross over-payment for the listing services," Barry maintains. "Filling out th MLS listing form is a simple-minded function taking no more than 30 minutes."
The San Francisco service charges $20 for a listing, but with an average sales price of $100,000 per home - and with listing fees generally at 3 percent - a listing broker stands to make $3,000 on a typical transaction. If the broker who lists the property also finds the buyer, the commission usually totals 6 percent.
Some brokers charge less than a standard 6 percent fee for listing and sale, but because consumers do not have access to the MLS, Barry maintains, they're inhibited from finding the most economical service.
The effect of this system, Barry alleged, is to create a "private club" for brokers.
"There is a proliferation of cases around the country alleging that there is a monopoly," said Ginny Hulterstrum, a spokeswoman for the National Associationof Realtors headquarters in Chicago. "But actually, the MLS is just a way of exchanging information about homes, not a way of selling them. The reason it's exclusive is common sense. It's like you have a leaky faucet - when you go to a plumber, you don't say 'I don't want to use you, but I want to use your tools.'
"There's no monopoly," she said. "It's just another tool, a reason why people should use realtors who have the expertise. There's no rule the customers could not start an MLS of their own."
The California suits further claim that because brokers split fees, the agent for the buyer does not have an interest in getting the lowest possible price for the house. Fees are paid by the seller, and a lower price means lower commissions.
Hulterstrum agrees that, "in essence," the buyer's agent is working for the seller, but says that brokers themselves are seeking a solution, possibly involving a state-run MLS system open to everyone.
The MLS concept grew out of the practice at the end of the 19th century, when brokers would gather on a specified day to discuss their respective properties, and, in effect, hold an auction. By the 1920s, the MLS resembled its present form and was widely used.
Barry is seeking to have some of that bidding process returned.
"What I want is to have the homeowners and buyers right out on the street corners with the brokers," he said. "It's a closed system, a secret society run by the brokers, and a tremendous amount of the consumer's money is passing hands. There's very little discussion of what their commission money is for, what you'll get in return.
"The exclusion from the listing service is a price-fixing arrangement, because it's secret, it has the prices and it has the effect of stabilizing those prices, or raising them. The commission percentages are listed. and if consumers could leaf through and find the brokers who are charging less, I predict we would shatter the standard commission system.
"If that book is exposed, people will see for the first time that there are guys who charge a lot less, and that there are homes available at lower prices than the properties with higher commissions towards which buyers are being steered."
Barry rejects the notion that the MLS is a tool to which the brokers can lay sole claim. "If it belonged to a private company, we couldn't touch it," he says. "But when you have competitors using it, the rules all change."