The Supreme Court's decision this week to let the conspiracy conviction of six Montgomery County realty firms stand is not expected to have any immediately discernible effect on real estate commissions in this area. The defendants were found guilty of conspiring to raise their rates from 6 to 7 percent in 1974.
Although the criminal conviction of the six companies and three of their presidents will certainly serve as a warning to brokers, it is not likely to lead to the lowering of commissions, real estate brokers said this week. In the past decade, the Justice Department has won more than a dozen similar civil cases against real estate companies in other parts of the country. But commissions brokers charge remain nearly uniform in most cities, the department acknowledges.
Commissions -- the agents' fees for selling houses -- are far more apt to be affected by economic and competitive factors. For example, the Montgomery County firms, in concert with many of their competitors, raised their fees in the midst of the worst recession since the 1930s. Although housing sales are down now, there appears to have been no move to increase sales commissions. To some extent the increased price of houses, and corresponding commissions, has made up for the smaller number of properties sold.
Between 85 and 90 percent of the properties in the Montgomery County Multiple Listing Service are still offered for sale with 6 percent commissions, according to a member broker. Other properties are offered with commissions of 7 percent and some are listed at 5 percent or less by so-called discount brokers. In theory, all commissions are supposed to be negotiable.
Discount brokers maintain that as their numbers increase, full-service brokers will be obliged to cut their fees to compete. Others say that if giant companies such as Merrill Lynch and Sears, Roebuck corner enough of the real estate market, they will lock in head-to-head competition, thus forcing rates down.
The commissions of a relatively small number of real estate brokers and clients' fees, however, will be directly affected by the lawsuit. In an agreement settling a companion civil suit, the trustees will issue certificates -- allowing sales to be handled for 5 percent commissions -- to the approximately 1,800 persons whom the defendant brokers charged 7 percent in 1974. The coupons will be mailed in mid-February.
For those who have moved from the area or do not wish to avail themselves of the opportunity of selling their houses through any of the defendant brokers or 100 others who have signed up, the Shannon & Luchs realty firm, one of the defendants, will set up a clearinghouse for individuals trying to find buyers for coupons.
The economics might work like this: A coupon holder who sold a $60,000 house in 1974 at 7 percent commission ($4,200) and sought to recover the 1 percent difference ($600), might ask $700. A person selling a $125,000 house listed at 6 percent commission would pay a broker $7,500. With a 5 percent coupon, the owner's cost would be the $700 coupon plus $6,250 to the broker, or a net savings of $550 on the deal.
Two weeks before the Montgomery County decision, the Supreme Court affirmed in a New Orleans case that real estate brokers are involved in interstate commerce and therefore subject to federal antitrust law.
Asked whether the High Court actions would spawn more prosecutions of brokers by the U.S. government, Richard Favretto, who is a deputy istant attorney general in charge of the Justice Department's antitrust division, said they would have no dramatic impact. The department has no backlog of cases awaiting a green light, he said.
But, he continued, "The (New Orleans) decision, which we expected all along, may make us more confident in bringing those cases of which we were uncertain in the past. We will continue to file cases."
In addition to the New Orleans and Montgomery County cases, the Justice Department had also filed similar charges against 10 Syracuse, N.Y., real estate companies and five individuals. They pleaded no contest and were sentenced to one year probation. Fines of $156,000 were levied against the defendants.
The Eighth Circuit Court of Appeals recently decided against the Greater Minneapolis Area Board of Realtors when it dismissed a summary judgment by a lower court and ordered the case to be tried. The brokers there are accused of price fixing by including in listings the varying commissions charged by brokers, so that higher-price firms can use the data to reduce commissions split with lower-price firms on cooperative sales.
Meanwhile the Federal Trade Commission continues a probe of real estate practices it began several years ago. Its Los Angeles office is conducting a national survey in an effort to determine the degree of uniformity of commissions throughout the country and whether discount brokers have been treated unfairly by full-service brokers. Also being surveyed is the depth of consumer knowledge about how commissions are determined and consumer relationships with brokers.
Staff recommendations are due next month, which means that the FTC commissioners may get to the matter next summer, said Robert Blacher, special assistant to the director of the Bureau of Consumer Protection.
He said the Supreme Court's decision upheld what the FTC has always believed: that it has jurisdiction over real estate brokers.
The FTC has three basic remedies it could pursue: prosecution of brokers (which would be handled by the Justice Department), regulation of brokers, and less severe measures such as increased consumer education. Given the recent string of setbacks for the Federal Trade Commission -- as Congress has decreed one industry after another exempt from its regulation -- the third course of action would seem the safest and most expeditious.
Finally, the real estate commissions of Maryland and the District are facing the question of whether to discipline the convicted firms and their presidents by suspending or revoking their licenses.
The D.C. commission, which met Tuesday, is seeking answers to some tough legal questions. Its chairman, Gene Oliver, said he hopes that a decision will be made by the end of February, when licenses are scheduled to be renewed.
Yet, if the real estate commissions do vote sanctions of some kind, the firms in question -- fearing the possibility of loss of thousands of dollars in commissions -- are expected to fight them in court.
So the Montgomery County case is by no means over. In fact, it may be several more years before all legal action has ended. Only then may the publ public know if it has benefitted.