According to the civics texts, the decisions of the Supreme Court are the most influential options in our judicial system. Yet the two realty cases that recently passed before the Supreme Court have drawn little response from the real estate industry.
In The Washington Post's analysis last week of the New Orleans and Montgomery County cases, no local brokerage official would comment on the decisions. Perhaps many support the view of William North, counsel to the National Association of Realtors, who told the Gannett News Service after the New Orleans ruling that, "practically speaking, it doesn't make a bit of difference."
Are these cases really so insignificant that they will not affect the manner in which we buy and sell homes in the future? I think not.
In McLean vs. the Real Estate Board of New Orleans, the court ruled unanimously that brokerage activities are within the "stream" of interstate commerce. Several days later, the court refused to hear the appeal of six real estate companies and three Realtors who had been convicted on criminal price-fixing charges in Montgomery County.
There are several trends that are likely to emerge from these cases. To start, the twin decisions clearly established a federal jurisdiction in brokerage matters. The availability of the federal court system to the public will supplement and enhance regulatory efforts by state realty commissions.
It is hard to imagine, in this litigious era, that lawyers and consumer groups throughout the country are not examining local real estate practices with an eye toward reform after the Supreme Court rulings. As an example, Consumers Union and the National Senior Citizens Law Center have asked the California real estate commission to ban listing contracts that pre-print the rate of commission.
Another suggested reform would require all listing contracts to state, in bold type, that "real estate commissions are not fixed and are negotiable by law."
Real estate fees show remarkable levels of uniformity in given areas. According to testimony given by Michael Carney at a seminar on real estate broker practices held by the Federal Trade Commission and the Department of Housing and Urban Development, a survey of 1,000 homes sold in Norther Virgina in 1977 showed that 94 percent were marketed with a 6 percent commission. Only 20 houses -- 2 percent of the sales studied -- were sold at commissions below the prevailing rate.
The real estate industry argues that fees tend to be uniform because of intense economic competition. At best, this is a disingenous idea. The cost of a sign or ad does not change with the value of the home. Yet, with 6 percent commission the fee for the sale of a home rises proportionately with the value of the property.
Because real estate fees are tied to the value of homes, rather than the actual cost of services, realty commissions -- much like housing prices themselves -- are rising at a faster rate than the general cost of living. Based on the purchasing power of the dollar, it can be argued that in a competitive environment realty fees should actually be declining in terms and as a proportion of the sales price.
There are at least three price-fixing cases in process. In the New Orleans decision, the Supreme Court ruled that lower federal courts had jurisdiction in brokerage price-fixing cases. However, the High Court did not comment on whether the Real Estate Board of New Orleans had tried to fix prices. That issue must now be decided.
In Syracuse, N.Y., nine real estate firms, five individuals, and the Greater Syracuse Board of Realtors have been indicted by a federal grand jury for criminal price-fixing. This case, which is similar to the one in Montgomery County, alleges that the brokers had "a continuing agreement, understanding and concert of action" that discouraged or eliminated price competition.
More than $1 billion in damages is being sought in California under class action suits against brokerage groups in San Francisco, Sacramento, Fan Fernando, Marin, Contra Costa, and San Mateo counties as well as the National Association of Realtors and the Califronia State Association of Realtors.
In the California case is alleged that the multiple listing services have been used to raise brokerage fees through the required use of exclusive right-to-sell listing contracts. Such contracts guarantee a fee to the listing broker even if the property is sold directly by the owner during the listing period.
Another effect of the Supreme Court's decisions has been to raise the potential ante in price-fixing cases. The Montgomery County case was a criminal antitrust action, not a civil case. The difference, according to one attorney, is that if a broker is found guilty in a criminal proceeding, the information used in that case can later be used in a civil suit for damages.
It is worth noting that there were more than 40 civil consent decrees concerning price-fixing prior to the Montgomery County ruling. In a consent decree, a broker would not have to admit the validity of the charges.
The federal government, for its part, can also be expected to continue its review of realty practices. The Justice Department has begun to examine the general process of occupational licensing.
In a speech last year, Donald L. Flexner, deputy assistant attorney general, noted with regard to real estate that, "homes seemed to remain on the market for longer periods of time in states where licensing requirements for real estate brokers were most restrictive. Moreover, the higher the borker's income, the lower the test pass rates for real estate brokers in such states."
Approximately 6 percent of attorneys at the Federal Trade Commission are now involved with housing and real estate matters. The overwhelming majority are concerned with new-home defects; however, the FTC's Los Angeles office is conducting a specific investigation of realty operations.
A major effect of the Supreme Court decision will be in the area of public education. In many regions, the topic of real estate is considered "soft news." Realty advertising is a major component of newspaper revenues and, sadly, many papers respond by running collections of puff peices and press releases. The electronic media, for its part, has largely failed to address the subject.
The court decisions have publicized the issue of realty fees, and action that may encourage public demand for more realistic reporting.
The Supreme Court decision will compel the real estate industry to become more efficient. There is no reason, for example, why there should be 8,000 licenses in the District of Columbia -- one for every 81 citizens regardless of age or economic capacity. Free and open competition will reduce the number of firms and licenses while permitting more choices for consumers in the marketplace.
For those firms that wish to compete openly today, the court decisions are a blessing. In effect, the Supreme Court has erected a judicial umbrella over the small coterie of flat-fee and discount firms that have emerged in the past several years. Collusive or monopolistic efforts to limit competition may now result in criminal indictments, fines, jail sentences, and civil suits. m