class action

National Association of Realtors announces $418 million settlement

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The National Association of Realtors (NAR) announced a proposed settlement on March 15 of four large antitrust suits involving buyers’ brokers commissions. The monetary settlement is set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.

This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in these lawsuits. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.

The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.

Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers even suggest that home prices will increase as a result of these machinations.

I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.

Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.

One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.

This blog earlier discussed the $1.8 billion verdict in federal court in Missouri against the NAR and two brokerage firms. Other lawsuits followed this verdict, and this settlement intends to bring all the suits to a conclusion.

The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles.

Real estate agents’ commissions could be at issue nationwide

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Missouri jury delivers a $1.8 billion judgment

Halloween brought a scary judgment in a Missouri class action by residential real estate sellers against the National Association of Realtors (NAR), a real estate agent trade association, and several real estate agent entities. The judgment of $1.8 billion will surely be appealed all the way to the Supreme Court. Appeals may take several years to be completed.

The sellers argued that commissions are rarely negotiable, and that the seller is required to pay commissions for both sides of transactions. I heard a seller interviewed by Lester Holt on NBC Nightly News on November 1. He said that he must pay commission to a real estate agent he never met, will never meet and who did no work for him.

The plaintiffs also argued that this commission structure keeps home prices artificially high.

At least two real estate agent entities settled for large sums prior to the judgment. And similar lawsuits are pending in other jurisdictions.

Dirt lawyers, how do you project this suit may ultimately affect our industry? I wonder if any type of injunction will be put into place pending appeal. I wonder whether the Department of Justice will see the necessity to become involved. I wonder whether commissions will ultimately become negotiable and whether buyers will be required to pay their agents up front or at closing. If that happens, I can imagine extensive negotiations with sellers to pay more of their buyer’s closing costs than customary. I even wonder whether buyer agents may become obsolete.

Let me know what you think!

CFPB’s Proposed Rule Would Allow Consumers to Sue Banks

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Arbitration clauses would be limited

At a hearing on May 5, Consumer Financial Protection Bureau Director Richard Cordray announced that the agency has issued a proposed rule that would ban consumer financial companies from using mandatory pre-dispute arbitration clauses to deny their customers the right to join class action lawsuits.

The proposed rule can be read here, and is also found on CFPB’s website. When the proposal is published in the Federal Register, the public will have 90 days to comment.

pen mightier than swordDirector Cordray stated in his comments last Thursday that this rule is a benefit to consumers because it will discontinue the practice of entities inserting arbitration clauses into contracts for consumer financial products and services and literally “with the stroke of a pen”, blocking any group of consumers from filing class actions. He said the CFPB’s research indicates that these “gotcha” clauses force consumers to litigate over small amounts ($35 – $100) acting alone against some of the largest financial companies in the world.

Some authorities are arguing that consumers will not be benefited by the proposal because of the high cost of class actions and the fact that it is often lawyers, not consumers, who benefit financially from them. The proposal does seems contrary to the Federal Arbitration Act and legal precedent and also demonstrates the power of the agency, the power that has already been challenged in several lawsuits nationwide. Some might suggest that the agency is the entity that acts “with the stroke of a pen.”

The proposed rule does not reach to title insurance and real estate settlement services. The rule applies to products and services that extend, service, report and collect credit.

One fact seems certain. The CFPB has not completed its efforts to shake up the market!