The National Association of Realtors agreed to pay a $418 million settlement and change the way its members charge commission.
A federal jury ruled last year that the NAR conspired to inflate costs in the housing market.
What could that mean for the way that homes are bought and sold in the U.S.?
Today, On Point: This attorney’s ideas could change how you buy and sell your home.
Robert A. Braun, partner in the antitrust practice group at Cohen Milstein.
Doug R. Miller, attorney at Miller Law PLLC. Executive director of Consumer Advocates in American Real Estate (CAARE).
Theresa Hatton, CEO of the Massachusetts Association of REALTORS®.
Roberta Baldwin, realtor in North Jersey with 29 years of real estate experience.
Part I
MEGHNA CHAKRABARTI: This month, the National Association of Realtors agreed to pay a $418 million settlement and change its rules on commissions earned in housing sales. Those rules have defined the industry for decades. It was a culmination of a verdict handed down last fall when a federal jury ruled that realtors have been conspiring to inflate home prices in order to increase the dollar value of their commissions.
Now a federal court still needs to approve the agreement, but experts were already speculating that the new rules could transform how Americans buy and sell their homes. So what exactly happened? And what will this settlement agreement mean for you? We’ll start with a person at the center of this agreement and story, Douglas R. Miller. He’s a real estate and consumer protection attorney and also the executive director of Consumer Advocates in American Real Estate. Doug Miller, welcome to you.
DOUG MILLER: Thank you for having me on the show.
CHAKRABARTI: Okay. I would love to actually start with your background, your story in real estate itself.
Okay. I understand that you actually got a realtor’s license in high school?
MILLER: I did. It was a very easy thing to obtain, and it seemed like a fun thing to do. In most states, you don’t need a high school education to get a real estate license. In fact, in my state here in Minnesota, now, you don’t even need a kindergarten education.
And it’s about 30 hours of training on how to pass the exam and then another 60 hours after that. It’s nothing like getting a plumber’s license or other professional licenses, it’s far too easy. And I did it for fun. And that’s how I got started seeing some of the problems in this industry.
CHAKRABARTI: Okay, I have to say that I did not realize that Minnesota’s laws were as, let’s say, welcoming to potential realtors, as they are.
CHAKRABARTI: It varies from state to state, for sure. In some places it’s harder to get into. In fact, so hard, I would say that they create barriers to entry in order to limit the number of realtors.
MILLER: I would not agree with that.
CHAKRABARTI: Oh, you wouldn’t?
MILLER: No. No.
CHAKRABARTI: Go ahead.
MILLER: Yeah, most of the very large brokerages have embraced a philosophy and it’s called the masses of, it rhymes with masses, philosophy and what they’ve done is they’ve tried to lower the entry standards and every state in the nation, as far as I know, it’s simple.
It doesn’t take much at all. There’s no post high school education requirement, no community school. It’s you take the test and you’re free to go out there. There’s no apprentice programs. You can end up negotiating with having somebody represent you who is completely unqualified to do. And that’s a big complaint I hear from realtors, as well, all the time.
It’s very easy to get licensed. And the reason these brokers do that is they’ve done a few things. They’ve created an IRS statute that makes it automatic that these real estate agents are independent contractors, even though they’re managed by a broker, they’re supervised by a broker, their actions are supposed to be controlled, and they’re supposed to represent whoever the broker represents.
Now they’ve really messed up some of those laws too, but not today. And so what they’ve done is lower the entry standards as much as they could. Because every one of these independent contractors, which are really employees, are free employees. So the more of them they have, the more likely they are to sell to a friend, neighbor, or relative.
CHAKRABARTI: I see. Okay. You know what? I would actually love to learn more about this from you, but that’s not necessarily the focus of our conversation today, but clearly, you’re deeply knowledgeable, Doug. So what I wanted to hear from you is that in your career as a young high school realtor, what did you see at that time that began to concern you?
MILLER: I didn’t really start to see things until I went to college. And I got another license there in Wisconsin and in law school, as well. I actually placed my license with a brokerage firm, and I believe that brokerage firm, the owner went on to be the president of the National Association of Realtors.
And I saw the focus on exploitation. They would create these fiduciary relationships with consumers and then use those relationships to do all kinds of bad things to them. The main driver, of course, was the 6% commission. They would tell people that it’s 6% because I have to share my fee with another broker, and then they would do everything they could to try and make sure the other brokers didn’t sell the house.
So that they could collect a double commission, which they would call and celebrate. They’d call them hoggers.
CHAKRABARTI: Wow. Okay. And then you, so you began practicing law in a one-man law firm?
MILLER: That’s correct. Yeah, I’ve always been on my own.
CHAKRABARTI: Okay.
MILLER: I did start a title company and saw even more.
We closed over 100,000 transactions. We were one of the biggest title companies in Minnesota, but we were independent. And that was a whole other set of issues that the real estate brokers got involved with and polluted and ruined, as far as competition is concerned. But I saw so many transactions and I got such a deep view of what was going on inside these transactions, as the owner of this title company.
CHAKRABARTI: I see. Now about that hoggers case, just to be clear, the plaintiffs won that lawsuit, right?
MILLER: Oh, okay. The lawsuit. I was fresh out of law school, and I started a class action. I don’t actually do the litigation. But I hired a firm. I presented them with another lawyer. We presented a memorandum to some boutique law firm in town that handled class actions, and we sued them. Because they were claiming to represent the buyer and the seller on the same transaction, the same brokerage firm was.
So when you hire a broker, you need to remember, you’re not hiring the agent. Your contract is with the broker. Whomever the broker represents is who those agents represent, and that’s the way the law is supposed to read. In any case, they were doing this, they weren’t making proper disclosures.
You can’t disclose a dual agency in any kind of meaningful way and obtain the consent of a consumer. That’s what the common law requires. It’s just not something that’s possible. Even lawyers, it’s prohibited for them to do it. We won that case on summary judgment. A year later, the most powerful lobby group in the U.S., the National Association of Realtors, bankrolled the lobbying effort in Minnesota to legalize dual agency just for realtors. It was still illegal for attorneys, and we’re trained on how to manage conflicts of interest and they are not. And then all kinds of laws similar to that got passed throughout the whole United States.
So my win was a dramatic failure in my mind.
CHAKRABARTI: Oh, okay. There comes a point though. Where, I think, it sounds like you just feel like there’s so much in the world of housing. And specifically, how realtors are part of the process that troubles you, that you decided to take your ideas to a much larger law firm, is that right?
MILLER: That’s correct. After three decades of trying to work within the industry and talk about all the problems and just meeting brick wall after brick wall. And reading all the cases that were out there and watching how so many lawyers were failing in these cases. I came up with an idea that made a lot more sense, and I approached, first I met with my friend here in Minnesota, Prentiss Cox, he’s the at the University of Minnesota Law School.
I would run all my ideas by him. And then we were out at a conference in D.C. I was introduced to Ben Elga with Justice Catalyst, he introduced me to George Farah, who was at Cohen Milstein, and then from that point on Cohen Milstein immediately saw how important this case was, and I went to them mostly because I knew that they would also try to institute change.
They weren’t just going to try and get a big judgment and get a lot of legal fees. They’re very well known for doing the right thing. And that’s why I went to them. And Cohen Milstein is a Washington based law firm with, I don’t know, a hundred-plus attorneys as part of the firm.
CHAKRABARTI: So we’re going to talk to someone from Cohen Milstein a little bit later in the show, but Doug I started the show by saying what happened.
There was a major victory, for not only your case, but your ideas, more importantly in terms of the kinds of reforms that you see that the realty industry needs. But I have to say, this really does sound like a David vs. Goliath and one of those quixotic adventures that you don’t often anticipate will succeed.
In the United States, in terms of one person identifying or at least having the courage to publicly identify some major issues in an industry that touches the lives of every single American, practically. What gave you the courage to really press on?
MILLER: I am a very persistent individual, and as one of my best friends says, annoying sometimes.
CHAKRABARTI: (LAUGHS)
MILLER: In that degree. I don’t tend to give up. And this was something I just felt so strongly about that. There’s nothing else like it in the U.S. They’re the most powerful lobby group in the United States, and they’ve used that power to create some of the most impossible situations. It’s socialized real estate, and they’re extracting all this money from homeowners.
And it’s not just this, I’ve got a lot of other ideas on what this could lead to, as far as fixing this industry. And so I got to say, I’m 63 years old and I was starting to lose a little bit of faith, and this was the last shot at this, I figured that, if we don’t win this one, it’s just going to continue like this.
CHAKRABARTI: Yeah. Go ahead. Sorry, I didn’t mean to interrupt you, but I was just going to, I couldn’t help but thinking you’re a very boyish sounding 63, a very young sounding 63 to me, Doug. So we’ve got a minute before our first break here.
MILLER: (LAUGHS)
CHAKRABARTI: And I just want to quickly ask you what was your elevator pitch to Cohen Milstein when you talked to them about let’s bring a big case against the National Association of Realtors?
MILLER: I had put the whole case together and I showed them, people come to listing agents. Our listing agents go to consumers and say, the reason why my commission is so high, 6%, or sometimes 5%, or sometimes 7%, is because I’ve got to pay this by a broker. And the real question should be, why? Why are you paying somebody else’s broker to negotiate against you?
It makes no sense unless you’re trying to artificially inflate the buyer brokerage fee.
CHAKRABARTI: This is Doug Miller you’re listening to. He’s a real estate and consumer protection attorney at Miller Law, PLLC in St. Paul, Minnesota. And he is at the heart of a major lawsuit and then subsequent settlement that was agreed to this month by the National Association of Realtors, which is likely to completely upend or at least radically change the rules around real estate commissions.
We’ll hear a lot more about this case in just a moment.
This article was originally published on WBUR.org.
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