RealtySouth Lawsuit

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Alabama real estate professionals are scrambling this week, after a major court ruling against Birmingham-based RealtySouth. As WBHM’s Tanya Ott reports, the lawsuit could affect 30,000 Alabamians and cost the company tens of millions of dollars.

Don McKenna still smiles when he recalls Monday night. He was pulling into the baseball park in Cahaba Heights, ready to coach his son’s game, when he got a update on his BlackBerry. A federal judge had just ruled against RealtySouth. The baseball team also won its game that night.

“It was a great ‘two-fer’ night. Even got doused with Gatorade by seven year olds.”

The court ruling was a long time coming. McKenna filed the suit in 2004, alleging that RealtySouth improperly charged a $149 fee to home buyers and sellers.

“If you look down a settlement statement, you’ll see 20 or 30 charges. You’re writing a check for $100k or more and $149 just seems like,’well, I guess I’m paying that too.'”

Earlier this week, Federal District Court Judge Virginia Emerson Hopkins ruled the firm collected the so-called “administrative brokerage commission”, but performed nothing for it. That violates the federal Real Estate Settlement Procedures Act.

Now a $149 fee doesn’t sound like much. But this is a class action lawsuit with 30,000 plaintiffs. And, because it’s a federal lawsuit, the damages are tripled. Do the math and you get a price tag of nearly $13.5 million dollars. And that doesn’t include attorney’s fees and expenses.

“That’s going to be a big hit for RealtySouth in a time when the real estate business is not flourishing.”

Lary Cowart is interim dean of UAB’s Department of Finance and he’s a real estate expert who’s watched RealtySouth grow into Birmingham’s largest real estate company.

“If it is not insured then it’s going to make a very significant impact on them.”

It’s hard to say exactly how painful the payout would be. RealtySouth is a private company, so financial records aren’t publicly available. RealtySouth is owned by the nation’s second largest real estate company, Homeservices of America, and HomeServices is an affiliate of Berkshire Hathaway, which has acknowledged a drop in revenues.

UAB’s Lary Cowart estimates nearly half of all big realty firms charge a fee like the one that got RealtySouth in trouble. He says those firms are now on notice.

“I think that any real estate brokerage firm that has been charging a fee for which they did not actually render a service will be up in the sites of attorneys and buyers who paid that fee.”

In a written statement, RealtySouth Marketing Vice President Dawn Reeves says the company disagrees with the judge’s ruling and looks forward to appealing. In the meantime, this leave realty professionals like closing agents and attorneys are scratching their heads. Even today, RealtySouth is still charging the disputed fee. Even with it being in court, the company increased the fee to $250 last month. Until the case is resolved buyers and sellers will have keep paying it.