About Minnesota’s Real Estate Industry

Minnesota Maybe the Worst Place in the Nation for Real Estate Consumers

Many consumer lawyers agree that Minnesota is one of the most anti-consumer environments in the country. This especially applies to real estate practices and Minnesota appears to be the testing ground for some of the worst practices in the nation. Minnesota continues to be a place where real estate brokerages (especially the larger firms) prey upon their own clients.  The dual agency likely got its start in Minnesota.

In 1992, Edina Realty (a Warren Buffett corp.) was sued in a consumer class action lawsuit for engaging in the undisclosed dual agency and lost on summary judgment. One year later the Minnesota Realtor Association used its immense lobbying power to pass a law legalizing dual agency only for real estate brokers. It is still illegal for every other profession (because it almost always results in fraud).

When practiced by brokerages, dual agency is worse than in other professions because real estate brokers have an insurmountable financial conflict of interest that rewards them with double fees.

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In 2007 First American Title Insurance Company (a national title insurance underwriter) was fined $500,000 and signed a consent order with the Minnesota Department of Commerce to shut down dozens of what the department said were sham title agencies that provided illegal referral kickbacks to local real estate agents, mortgage brokers, developers and other industry players. This enforcement action led to a multitude of other actions against other sham title firms and their partners both here and across the country. Despite numerous notifications by CAARE, this consent order continues to be missing from the Commerce Department’s website. You can read the Order and a newspaper story about it here: Consent Order and Star Tribune Story…

CAARE Minnesota Practice & Policy Issue

 

Double Fees in Minnesota – Realtor Contracts mislead consumers into paying double fees. Dual agency laws are lax and not enforced. And the laws that do exist have been written by Realtors for Realtors to promote one of the worst practices in real estate – dual agency. Many misleading anti-consumer and anti-competitive practices exist that are designed to get consumers to unnecessarily pay a double fee and forfeit their right to representation. Most Realtors do not understand dual agency.  Read about dual agency here (click).

Kickbacks for Title Company Referrals – Minnesota may be the birthplace of Affiliated Business Arrangements (arrangements in which Realtors, Realtor firms, and other real estate service providers have an inappropriate financial tie to title firms). Affiliated Business Arrangements are the only legal form of kickback permitted by federal law and they are only legal due to an immense lobbying effort by the Realtor Association. In Minnesota, both legal (click here for a partial list of Minnesota affiliated business arrangements) and illegal kickbacks in return for title firm referrals are typical. These tying arrangements eliminate the impartiality of this important decision maker and eliminate competition causing prices to go up and services to decline. We suggest you seek out an independent title firm for your closing (click here for a partial list).

MLS Conditional Access Severely Harms Consumers – Minnesota MLSs condition access to firms like Zillow, Trulia and Realtor.com upon referrals back to listing brokers. This causes buyers to unwittingly give up fee negotiating strategies and forfeit the right to representation. MLSs are conservators of seller data and should be doing everything possible to spread that data to help sellers sell their homes. Instead, NorthstarMLS claims copyrights to seller data and restricts dissemination of that data. One of the worst consumer atrocities in this area is occurring right in Minnesota in a lawsuit in which NorthstarMLS and Edina Realty are involved: Regional Multiple Listing Service of Minnesota vs. American Home Realty Network (click here to read more about this important case).

Pocket Listings – Some firms mislead consumers into agreeing to keep the property off MLS for a certain period of time. Most of the reasons given for these “pocket listings” are inaccurate and misleading. Some states have made these illegal (click here). Minnesota is not one of those states and the practice has become very prevalent. Read more about pocket listings by clicking here and here.

Copyrights on Client Data – At least one firm, Edina Realty, and NorthstarMLS attempt to claim copyrights on client data. Consumers should not agree to this.

Data Manipulation – Some firms refuse to upload seller client data to important buyer-frequented websites like Zillow, Trulia, and Realtor.com. Edina Realty has made national news for doing this (click here).

Inaccurate Data – Many listing brokers do not measure properties prior to listing them and few buyer agents measure them on behalf of their buyers. This has resulted in an alarming number of properties going through the entire closing process with incorrect structure and lot dimensions. Appraisers often comment that MLS data is completely unreliable. This has become a major concern for consumers. Consumers should always insist that their Realtor measure properties prior to listing or buying them.

Commission Structures are Structured to Prevent Negotiation  – Real estate commissions are represented as being a bundled fee in Minnesota. In many states, the buyer broker and listing broker fees are required to be shown as separate fees in the listing contract. Bundling the buyer broker and listing broker fees is misleading and causes consumers to overpay for real estate services. Sellers should negotiate the listing portion of the commission and negotiate and offer the buy-side commission to both buyer brokers and directly to buyers. Buyers should always negotiate a commission rebate with their brokers (click here). And never agree to pay extra broker fees in addition to the commission.

Minnesota Listing Contracts – The Minnesota Association of Realtors utilizes a listing contract that discourages negotiation of fees and is highly Realtor biased. Their form is not a required or standard form and it is highly recommended that you find a smaller firm to list your house and use an attorney and CAARE’s free Minnesota Listing Contract (click here) or the Minnesota Bar Association’s Listing Contract (click here and search for “Listing Contract”).

“Standard” Purchase Agreement forms – Beware of the Minnesota Association of Realtors purchase agreement form. Use the free and better Minnesota Bar Association Purchase Agreement forms (the forms can be found here) and consider hiring a real estate attorney.

Predatory Fiduciary Practices – Realtors in Minnesota are fiduciaries and are supposed to be representing their clients’ best interests. Instead, Realtors and especially brokers at large firms routinely use their position of trust and reliance to engage in self-dealing by pressuring agents to steer clients into the over-priced in-house title, mortgage, and other services and to “advise” clients to sign anti-consumer arbitration clauses designed to strip consumers of many basic legal rights.

Real Estate Licensee Entry Levels are Minimal – In Minnesota, no high school education is required. 30 hours of training on how to pass the licensing exam is all that is required to obtain a Minnesota salesperson’s license.

Real Estate Licensee Continuing Education is Ineffectual – Brokers can provide in-house education to their salespeople that is inaccessible to other licensees and largely unregulated. Mainstream classes often teach Realtors how to market themselves instead of their clients’ properties and often provide inaccurate information. Lobbying efforts were successful in disqualifying real estate related legal continuing education credits to apply towards real estate licensing credits (essentially guaranteeing that Minnesota licensees will be kept in the dark).

Unlicensed Solicitation of Title Insurance – Real estate brokers and their salespeople routinely steer their clients into in-house title companies where clients purchase title insurance (often at inflated prices).  Minn Stats. 60K.31 Subd. 15 and 60K.32 require an insurance license to do this.

Licensing Laws that Protect Real Estate Licensees from Consumers – Many of the Minnesota licensing laws appear to be designed to prevent class action lawsuits and protect licensees from liability for malfeasance.

Minnesota Real Estate Lawyers Survey on Residential Real Estate Practices – In 2008, CAARE conducted a survey of 100 Minnesota real estate lawyers. 97% of attorneys agreed that agents will avoid service providers who are the best at finding problems – those who earn the label, “deal killer.” 92% of attorneys agreed that disallowing affiliated business practices would result in a real estate marketplace that is more competitive, and more in favor of consumers. 86% of attorneys agreed that contract clauses that are “free hand” drafted by real estate agents are often voidable or seriously defective. To see the results of this survey click here. To read “The Legal Description’s” story on this survey Click Here.

Watch Out for Educational Materials from the Minnesota Attorney General’s Office on How to Buy a House. We have found that most regulators do not understand the complexities of the real estate industry and have engaged the assistance of Realtors to help draft their consumer information. Here is an analysis of the Minnesota AG’s Office materials that is really a lesson on how NOT to buy a house: Minnesota Attorney General’s Office is Misleading Consumers.

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