The troubling questions about our future place us at the rubicon:
I’m no shrink and I’m not psychic, but I’m willing to bet that if I took the emotional temperatures of real estate lawyers these days, the most common feelings would be fear and uncertainty about the future of their practices.
These are valid feelings, when you consider the vast changes now taking place in the real estate industry. As a profession, we are forced to consider four very troubling questions.
One, how will deregulation affect my real estate practice? If banks can sell title insurance, where do I fit in?
Two, will RESPA Section 8 be repealed, or at least amended, clearing the way for builders, Realtors and lenders to receive kickbacks or to "package services" which would diminish or eliminate the profitability of this product for my law practice?
Three, will Realtor® controlled business succeed in Illinois? If so, should I cast my lot with the Realtors as a defensive measure?
Finally, you must ask, what impact will technology have on my practice and my future as a real estate lawyer?
These are tough questions—with no easy answers. But just because they are tough questions, do we become paralyzed with fear? Do we give up and get in bed with the Realtors and lenders?
We are at the rubicon, the point of no return. Before we cross, for the reasons which I will outline over the pages that follow, I believe that it is very premature for us to give into these fears.
Fear is the concern over events that might happen in the future.
While the concerns is valid, I continue to believe there is a viable future for real estate lawyers in this market despite the dramatic changes taking place in the industry and despite the calls for surrender being sounded by others.
Can the realtors/lenders really win? This author believes not:
Let’s begin with the most pressing question: Is Realtor/lender controlled business the death knell for the real estate lawyer?
Controlled business certainly represents one of the most serious threats ever to face the real estate bar. Not a day goes by that we don’t worry about Cendant Corporations or Citibank and the potential for dramatic changes they represent. We must ask ourselves, can the Realtors or the lenders, or Microsoft for that matter, end our collective careers? We ask ourselves who will win the battle for the hearts, minds and wallets of the consumer?
So, let’s start with the Realtors:
I believe that Realtor controlled business fails, at least in the near term, in the Chicagoland area.
Why would it fail?
One, lawyers in Chicago actively represent clients in residential real estate transactions. This is not the case in other states where controlled business has been successful. For example, Burnet Realty dominates the Minneapolis title services market—but lawyers there gave up their real estate practices years ago. In Rochester, and other parts of Minnesota where lawyers routinely conduct closings, the lawyer controls the title process, not Burnet.
Two, lawyers/real estate salesperson relations are good. As long as the salesperson is not getting an inducement, I cannot envision a salesperson wanting to disrupt a long standing relationship with counsel. I must confess, however, that the programs being promoted where the salesperson is given a financial incentive for capturing title business could change all that.
Three, lawyer/client relations are good. For many of you your business is repeat business. Clients come back to you because you did a good job the first time around. You prove your value by doing a good job. A good client will defer to your judgment.
For this reason, you need to be less dependent on Realtor referrals. The focus of your practice should be on repeat business from existing clients. I know that this is difficult, but with patience and time you can succeed. There are increasing numbers of lawyers who get a high percentage of their business from repeat clients.
Four, I believe that many of the controlled business programs currently being touted are either sham controlled businesses or constitute illegal tie-in arrange-ments. For example, we believe that it is illegal for a Realtor to refer you a client on the condition that you use their captive company. This is an illegal tie-in. We also believe that RESPA prohibits the payment of dividends from an LLC which are tied to the number of referrals sent by the Realtor.
Finally, there are ethical considerations: you cannot ethically accept referrals from a Realtor, or anyone else for that matter, with strings attached. Your duty is to your client, not to the party sending you the file. I understand that in some of these controlled businesses the lawyer is an "employee" of the Realtor’s title company. How can that not impair a lawyer’s judgment?
As for the lenders, I recommend a wait and see approach. ATG had the foresight in 1987 to get enacted Section 2T of the Consumer Fraud Act, which prohibits lenders from dictating settlement service providers. That legislation could be an important vehicle as we take on lender controlled business. Also, since Illinois continues to be a seller pay state, I am relatively sanguine that lenders will have a difficult time shifting the point of purchase of title services.
The Realtors and lenders who are pushing one stop shopping want to undermine the culture of buying and selling real estate in Chicago. However, in this culture, you play a critical role.
What Should We Do As A Profession?
So, having said all this, what do we do to survive?
One, the Real Estate Bar must take to the high ground and defend itself. To concede defeat now and cave in to the Realtors is foolish. So far, we have been winning the battle. This being the case, what is there to gain by surrendering? The price is too high when the threat is at best only a perceived threat.
Two, lawyers must be vigilant and client oriented. Good client relations and good Realtor relations will carry the day. The phrase, "physician heal thyself" has equal application to the legal profession.
Three, ATG, and other like-minded organizations, must be willing to defend your right to represent your clients. We will go to the courts if necessary. We have hired antitrust counsel and we are ready for this fight.
Four, the ISBA is readying itself to go to the Illinois Supreme Court to help address these threats. The ISBA/CBA task force on the unauthorized practice of law, which I am proud to be a member, is looking to introduce a proposed Supreme Court Rule on unauthorized practice which should stem help the tide of non-lawyer encroachment into transactional law.
Five, we must make the public aware of the need to hire real estate counsel by engaging in an aggressive media campaign. ATG has committed significant dollars to this. I encourage the ISBA, DuPage County Bar and all who believe the practice of real property law is worth protecting to do the same.
Finally, and most importantly the legal profession must lead and not follow. Technology will change the way that real estate is bought and sold in the United States.
Realtors, are at considerably greater risk of losing their practices than is the real estate bar. The internet is going to change the very fundamentals of this process. I promise you the days of the salesperson driving around in their Towncar with a dog-eared MLS book in the back seat, charging 6%, will soon be behind us.
Technology is going to drive real estate sales in the future and this represents real opportunity for lawyers to get involved in the real estate transaction from the time the property is first put up for sale.
I believe that we lawyers, working in concert with the internet technology industry, can change the way real estate is bought and sold in this country. We need to think outside the box. Real estate sales, real estate financing and trust services are but a few examples of services lawyers should be providing clients, as "trusted advisors." This is not a battle over title work; it’s much bigger than that.
Mark Twain once said "I’ve been through some terrible things in my life, some of which actually happened."
The same holds true of controlled business. Don’t let your fears dictate your behavior.
Some suggest that it is time to give up your title practice and form joint ventures with Realtors. Giving in to the Realtors without a fight is a strategy that spells doom for the real estate bar. If you give salespersons money for capturing title work, the well will be poisoned forever. If this strategy is successful, the best we can hope for is a handful of lawyers controlling the title work with a few dominant Realtors. Worst case, the Realtors will use you early on then discard you when it is no longer in their economic interest. This cannot and will not serve either consumers or the real estate bar.
Yes, we face many threats. But with these threats come many new opportunities. I personally look forward to working with you as we become leaders, not followers, in the many exciting changes that lie ahead.
Peter J. Birnbaum is the President of A.T.G. He is on the forefront of the battle to preserve our profession. He may be reached at firstname.lastname@example.org.