The Real Estate Industry Is Subject To Antitrust Laws
The real estate industry is subject to antitrust laws. At the federal level, the Sherman Antitrust Act provides specific penalties for a number of illegal business activities. Each state has it’s own antitrust laws as well. These laws prohibit monopolies and any contracts, combinations, and conspiracies that unreasonably restrain trade - that is, behaviors that interfere with the free flow of goods and services in a competitive marketplace. The most antitrust violations are price-fixing, group boycotting, allocation of customers or markets, and tie-in agreements.
Price-Fixing - Price-fixing is the practice of setting prices for products or services rather than letting competition in the open market establish those prices. In real estate, price-fixing occurs when competing brokers agree to set sales commissions, fees, or management rates. Price-fixing is illegal. Brokers must independently determine commission rates or fees for their own firms only. These decisions must be based on a broker’s business judgment and revenue requirements without input from other brokers.
Multiple-listing organizations, boards of REALTORS, and other professional organizations may not set fees or commission splits. Nor can they deny membership to brokers based on the fees the brokers charge. Either practice could lead the public to believe that the industry not only sanctions the unethical practice of withholding corporation from certain brokers but also encourages the illegal practice of restricting open-market competition.
The broker’s, and agent’s, challenge is to avoid even the impression of price-fixing. Hinting to prospective clients that there is a “going rate” of commission or a “normal” fee implies that rates are, indeed, standardized. The broker must make it clear to clients that the rate stated is only what his or her firm charges.
Group Boycotting - Group boycotting occurs when two or more businesses conspire against another business or agree to withhold their patronage to reduce competition. Group boycotting is illegal under the antitrust laws.
Allocation of Customers or Markets - Allocation of customers or markets involves an agreement between brokers to divide their markets and refrain from competing for each other’s business. Allocations may be made on a geographic basis, with brokers agreeing to specific territories within which they will operate exclusively. The division may also occur by markets, such as by price range or category of housing. These agreements result in reduced competition.
Tie-in Agreements - Finally, tie-in agreements (also known as tying agreements) are agreements to sell one product only if the buyer purchases another product as well. The sale of the first (desired) product is tied to the purchase of a second (less desirable) product.
Penalties - Penalties for violating antitrust laws are very severe. For example, under the federal Sherman Antitrust Act, people who fix prices or allocate markets may be subject to a maximum $100,000 fine and three years in prison. For corporations, penalties may be as high as $1 million. In a civil suit, a person who has suffered a loss because of the antitrust activities of a guilty party may recover triple the value of the actual damages plus attorney’s fees and costs.
Resource: Fillmore W. Galaty, Wellington J. Allaway, Robert C. Kyle (2006). Modern Real Estate Practice. Dearborn Real Estate Education, (Chicago, Ill).