Boycott. Price-fixing. Antitrust. Treble Damages. You. Your Firm. Your Association.
Posted on April 11, 2011 by aardev
Do I have your attention yet?
These words are ‘fightin’ words. They are words that should scare you, and scare your association.
In the 70s and 80s, REALTORS® paid more attention to these words because the Federal Trade Commission was actively involved in looking for antitrust problems involving the real estate industry. You don’t hear them so much now as enforcement activity has lessened – probably due to the fact that the REALTOR® association did a good job educating its members about situations that could lead to antitrust violations and treble damages.
However, REALTORS® and REALTOR® associations cannot have a false sense of security about antitrust problems. Today’s new business models and stiff competition for new business create a ripe environment for liability for members and their firms alike.
“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade … is hereby declared illegal.” …the Sherman Act.
Keep that statement in mind as you take this short quiz to see how much you know about antitrust – (it could save you money, and your license.)
- Several association leaders remained at the restaurant bar after an association function and agreed that they would raise their commission rates from six to seven percent beginning the first of the month. This is okay and not a violation of antitrust law. True or False?
- At a broker’s breakfast, brokers of the three largest firms in the area decided they would all offer a 40% split to cooperating brokers in the MLS. Since brokers can split their commissions however they want, this would not be an antitrust violation. True or False?
- A group of REALTORS® from different firms met to discuss what to do about the high advertising rates of the local newspaper. They decided to refuse to advertise for two weeks, just to “make a statement.” This would likely be classified as a ‘per se’ illegal group boycott. True or False?
- A REALTOR® attempting to get a listing from a prospective seller says, “I’d like to lower the commission, but no one in the MLS will show your house unless the commission is x%.” This could be understood to suggest a conspiracy or to falsely disparage a competitor. True or False?
- A group of REALTORS® from different firms met for an MLS meeting to discuss proposed policy revisions. A discussion about a new firm that was a ‘limited service” firm was held – and several of the brokers decided they wouldn’t show that firm’s listings. Since it wouldn’t be fair for cooperating brokers to have to work on those listings since they would have to do most of the “work,” this is a decision that could legally be made in this situation. True or False?
Let’s look at the answers.
- False. You already know this one. Not only could the individual REALTORS® who collectively decided to increase fees be liable, but so could their association!
- False. Although it’s true that firms can establish their own individual policies to determine what type of a commission split they will pay to cooperating brokers, competing brokers cannot decide together to “fix prices,” which is what this arrangement would be.
- True. Such a scheme to collectively agree to boycott a vendor would be an antitrust violation and would likely create liability for the association as well as the individual brokers.
- True. Although REALTORS® may independently decide not to show a listing that offers less compensation than they want to work for, an agreement by competitors to only show listings that offer “ x% or higher %” would be a serious antitrust concern. A more positive way to address this situation with a seller could be: “Many buyer’s agents will be more likely to show listings that offer a competitive compensation – if the commission I negotiate with you is “x”, that won’t allow me to pay a competitive split and keep enough for me to offer the services my company wants to provide to you.” REALTORS® should always be prepared to explain what services they offer that justify the commission they charge.
[NOTE: Buyer’s agents should have a discussion with their buyers about what level of compensation they are willing to take from a listing broker and which may dictate which homes they decide not to show. See sidebar .. What is a limited service listing? for more.]
- False. This is another situation of one or more competitors getting together to collectively restrain the trade of another competitor and would be a violation of antitrust law. Limited service firms are relatively new to the marketplace and, while offering a different service than most firms have traditionally offered, are not doing anything illegal or unethical by doing so. [For more details about “Limited or Unserviced Listings,” see the sidebar….]
The Sherman Act is the foundation of antitrust law and the statute upon which most federal antitrust litigation is based. If a common scheme or plan can be shown, the only issue to argue is whether it restrains trade unreasonably. A per se violation of the antitrust law is one that is so inherently anticompetitive that their unreasonable effects on trade will be presumed without the plaintiff introducing evidence to show that it has a negative impact on the market. In per se cases, the defendant is not allowed to show any evidence that the restraint was reasonable, because unreasonableness is presumed. The only issue is whether the defendant participated in the conspiracy.
NAR MLS Policy also provides:
A Multiple Listing Service shall not: “Fix, control, recommend, suggest, or maintain any percentage division of commissions or fees between cooperating members or non-members.
Further, the REALTOR® Code of Ethics, Article 15 provides:
REALTORS® shall not knowingly or recklessly make false or misleading statements about competitors, their businesses, or their business practices.
This is serious stuff. Both price-fixing and group boycotts are defined as per se violations of the antitrust law. REALTOR® associations should be very cautious about taking any collective action against members that deals with that member’s business practices (and by their nature, REALTOR® associations are ‘combinations’ – which means they’re halfway to antitrust violations before they even start talking!) Individual REALTORS® should also be very cautious about discussing fees or commissions or business arrangements of competitors with competitors. The consequences are simply not worth it!
For more details about the REALTOR®’s role in antitrust situations and what to watch for, see the references below.
You Said What? An Antitrust Brochure
Antitrust and the Real Estate Brokerage Firm
What is a Limited or Unserviced Listing?
Today’s competitive market is a ripe environment for new and creative business models. One relatively new model is what is frequently called “unserviced” or “limited service” listings, and those who take such listings are often called “limited service brokers.”
Limited service brokers offer their seller-clients little or no traditional marketing services other than placing the listing in the MLS. A fee is charged to the seller, and could be paid at the time of the listing or at the close of escrow.
Are these listings permitted to be in the MLS?
Yes, as long as they are legal exclusive right to sell or exclusive agency listings under state law and offer compensation to MLS Participants. NAR MLS Policy does not allow for a listing to be rejected on the basis of the level of service offered by the listing agent.
What if the seller is the one who pays the buyer’s agent the commission?
This is permissible as long as a listing agreement provides for the seller to satisfy the listing broker’s offer to compensate the cooperating broker. Because the listing is an MLS listing, the listing broker is also obligated to arbitrate any dispute over such compensation.
Do I have to show these “limited listings?’ As a buyer’s agent, I don’t want to do all of the listing agent’s work without getting paid for it!
It depends. Buyer’s agents should have a discussion with their buyers early in their relationship about the type of property the buyer is looking for, and the agent should discuss under what terms they are willing to work – including compensation or other arrangements. If the buyer agrees that is reasonable, the buyer’s agent should feel comfortable choosing properties that offer the type of compensation and terms they wish. On the other hand, if a buyer wants to see everything that meets their criteria, the buyer’s agent should refer the buyer to an agent that will show all listings, or agree to do so herself. If the buyer’s agent hasn’t had that conversation with their buyer, the agent probably needs to show everything, regardless of compensation or terms.
|One caution that must be clearly understood by everyone – REALTORS® should never discuss under what terms or compensation offered that they are willing to work for with their peer competitors. This likely would be seen as price-fixing and a ‘per se’ violation of federal antitrust law.|
Is there a way that I can know ahead of time about this kind of listing?
NAR MLS Policy offers optional language for the REALTOR® Association MLS to adopt that provides for a disclosure rule – which is an identification of listings placed in the MLS that offer less than “full service.” Use of such a code such as “LR” would serve only to distinguish such a listing from other listings with respect to which listing a broker will provide “substantial services.” Substantial services include, but are not limited to, the listing broker’s participation in the presentation of offers to purchase, the seller’s consideration of such offers, or the seller’s making any counteroffers.
NAR’s Multiple Listing Policy Handbook www.realtor.org/mempolweb.nsf/pages/MLShandbookCI?OpenDocument&Login.