If you have sold or purchased a home recently, you might be under the impression that real estate commissions—the price to engage a real estate broker—are fixed or otherwise set by law in different geographic markets. They aren’t—to do so amounts to price-fixing, which is a per se violation of the antitrust laws.
Like any other competitor—professional or not—real estate brokers and agents must compete for customer business on price, quality, and everything else. If competing professionals were to join together to fix commissions at a set price, they would violate the antitrust laws. And since it would be a per se violation, there are potential criminal penalties.
In fact, the U.S. Department of Justice, Antitrust Division, is engaged in prosecuting some other real-estate participants for per se antitrust violations—bid rigging: Several Northern California real-estate investors have pled guilty for bid rigging public real estate foreclosure auctions. Similar bid rigging of foreclosure auctions apparently occurred in Georgia, as well. We wrote about these bid rigging investigations long ago when DOJ’s antitrust activity was in its early stages.
But let’s return to real estate brokers and commissions: It is true that in most geographic regions, you see commissions at around the same level, no matter who you hire as a real estate agent. That will sometimes happen in a market; there is a rate that is around the market rate and most will price around that rate. We wrote a prior article about this situation, where real estate commissions ended up at the same level, but not due to any agreement. This was not an antitrust violation.
For some reason, however, there is an impression with real estate commissions that there is a “standard” or “legal” rate that real estate agents must price. If you are a consumer in this industry, it is important that you know that this is absolutely incorrect. If your real estate broker tells you otherwise, have them read one of our most popular articles: Five Antitrust Concerns for Real Estate Professionals.
Then, go ahead and negotiate. That is your right. You don’t have a right to win the negotiation, but real estate agents don’t have a right to agree among each other on prices either.
If you are a competitor for real estate services, it is particularly important that you understand that you can’t fix prices with other agents. If you do, you might find yourself on the wrong side of an antitrust lawsuit—possibly even brought by Bona Law—as we receive a lot of calls and emails about these issues. Or, worse, you could receive a call from a Department of Justice lawyer that opened an investigation into you or your company.
My interest in this issue goes beyond my role running a boutique antitrust law firm: I am also a long time real estate investor and I have a California real estate license. To capitalize on that background, we recently started a new blog directed at real estate investors, called Titles & Deeds. If you want to learn more, you can read about our real estate blog here.
This, of course, leads us to Kansas. I bet you didn’t see that coming. Let me explain.
Are the Kansas Real Estate Commission and its Members About to Violate the Antitrust Laws?
On June 16, 2017, Andrew Finch, Acting Assistant Attorney General for DOJ, wrote a letter to the Kansas Real Estate Commission expressing concern about a regulation the Commission is considering that would make it easier to fix prices by forbidding real estate brokers from competing on price by offering gift cards or similar items.
Apparently, according to the DOJ law, Kansas state law forbids real estate brokers from offering rebates, but doesn’t define the term “rebates.” The Kansas state ban, of course, is highly anticompetitive. It directly restricts price competition and harms consumers in Kansas. The Kansas government has unfortunately chosen to protect profits in the real estate profession over the well-being of its citizens.
But that happens all the time. In my view, the most pernicious anticompetitive conduct takes the form of government action—often at the behest of a trade association—that legally prohibits competition, to protect some favored group. It is government corruption. You can read our articles about the government and anticompetitive conduct here.
The federal antitrust agencies, including and especially the FTC, work hard to pressure state and local government entities to stop their anticompetitive conduct. And that is what the DOJ is doing here, through their letter.
The Kansas Real Estate Commission is considering a regulation that would broadly define rebates to include, for example, gift cards that are redeemable at retailors like Home Depot, Lowes, and other places. Under the proposed regulation, Kansas real estate agents could still offer the gift cards as gifts, but they can’t be part of any agreement with the customer. This distinction will, incidentally, create evidentiary issues in future enforcement.
The purpose of the regulation, of course, is to prohibit real estate agents in Kansas from using promises of gift cards as part of competition to gain clients. So the distinction itself confirms the anticompetitive nature of the regulation.
The DOJ letter to the Kansas Real Estate Commission urges them not to adopt the regulation because it harms competition. And DOJ is right.
But let’s take this further: The Kansas Real Estate Commission is made up primarily of real estate professionals in Kansas that presumably compete, even if they are from different parts of Kansas.
So, like the North Carolina Dental Board that was made up of dentists and could violate the antitrust laws without the benefit of state action immunity, the Kansas Real Estate Commission is subject to the antitrust laws, assuming, as I think is likely, that they are not subject to Active Supervision.
If the real estate members of this Kansas Commission reach an agreement on the regulation to broadly define “rebate” under law to preclude real estate brokerage competitors from offering gift cards as part of competition, there is a good chance that the Commission itself and its individual members are engaging in a naked restraint of trade in violation of the antitrust laws.
Hopefully the Kansas Real Estate Commission and its individual members have a knowledgeable antitrust attorney that can tell them about the risks of joining together to exercise power to eliminate price competition among themselves and their other industry competitors.
Of course, determining whether such action is an antitrust violation would require more analysis—it isn’t always straightforward—but if I were counseling these clients on antitrust risk, I would certainly raise it as a significant issue requiring deep analysis. If they want to help consumers of real estate services, what they should be doing instead is urging the Kansas legislature to eliminate the restriction on rebates altogether.