Five Antitrust Concerns for Real-Estate Professionals

Real Estate

Author: Jarod Bona

I am an antitrust attorney and CEO of a growing business, but my wife loves real estate and we have been investors over the years. You may have seen our real-estate investing website. So when antitrust and real-estate issues combine, I pay close attention. Not surprisingly, we receive a lot of calls about antitrust violations or issues in the real-estate industry. In fact, the Department of Justice and FTC have recently been studying antitrust/real-estate issues.

Antitrust law is especially relevant to real-estate professionals like brokers and salespeople because (1) competitor brokers both compete and cooperate on a daily basis; (2) prices and commission splits are often announced and well-known; (3) there is a history of tension and battles between a traditional business model and new business models (this can create antitrust litigation in any market); (4) associations and cooperative Multiple-Listing Services (MLS) play large roles in the industry; (5) US antitrust enforcers, like the Department of Justice and FTC, have seriously scrutinized the real-estate industry.

Here are five antitrust issues that real-estate professionals should understand: 

1.         Price-fixing is a per se antitrust violation.

Real-estate brokers typically—but not always—price their services based upon a percentage (known as a commission) of the sales price. At the same time, they usually offer a publicly-announced share of that commission to a broker that brings in a buyer. From my own experience in various real-estate markets, it appears that these commissions and offered-commission-splits are surprisingly similar—almost standard—within certain markets.

That is not to say that they are fixed; there are many reasons they could end up at the same level—conscious parallelism (advanced antitrust concept), similar cost structures, etc. But real-estate brokers should understand that any agreement, express or implied, with a competing brokerage to charge a certain commission, or offer the same commission splits, is a per se violation of the antitrust laws, with both criminal and civil consequences. Brokers should independently set their prices or risk antitrust liability. Of course, brokers negotiating a particular transaction must discuss pricing (for that transaction).

Finally, it might be tempting for a broker to respond to a customer inquiry about a commission that the price is standard or is what some real-estate association suggests they charge. That should not, however, be the response. Real-estate associations with even a modicum of antitrust counseling would never suggest a commission, and a broker should not suggest that prices are set collectively in any way.

You can read our article about how the antitrust laws do not allow real estate brokers to fix or set prices or commissions.

In a related post, I discuss the question “Do Real-Estate Brokers Violate the Antitrust Laws by Charging Identical Commissions?

2.         Market or customer-allocation is a per se antitrust violation.

Brokers should not agree to divide territories (and this is not limited to written agreements). So if there are two major brokerage firms in a smaller town divided by a river, they should not decide between them that one will take properties north of the river, while the other stays to the south. Any such agreement violates the antitrust laws.

Another type of per se violation is an agreement to allocate customers. This is how the Music Teachers National Association (MTNA) found themselves in hot water with the FTC. Brokers should not agree to stay away from each other’s clients or former clients. Poaching may seem impolite, but agreeing not to do it can violate the antitrust laws. Indeed, in this way, the antitrust laws encourage stealing (of customers).

3.         Bid-Rigging is a per se antitrust violation.

Real-estate properties, particularly foreclosures, are often sold via auction. These auctions are often local (within a county) with the same players as participants. Bidders should not make any agreements about their bids or lack of bids. In fact, it is best not to discuss this sensitive information with competitors at all.

If you don’t believe me, you can read about the Department of Justice criminal investigation that has yielded over 40 guilty pleas in bid-rigging in Northern California foreclosure auctions.

4.         Group Boycotts are per se antitrust violations.

Sensing a pattern yet? Over the years, lower-cost brokers and unique business models have entered most real-estate brokerage markets to challenge the traditional full-service brokerage model.

This sort of entry happens quite often in markets, and it is not uncommon for existing competitors—who are rather happy about the current or traditional state of the market—to react with anticompetitive conduct. Instead of competing better for customers, the initial market players will instead compete against the new entrants. This is a dangerous strategy that often leads to antitrust liability.

[In this article, we discuss how existing competitors will often try to block new competitors from a market.]

When two or more market participants agree—and remember an oral agreement can violate the antitrust laws—to refuse to do business with a new entrant, it can be a per se antitrust violation (Note that not all group boycotts are per se violations, but the exact contours of the doctrine are beyond the scope of this article. You can read more about group boycotts here and here.).

You can see how this could easily happen in real estate. A discount broker might put a house on the market for a client, but two existing brokers, who agreed not to do business with that discount broker, collectively refuse to show the house to their buyer clients, even though the house might be suitable and appropriately priced. That agreement could violate the antitrust laws.

5.         Real-estate brokers constantly work collectively.

From active real estate and broker associations to collectively-run multiple-listing services, real-estate professionals, despite competing on a daily basis, work together all the time. This presents many opportunities for illegal collective activity.

Indeed, the case reports—as well as government antitrust investigations and consent decrees—are full of disputes about antitrust challenges to MLS policies. A multiple listing service serves the procompetitive function of centralizing the homes in a market for sale, along with relevant information about the properties and their asking prices and terms. This is great for buyers and sellers alike.

But the MLSs are often run collectively by local real-estate associations. If their access policies discriminate against certain brokers or individuals, they might invite antitrust scrutiny. The trials and tribulations of MLS policies and challenges are beyond the scope of this post, but anyone involved in running or organizing an MLS should seek antitrust counsel because it is very easy to cross the line into anticompetitive territory.

You can access the slideshow of the presentation, “Antitrust and Real Estate,” here.


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