What is all the talk about antitrust, and what does it really look like? Antitrust has many faces; some are familiar, like price-fixing commission with buyers clients or seller clients in agency agreements. But antitrust can also express itself in less recognizable ways, like group boycotts that can occur if multiple brokers agree to refuse to cooperate with another real estate firm or a supplier or vendor. Risk can also arise out of posts and conversations that occur online. Dialogue that occurs at an association board of directors meeting or an MLS committee meeting could be subject to scrutiny if it relates to association membership or MLS policies that target a certain firm or business practice. The prohibitions imposed by antitrust laws are designed to safeguard the underlying themes of the free marketplace, competition, consumer choice, and prevention of monopolies. Most antitrust situations concerning real estate brokers involve violations of the Sherman Antitrust Act of 1890 (Sherman Act). Section 1 of the Sherman Act provides that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal.” The following WRA Legal Hotline discussions relate to daily practice that can put brokers, associations or MLSs at risk.
As professionals within this industry, we all must continue to do our part to ensure that anticompetitive practices are not entertained, which means avoiding any conversation — in-person, email, social media or other format — that discusses boycotting, price-fixing or other restraints that stand in clear violation of antitrust law. Federal and state antitrust laws are designed to protect competition, and the opportunity of competitors to engage in business free of artificial restrictions on competition. Such restrictions include price-fixing agreements, group boycotts, “tying” arrangements and market allocation arrangements.
The staff executive of an association has been following the private Facebook group for association members. In that group, there has been talk about refusing to work with a specific vendor. What is the law surrounding this, and what are the potential risks for the conversation within the Facebook group?
A boycott occurs when competitors work together to exert pressure on a third party by collectively withholding, or inducing others to withhold, goods, services or patronage essential to the survival of the third party. Because real estate brokers, other real estate professionals and outside vendors — such as a lockbox provider or a showing services provider — depend a great deal upon one another’s business, a group of real estate companies can coerce or eliminate a competitor or vendor by collectively refusing to deal with the targeted service provider until the targeted service provider either makes the change the group wanted or goes out of business. One possible objective of a group boycott is to cause a third party — another competitor, customer or vendor — to change its practices to conform to the practices or the expectations of the boycotters. This tactic might be used, for example, against a company introducing a new business model into a marketplace or a vendor that raises rates or conducts business in an “unacceptable” manner.
What risk exists regarding a discussion by the association board of directors about a new firm joining the association and local MLS?
Antitrust laws were enacted to prevent competitors from participating in business practices that restrain trade. When competitors work together in a manner that restrains trade, there is a potential for antitrust concerns. There are two key elements that can lead to an antitrust law violation: (1) a contract, conspiracy or combination, which (2) unreasonably restrains trade. Therefore, by its nature, an association membership meeting or a director meeting is a meeting of competitors. At a local board meeting or elsewhere, if the members, who are by their nature competitors, discuss with one another the “appropriate response” to a new competitor or another broker’s marketing practices, then any subsequent actions of the competitors in response to the behavior of the “outsider” can be viewed as conduct pursuant to a conspiracy. Accordingly, brokers and their agents should never discuss with other brokers or agents from different firms a new firm in the market or a firm with a different business model at association events or meetings. If competitors such as licensees from different firms conspire and discuss the business or business plans of a different firm, the risk is when conversation leads to action that restrains trade; a seemingly offhanded conversation may lead to an illegal antitrust conspiracy.
The firm has a private Facebook page. Is content on that page protected from antitrust concerns?
It is always good to remember, nothing on the internet is private. It is critical to consider any discussion about competitors or service providers to the real estate industry — whether in person, online, at meetings or on social media — is subject to scrutiny. Real estate licensees must avoid conversations, even in private groups. Any posts rising potential antitrust concerns should be referred to counsel for the firm. Counsel may request agents remove posts that contain inappropriate content. The firm may also post affirmative statements contradicting such content and may recommend or suggest training and resources to educate licensees regarding such risks.
How can listing or buyer agency fees lead to antitrust concerns? What about cooperative compensation offered by the listing firm in the MLS?
The antitrust prohibition on fixing commission rates means, simply, two or more real estate firms cannot jointly decide which commission rates they will charge clients. Firms cannot make agreements with other firms regarding commission rates, but firms must also avoid any actions that even imply that they have discussed or reached an agreement on fees. Agents must also avoid any suggestion that the firm with which they are affiliated is part of a price-fixing conspiracy.
Make no mistake, firms should train their agents and other staff to explain the commissions and fees charged by the firm in terms of independent decisions and competitive market forces and avoid giving the appearance of collusion among competing firms. Agents should never refer to the pricing policies of other firms, and agents should never make statements like, “This is the rate every firm charges,” or “commission rates are pretty standard.” All brokers and agents must remember that all commissions and co-broke commissions are negotiable on a transaction-by-transaction basis and that there is no set or fixed amount of commission that must be earned or offered in a particular market area.
There is no set fee or amount for commissions or commission splits. To imply or infer there is a standard would imply elements of antitrust violations. An illegal price-fixing conspiracy can involve not only the prices a broker charges clients, but also the commission splits paid to cooperating brokers who produce a ready, willing and able buyer for listed properties.
If brokers collectively agree on the amount of cooperative commission offered, price fixing may occur. Conspiracies among competitors to fix the compensation paid to cooperating brokers may also be found to be per se illegal. To avoid antitrust concerns, brokers must determine their cooperative compensation policies in the same unilateral and independent manner they use to establish the commission or fees charged to clients. Each broker independently sets office policy regarding listing commissions, brokerage fees, cooperative commission splits as well as in-house commission splits. It would be an antitrust violation for the Real Estate Examining Board, the National Association of REALTORS®, MLS or broker competitors to set any minimum or maximum listing or co-broke compensation amounts.
A group of brokers has a Facebook group. The brokers in the area are looking for a different service provider for lockboxes, and they want to drop the current vendor they use. Are there any antitrust concerns in having conversations in the Facebook group?
Potentially yes. Per the Sherman Act, every contract, combination or conspiracy that unreasonably restrains trade or commerce is illegal. Generally, the following three elements must be proven:
- A contract, combination or conspiracy involving two or more separate business entities.
- The contract, combination or conspiracy restrains trade.
- The contract, combination or conspiracy is in interstate commerce or affects interstate commerce.
There need not be formal proof of an actual contract. All that needs be shown is that two or more separate entities participated in a common scheme or design. A conspiracy can be established by inferences drawn from circumstantial evidence frequently found in consciously parallel conduct by two or more competitors; for example, competitors that engage in similar competitive behavior with full knowledge of each other’s actions. The intended topic of the conversation on the Facebook group suggests a potential group boycott that would be illegal under antitrust law. Brokers must make their business decisions independently without concern as to competitors’ practices.
What are group boycotts? What should the broker do if they become aware that agents in the marketplace are discussing dropping service providers?
Brokers must be constantly vigilant against any appearance of antitrust violations and must be sure that their agents have been trained to avoid making comments that might suggest the presence of any group anticompetitive actions. One objective of a group boycott is to induce a third party to change its practices and policies so that it conforms to the expectations and desires of the boycotters. Because real estate brokers depend a great deal upon one another’s business, a group of real estate companies can collectively refuse to deal with a service provider until the service provider either conforms to the group’s expectations or goes out of business. Agents must avoid comments and conversations that infer boycott conspiracies. It is possible that the deliberate refusal to work with a particular service provider could be considered a group boycott under federal antitrust law. Brokers should be sure their sales agents and other staff are trained regarding online and in-person conversations to avoid giving the appearance of a conspiracy among competing companies.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.
Additional antitrust information
WRA resources
July 2019 Legal Update
“Antitrust Dangers in the Real Estate World”
wra.org/LU1907
March 2004 Legal Update
“Antitrust Primer for Real Estate Practice”
wra.org/LU0403
National resources
NAR’s antitrust webpage; review all informational tabs
nar.realtor/antitrust
U.S. Department of Justice
“Competition in Real Estate: Questions and Answers”
justice.gov/atr/competition-real-estate-questions-and-answers