Competition is a principal driving force of the U.S. economy, with the teeth of the antitrust laws to ensure that competition continues to thrive for the benefit of competitors and consumers alike. As real estate professionals, you have an affirmative role, and more pointedly, an obligation to comport your business actions and decisions in a manner that wards against anticompetitive behavior. But, of course, in order to play by the rules, real estate professionals need to first understand the types of behaviors the antitrust laws prohibit. Not only will being attuned to antitrust issues keep you out of legal trouble, it supports a competitive market where your business can thrive and consumers are best served in making their dreams of homeownership a reality.
When it comes to avoiding antitrust legal issues, “independent” is the name of the (antitrust) game. This is made clear by Section 1 of the Sherman Act, one of the key pieces of federal antitrust legislation, which indeed prohibits collective action by competitors that unreasonably retrains trade. Plainly stated, a Section 1 violation occurs whenever two or more real estate professionals or firms come together to carry out a common scheme that unreasonably restrains trade, including through price-fixing schemes and group boycotts — both common ways antitrust issues arise for real estate professionals.
The antitrust laws take competition so seriously that courts will evaluate price-fixing schemes and group boycotts using a “per se” standard, meaning that these unlawful restraints are considered so egregious and so monopolistic on their face that their anticompetitive effect on trade is presumed. Defendants will be given no opportunity to show the reasonableness of the restraint, which leaves the court to consider only whether the defendant participated. Case closed.
The antitrust laws are very focused on the prices consumers are charged for goods and services, so it’s not surprising that price-fixing violations are evaluated using a “per se” standard. In fact, the Supreme Court has coined price fixing as an “archetypal example” of an unlawful restraint. In the real estate context, an obvious example of an illegal price-fixing arrangement would be where two or more real estate firms agree to fix the commission rates each charge in the market at the same rate. But illegal price-fixing schemes aren’t just about commissions, they can also arise in the context of competitors agreeing on the terms and conditions to list properties or represent buyers. This type of prohibited collective action must be avoided, and instead brokers should maintain their own policies — determined independently and unilaterally — about important business issues like the terms on which they list properties, the commissions charged to consumers as well as the offer of compensation made to other MLS participants or brokers who bring a ready, willing and able buyer.
There may be times when MLS participants wish to modify the offer of compensation displayed in the MLS. While MLS rules require participants to make an offer of cooperation and compensation, which can be as little as one cent, MLS participants may modify that offer to be more or less than what is displayed in the MLS. For example, say one firm wants to offer another firm an additional 1% commission on all of its listings on a blanket basis. This side arrangement is not only permissible under antitrust law, it is also expressly permitted in NAR’s MLS rules, provided certain conditions are met. The new offer of compensation must be made in writing before an offer is submitted on the listed property, the amount must be expressed as a percentage or flat amount, and the modified compensation arrangement must be the result of an independent decision made by the offering participant — not the result of any agreement among other participants in the MLS. This underscores the paramount principle of antitrust law that business decisions be made independently and free of collective action.
Group boycotts are another example of concerted activity that the antitrust laws do not tolerate. Like price-fixing schemes, group boycotts will also generally be analyzed under a “per se” standard. Group boycotts are a collective action among competitors aimed to drive a competitor out of business or to influence a competitor to change their behavior through an agreement not to cooperate or to deal with the competitor only on terms established by the conspirators. Take for example the case of a new discount broker that lists properties at rates 50% lower than other brokers in the market, leaving several unhappy brokers concerned they will soon be forced to reduce their commissions as a result. To address the “problem,” the unhappy brokers come together and agree not to cooperate with the new broker in the hopes that it will drive the broker out of business or at least force it to raise prices. This group action is an example of an illegal group boycott, and exactly how competitors should not respond to competition in the marketplace. Instead, reducing risk here is simple — real estate professionals should look inward to determine unilaterally and independently how to respond to changing market forces. Real estate professionals should embrace change and allow competition to serve as a catalyst for innovation. Competition is an opportunity for real estate professionals to rethink how they do business and how they demonstrate value to consumers, which can even lead to greater growth and profit.
Antitrust compliance is a high-stakes game, and failure to adhere to antitrust laws can have major consequences. Not only is there the possibility of both civil and criminal penalties, but antitrust enforcement also exists at both the federal and state level. Both the Department of Justice and the Federal Trade Commission are primed and ready to enforce the federal antitrust laws, and each state also has its own antitrust laws that are enforced by the state’s attorney general. Add to that the private plaintiffs and class action attorneys lined up to recover treble damages and attorney’s fees for antitrust violations, which can devastate the reputation and bottom line of a real estate professional or firm.
Brokers can also face consequences for the actions and statements of their salespeople and staff — even when the broker didn’t authorize the anticompetitive behavior. For this reason, it’s critical that brokers maintain an antitrust training program to help salespeople and staff understand how the antitrust laws apply to the real estate industry, and what they mean in the way they conduct business. Words are powerful, and even untrue statements suggesting or implying that a business practice is the result of illegal collective action can expose the broker and salespeople to potential antitrust problems.
Given the importance of the real estate industry to the economy, real estate is always in the spotlight, and the business practices of real estate professionals are under constant scrutiny as a result. With the wave of antitrust litigation and the Biden Administration’s recent issuance of its sweeping executive order aimed at promoting competition in the American economy, antitrust issues will remain a hot topic. Not only did Biden’s executive order reinforce the importance of the antitrust laws, it called upon the Department of Justice and Federal Trade Commission to vigorously enforce them. The order also established a new White House Competition Council to oversee a host of reviews and rulemaking exercises by more than a dozen agencies; and while not a concentrated focus of the order, real estate was among the industries mentioned for further study.
As REALTORS®, you are key players in promoting competition in the real estate industry. You do this in myriad ways, including ensuring that your actions are compliant with antitrust law, but also through your commitment to working with all brokers when it’s in the best interest of your clients, and through your participation in local MLSs. MLSs help create highly competitive markets for all brokerage models and allows all brokers access to the same information in order to compete on service and commissions. All of this helps afford consumers the choice to pick the broker that best serves their needs. That is, after all, what the antitrust laws are all about.
For more information about competition in real estate as well as a host of antitrust resources, visit competition.realtor.
Lesley M. Muchow is Deputy General Counsel and Vice President of Legal Affairs and Antitrust Compliance for the National Association of REALTORS®.