Federal and state law prohibits realtors from agreeing with other realtors to eliminate competition and set standard pricing.
Federal and state law prohibits realtors from agreeing with other realtors to eliminate competition and set standard pricing. Enforcement agencies have strictly scrutinized the real estate industry and violations can result in stiff penalties.
The purpose of antitrust laws is to preserve a competitive economy in the free market. Under Section 1 of the Sherman Act, “[e]very contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade… is hereby declared illegal.” When two or more brokerages conspire to restrain trade, a per se violation of the Act arises. In a per se violation, the intent of the wrongdoer does not matter. As long as the conduct occurs the violator is liable. Potential per se antitrust violations include price/term fixing, boycotting, and market allocation.
There are severe penalties for violations of antitrust laws. These can include 1) prison sentences of up to 10 years per offense, and 2) fines of up to $1,000,000 on each individual perpetrator.
- Price/Term Fixing. The most frequent per se antitrust violation in real estate is agreement among competitors to fix commissions. If two or more brokerages agree to “never take a listing below 6%”, they may be effectively “price fixing” because they have removed the customers’ ability to shop around and take advantage of a free market. Brokers are free to set minimum standards for themselves and their internal sales agents, but once they unite with their competitors to manipulate the market, they have arguably violated law. Sometimes informal discussions and advocacies among competitors can be scrutinized by regulators under a price fixing theory. While the law ultimately requires the existence of a firm agreement or understanding between two or more outside competitors, the best practice is to avoid discussions with competitors about the appropriate or ideal price for brokerage services.
- Boycotting. Boycotts arise when a group of companies or individuals agree not to do business with a particular competitor or vendor. This occurs when multiple real estate brokerages agree to refrain from showing listings or entertaining offers originating from a third broker.
- Allocation of Markets. Competitors may not lawfully divide or allocate markets, sales territories, or customers among themselves. For example, competitors may not agree to divide or allocate markets geographically or divide customers among themselves in order to eliminate competition.
- Trade Organization Activities. The antitrust laws provide no immunity for trade organization or association activities, and illegal conduct remains illegal when conducted through or in connection with a trade organization.
For more information, please visit NAR’s guideline on Antitrust Law Compliance.