Bell-Meyer brings with her over 10 years’ experience working with chambers of commerce and economic development initiatives.
BARRISTER'S BRIEFING: Antitrust: What it is, What to Do And Words of Wisdom from My Mother
Antitrust matters are in the news, and they have the potential to affect every Realtor. But really, antitrust is all about playing fair, just like mom always told me. Here's a quick primer, courtesy of mom.
Realtors work in a unique world. They are constantly competing with each other, but they are required under the law to cooperate with each other too. In most cases, this is a friendly conflict. However, at times, it can get ugly and some Realtors will look to improperly leverage situations or others or use questionable tactics for economic gain or to get the upper hand in the industry. This is where antitrust issues arise. Any time a Realtor looks to engage in anticompetitive conduct, the red flag of antitrust litigation can be waived, which could get the agent, as well as the broker, in some hot water. This month, we’ll look at antitrust matters and, perhaps, learn a few childhood lessons I gathered from my mother (who knew she was such an antitrust expert).
What are Antitrust Laws?
Antitrust laws are laws that regulate the conduct of businesses and ensure a level playing field. They promote competition, prevent restraints on trade, and prohibit stronger parties from using their power to create monopolies. Central to their purpose is protecting the consumer and fostering open marketplace competition, which helps the economy.
Actions that Violate Antitrust Laws
To avoid antitrust litigation, Realtors should be aware of the following:
Company Commissions/Price Fixing
When meeting with a prospective client, it’s important to inform them that commissions are fully negotiable. That applies to sellers and buyers, as well as listing commissions and cooperating compensation that may be offered out. It’s important that you establish your company commission based upon your independent determination of value and be clear that it’s not based upon what competing brokerages charge. Do not establish your commission/fee structure after consulting with the competition and do not discuss your commissions with others. Simply announcing to your competition that you may be setting a certain commission/fee may be sufficient enough for a court to imply that you are inviting others to conspire on setting commissions/fees. It’s important that you clearly convey to the prospective client the fact that the brokerage does, in fact, price its services independently.
Additionally, do not show up with a pre-filled contract. As noted above, all commissions should be freely negotiated. A pre-filled contract may create the impression that there is no opportunity for negotiation and you are fixing prices.
Further, any time a brokerage changes a commission, it should document the reason why they are making the change. It’s important to document the justification for the change, whether it’s increases in costs, expenses, the economy, or whatever is driving the change. Something as simple as a memo to the file, to the sales manager, to the staff, or agents is sufficient.
When making a presentation, a Realtor should not say: “This is the rate every brokerage charges.” “No one on the MLS will show your house unless the commission is X%.” “Before you decide to list with XYZ Realty you should know that because they are discount brokers, members of the association won’t show their listings.”
Other Economic Terms
Just like fixing a price, the same applies to other parts of a listing or buyer agreement. Establishing a set length for a listing, a set type of listing (exclusive sell, exclusive agency, office exclusive, open), or the formula for compensation (percentage of sale price, flat fee, etc.) are just as important. Brokerages that have established company policies on the length, type or variability of compensation rates must train their agents to explain these policies to prospective clients. This means communicating to the client how the firm’s policies will allow the client to best achieve their real estate goals. Under no circumstances should a client be told that the brokerage’s terms must be accepted because “this is what all brokers do.”
This is a relatively simple one. Bid rigging is when the brokerages/agents discuss, in advance, how bidding will take place in order and determine the bidding outcome. Discussing bidding strategies is an antitrust violation. An example of bid rigging would be where the Realtor decides who will win a contract by having the “losing” party purposely make bids high enough that bring the other party’s bid up, but not high enough to win the bid; thus, the “winner” will succeed in securing the deal, but at an inflated price. Obviously, this violates free market principles and hurts the consumer.
Antitrust violations are potentially triggered when two or more entities agree to keep their business activities to a specific geographic territory. This scheme is also sometimes called a regional monopoly. Under this plan, the parties agree in advance on regional issues and control. This can apply to small areas, such as an apartment building or a neighborhood, or larger regions such as a town, city, or county. This also applies to predetermined agreements on the types of customers/clients (commercial, residential, land, etc.) that will be handled.
This concept also extends to “farming,” or the marketing areas of any particular Realtor. No Realtor can claim that “this is my area to market” or that “you cannot solicit anyone in my farming area.” Such a claim impacts the procompetitive nature of business and reduces competition to the detriment of the consumer. Any preconceived plan to carve up control of a region should be avoided.
Competitive Business Models/Group Boycotts
There are a wide variety of real estate brokerages in the marketplace. Each one has its own attractors and offers its own unique benefits. A consumer can compare one to the other and determine which one is best for them. However, sometimes, established brokerages don’t like the new competition. They feel threatened. They don’t approve of the new brokerage’s business model. Perhaps it’s a flat fee business model. Perhaps they offer all sorts of extras and perks that the other brokerages don’t offer. Perhaps they’re a trendy brokerage that appeals to younger buyers. They may even tout themselves as a “disruptor,” a new type of brokerage that is going to shake up the industry.
Whatever the brokerage’s model, characteristic, or philosophy, other brokerages cannot intentionally refuse to cooperate with them. That is not only a violation of state law, but also a potential antitrust violation. Brokerages in the areas can’t decide, “We’re not going to work with X. I don’t like what they stand for.” Brokerages cannot collude to try to undermine or damage any other brokerage. In short, you cannot boycott, whether openly or secretly. To refuse to permit entrance into a marketplace or to refuse to treat all businesses fairly and equally destroys the free marketplace, restrains trade and hurts consumers.
Whether you’re in a board meeting, a company meeting, or an office meeting, it is important to understand the implications of antitrust laws. Avoid going to any meeting that does not have an agenda. Such meetings have no rails and can quickly run off course. If a meeting begins to discuss pricing, competition, or starts to focus on a particular competitor, it’s best to stop the meeting. It would also be wise to make a “noisy” exit; meaning that you make it apparent that you are leaving the meeting to ensure that those around you are aware of your objection to the subject matter.
If you’re invited to a meeting with others at a bar or restaurant to “discuss” certain situations in the industry, think twice. This meeting is a sure-fire set up for antitrust conflicts. Additionally, avoid general “gripe” or “rump” sessions where there is no real purpose to the meeting, but the purpose for the meeting is to discuss the real estate industry in general. Avoid meetings with only select groups of brokers/agents (for example: “Let’s get the big three together to discuss this.”). Never attend a meeting where you and another brokerage/agent will “work this out in advance of the meeting.” Such a meeting is a target for antitrust litigation. Similarly, stay away from meetings where you’re flattered to attend by someone who says, “You’re smart, so let’s get on the same wavelength.”
Conclusion and My Mother’s Advice
Being competitive is fine, but using unfair advantages are not. Ensure that you don’t run afoul of antitrust laws by conscientiously thinking about your actions. I do it all the time and each time I do, I hear my mother’s voice giving me guidance when I was a child. I’ll share those nuggets of wisdom with you now.
- “Play nice in the sandbox.”—This is the best advice my mother gave me as a child and it applies to antitrust matters too. Don’t engage in unscrupulous activities or do things that you know are wrong.
- “Don’t gang up on people.”—Don’t engage with other agents/brokerages to attack a singular agent/brokerage.
- “Know who’s throwing the party.”—Just like those questionable parties you attended as a kid, don’t attend a meeting (party) if you don’t know the sponsor.
- “Know what type of party it is.”—Again, don’t go to a meeting (party) if you don’t know the topics/agenda. Is it a skating party or a keg party? The difference matters.
- “Is everyone invited?”—If only a select group is being asked to attend, you might reconsider going. If someone’s being excluded or it’s an exclusive meeting, that’s not nice… and it might give the appearance of antitrust activity.
- “Will ‘adults’ be there?”—Know if there will be someone providing guidance/protection. Is the manager or the company lawyer going to be there, or is this an impromptu free-for-all? Make sure there is someone there to handle the “troublemakers.”
- “Don’t get sweet talked.”—Don’t fall for someone trying to flatter you into participating in a meeting by saying, “You’re smart, what are you doing about this,” or “Let’s work together to sort this out before we meet with others.”
- “Make sure the punch is not spiked.”—Ensure that someone doesn’t have a hidden agenda and is secretly planning something unbeknownst to the other participants.
- “Appearances count.”—If your event/activity is on the up-and-up, make sure that it appears that way too. Be open. Be transparent. Be clear.
- “If the party gets wild, leave.”— Just like a raging party, if a meeting gets out of hand, make sure you exit as soon as possible. It may be unpleasant to leave, but that’s better than going to jail.
When in doubt, call your mother: But instead of calling your mom, call me (HGAR General Counsel), the NYSAR Hotline, or your favorite attorney, and ask for legal guidance relating to antitrust activities.