Five Antitrust Concerns for Real Estate Professionals

Author: Jarod Bona Antitrust issues in the real estate industry are becoming increasingly important. As an antitrust attorney and CEO of a growing business, I closely follow the intersection of antitrust and real estate. With...

Real Estate

Author: Jarod Bona

Antitrust issues in the real estate industry are becoming increasingly important. As an antitrust attorney and CEO of a growing business, I closely follow the intersection of antitrust and real estate. With the Department of Justice and FTC examining antitrust concerns in this industry, it's crucial for real estate professionals to be aware of the potential pitfalls. Let's explore five key antitrust issues that every real estate professional should understand.

Price-fixing is a per se antitrust violation.

Real estate brokers often base their service prices on a commission percentage tied to the sales price. Additionally, they typically offer a publicly-announced commission share to brokers who bring in buyers. While these commission structures may naturally align due to factors like conscious parallelism or similar cost structures, it's vital for brokers to know that any agreement—express or implied—with a competing brokerage to charge a certain commission is a per se antitrust violation. To avoid legal consequences, brokers should independently set their prices. It's important to note that discussing pricing for specific transactions is acceptable, but suggesting collective price-setting is not.

Read more: How the Antitrust Laws Prohibit Real Estate Brokers from Fixing Prices or Commissions

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

Agreeing to divide territories or allocating customers is a clear violation of antitrust laws. For instance, two major brokerage firms in a smaller town should not decide to split properties based on geographical boundaries. Similarly, brokers should not agree to stay away from each other's clients. Although poaching may seem impolite, agreeing not to do so can lead to antitrust violations. The Music Teachers National Association (MTNA) found themselves in hot water with the FTC due to such practices. To maintain compliance, real estate professionals must refrain from any form of market or customer-allocation agreement.

Bid-rigging is a per se antitrust violation.

Real estate properties, including foreclosures, are often sold through auctions. During these auctions, participating bidders should avoid making agreements about their bids or discussing sensitive information with competitors. Bid-rigging has serious legal consequences and can lead to criminal investigations, as seen in Northern California. Be cautious and ensure fair competition by refraining from any bid-related misconduct.

Learn more about the Department of Justice's criminal investigation into bid-rigging in Northern California foreclosure auctions here

Group boycotts are per se antitrust violations.

In the face of new competitors entering the real estate market, existing players may resort to anticompetitive conduct. Instead of enhancing their own offerings and attracting customers, they may try to block new entrants. Agreeing to boycott a new competitor violates antitrust laws and can result in legal liabilities. For example, two brokers might collectively refuse to show a house listed by a discount broker as part of a pre-arranged agreement. To avoid such violations, competitors must compete fairly and avoid any group boycott activities.

Collective activity in the real estate industry.

Real estate professionals, despite being competitors, often work collectively through real estate associations and multiple-listing services (MLS). While MLSs serve the procompetitive function of centralizing properties for sale, they must be cautious not to discriminate against specific brokers or individuals. Discriminatory access policies can attract antitrust scrutiny. Real estate professionals involved in running or organizing an MLS should seek antitrust counsel to ensure they stay within the boundaries of fair competition.

Access the slideshow presentation on "Antitrust and Real Estate" here

By understanding and adhering to these antitrust concerns, real estate professionals can ensure compliance, avoid legal issues, and maintain an ethical approach in the industry. Stay informed, be proactive, and prioritize fair competition for the benefit of all stakeholders involved.