A few common misunderstandings about the real estate business are pretty serious issues because they deal with federal antitrust laws. Real Estate License Exam writers expect you to be able to answer questions about them.
Violations of the Sherman Antitrust Act can result in fines paid to the federal government of varying amounts and up to triple the damages paid to the injured party.
Real estate price fixing
First of all no rule says that a real estate agent must be paid on a commission basis. Just to be sure you’re clear on this, a commission generally is a percentage of the final sale price of the property that usually is paid upon completion of the sale. Pay by commission is a common practice across the United States, but has never been established as a requirement.
No such thing as a standard commission exists. No local real estate board or other association of real estate agents has the authority to set commission rates or create any standardized fees for services.
In fact, any attempt among real estate agents to create a standardized fee schedule is and has been viewed as violating federal antitrust laws. The fact that many brokerages in a particular area charge the same commission is a matter of competition and individual business decision.
The Sherman Antitrust Act, which is a federal law that prohibits activities that are considered to be in restraint of trade, forbids any type of price fixing in any industry. In simple terms, what that means is that if you and your neighbor both own appliance stores, the two of you can’t get together and decide that you’re both going to charge the same price for a washing machine.
In the real estate industry, antitrust laws essentially have been taken one step further as a result of a famous court decision in a case called United States versus Foley. The result of this case determined that even if no actual consultation occurred between individuals about price fixing, the mere discussion among competitors of prices for services is considered an invitation to fix prices and therefore violates antitrust law.
As a result, the industry operates on the principle that discussing fees between brokers is illegal unless the brokers are cooperating on the same deal. Fees may be discussed in-house between brokers and salespeople and brokers, salespeople, and clients. In other cases, the courts determined that local boards of realtors can’t dictate, recommend, or publish rate schedules.
Market allocation in real estate
The Sherman Antitrust Act also has a provision against market allocation that affects real estate professionals. Market allocation is an agreement among competitors to divide the market in some way.
Consider two brokers, for example, who own their own brokerages and meet and agree that one of them will handle all the listings west of Main Street and the other will handle all the listings east of Main Street. These brokers have violated the Sherman Antitrust Act’s provision against market allocation.
Real estate group boycotts
Group boycotts — when competitors get together and agree not to do business with someone — violate the Sherman Antitrust Act.
Say X Brokerage and Y Brokerage don’t like the way Z Brokerage does business. They meet and agree not to make any referrals to Z Brokerage. The X and Y brokerages have just violated the Sherman Antitrust Act. An individual broker can decide not to do business with another broker because he believes the other broker acts unethically. It’s getting together as a group to boycott that’s against the law.
Any requirement to buy one product or service on condition that you buy another product or service is called a tie-in arrangement or tying agreement and is an antitrust violation.
Say you are a broker who owns a property that a builder wants to buy. As part of the sale, you require that the builder relist the property with you (list back) when he sells it. Because you required the builder to list the property with you as a condition of your selling it to him, you broke the law.