Antitrust laws in the United States exist to protect consumers. They set the ground rules for fair business practices and competition, and prevent monopolies from occurring. But antitrust laws also relate to the real estate industry. Brokers need to know your federal and state laws, so you can avoid any anti-competitive conduct to prevent lawsuits.
Antitrust in Real Estate Transactions
The US Government has three Antitrust laws. These are:
- The Sherman Antitrust Act
- The Clayton Act
- The Federal Trade Commission Act
Most states have their own Antitrust laws as well, aimed at maintaining fair competition in the marketplace. This includes protections against monopolies, price-fixing and unfair restraints on competition.
In real estate transactions, brokers need to avoid any situation where agreements are set up between competitors that ‘allocate customers’ or fix prices. For example, if a broker were to agree with a competitor that they would take on clients from particular suburbs, but the other broker could have customers in another suburb. This can be considered a monopoly, because if there is only one real estate brokerage available, pricing may be fixed and there is no competition. This is a violation of Antitrust laws.
Agreements with competitors to divide the client base in other ways are also prohibited. For example, if there is an agreement that one agency will take on all commercial office deals, and another agency will handle warehouses. This agreement would reduce competition, create monopolies and result in price fixing, all of which is prohibited.
‘Bid rigging’ is also a violation. This occurs if a broker or licensee interferes with competitive bidding. An example of this is when a broker or licensee agrees with competitors about who will bid what and when.
Agreements with competitors to keep commissions at a certain level are considered to be ‘price fixing’ as well. Brokers need to keep in mind that breaches of the Sherman Antitrust Act laws aren’t just non-compliance issues, they are criminal felonies that have steep penalties.
Real estate brokers need to also be conscious when planning mergers and acquisitions. While mergers and acquisitions are perfectly legal and not collusive activities, if they are likely to reduce competition and, therefore increase prices for customers, they will violate The Clayton Act.
The National Association of REALTORS®, Realogy, Keller Williams, RE/MAX and HomeServices of America defended a class action lawsuit in 2022 for an alleged violation of the Sherman Antitrust Act. The lawsuit was filed by a New Jersey homebuyer who alleged commission sharing between listing and buyer brokers increased home prices and inflated homebuyer costs. The case was dismissed by a Federal judge; however, the case serves as a reminder to brokers to review any activities that could be considered a violation of Antitrust laws.
Tips to Avoid Antitrust Issues
Brokers need to know and comply with antitrust laws in their state, as well as be aware of the Federal laws. It is important to educate your team because they need to be aware of the legalities of antitrust. The consequences of potential violations need to be fully understood as this includes hefty financial penalties, criminal charges, and even jail. Vigorous competition should be encouraged and you and your team need to avoid anything that can impact the competitive process.
As a broker, you should continuously review your business activities to ensure there are no potential breaches or anti-competitive behaviors. If any agreements with competitors are absolutely necessary, these need to be thoroughly vetted to ensure they are compliant.
If you are considering a merger or acquisition, ensure you look at any potential antitrust issues before you proceed. Be aware of The Clayton Act’s requirements for notifications of mergers and acquisitions. Whether you need to notify the Antitrust Division and Federal Trade Commission or not will depend on the size of the deal.
CRES E&O + ClaimPrevent® to Protect Your Brokerage
It’s important for brokers to seek advice from a specialized real estate attorney if there is any possibility of a breach of antitrust laws. Violations of antitrust laws are very serious. At CRES, we offer E&O + ClaimPrevent® insurance which provides you with extensive coverage. Plus, you’ll also have access to expert real estate attorneys pre-claim, so you can get legal advice whenever you need it.
CRES is part of one of the largest insurance brokers in the world, so we have access to more real estate E&O options than just about anyone. Call us to have a confidential discussion, and let us find you the best coverage for the best price.