United States anti-trust laws are designed to prevent monopolies from forming. If one company owns an entire market, consumers are forced to work with that business regardless of the quality of service or its cost. Oftentimes, the Federal Trade Commission (FTC) bans mergers or acquisitions because they would create monopolies and violate antitrust standards.
Antitrust laws are also designed to protect individual consumers on a local level. When you hire a real estate agent, they should follow antitrust best practices to create a fair market for buyers and sellers. Otherwise, they might not be operating ethically. Use this guide to better understand what antitrust laws are and how your Realtor can avoid violating them.
Price Fixing With Other Firms
Price fixing occurs when one brokerage works with others in the area to set firm prices for its services. When all of the brokerages in the area charge the same amount, clients have no choice but to pay those fees. Price fixing is different from setting industry standards. For example, it is common for a real estate agent to receive a three percent commission on a home sale. However, there is still room for competition when another Realtor offers discount services to win clients.
Antitrust lawyers want to make sure brokerages aren’t actively colluding with each other to set fees. Buyers and sellers might encounter this form of antitrust if they reach out to brokers who refuse to work with them for a lower price and claim no one else will unless they pay a certain amount.
Customers should always have options when searching for products or services that way they can objectively compare the costs of working with one company to the costs and benefits of another.
Market Division or Customer Allocation
Market division is also an antitrust violation that buyers or sellers need to look out for. This occurs when brokerages allocate different regions or clients to work with. The FTC summarizes it with the phrase, “I won’t sell in your market if you don’t sell in mine,”
For example, one brokerage might agree to work with clients on the north side of town while another brokerage takes the clients on the south side. This is an antitrust violation because the companies, not the customers, choose who they work with.
This doesn’t mean that every Realtor across town will want to work with you. If you ask a real estate agent to represent you and they refer you to someone in another office that is closer, that Realtor might think their referral is a better fit for your needs. However, if there is a pattern of client allocation, there could be an antitrust issue.
Failing To Cooperate
Another way that brokers can work together while colluding against the customer is to ice out, boycott, or fail to cooperate with certain brokerages or agents in the area. This is a question that is clearly addressed in the National Association of Realtors (NAR) code of ethics. Real estate agents“cooperate with other brokers in their client’s best interest,” even if they are competitors or not part of NAR.
This commonly occurs when discount Realtors try to end the market. These agents might agree to represent clients for a lower commission rate or a flat fee, which threatens the income levels of existing Realtors. If the real estate agents refuse to work with these discount agents, they aren’t acting in their clients’ best interest and creating a hostile environment for competition.
It is possible to submit an ethics complaint to the NAR if the offending agent is a member and you notice that they are failing to cooperate with you or the discount agent you are working with.
Tying and Bundling Products
A final violation of antitrust laws that you might encounter in real estate is the bundling of products or services together. This violates the consumer’s best interest by making them buy something they don’t necessarily want in order to get something else they need. This also reduces opportunities for multiple businesses to thrive because consumers are buying all of their services from one company.
For example, a Realtor might only agree to help you sell your house if you also use them to buy your next house. This prevents you from working with two different agents to complete the transaction. While your agent can highlight the benefits of using them for both transactions, they cannot force you to choose both or none.
This is a great example of how you don’t need to be an expert in antitrust and home laws to apply them. If a Realtor is pressuring you to agree to something like this, you can identify the red flag and walk away from the professional relationship.
This frequently occurs in real estate property auctions, but it can sometimes be found when working with clients who are buying and selling. Using the example of a potential investment property that is facing foreclosure, multiple buyers might submit bids on the house. They balance the bid based on what they can afford while also trying to be competitive. With bid-rigging, the buyers would meet beforehand to agree to a bid range and even assign a potential bid winner. One buyer will win this investment property while another wins the next one.
Bid-rigging is considered illegal because there is no longer a fair market. The bidders who work together decide who the client will work with. This also creates opportunities to lowball the party that the bid is rigged against.
Bid-rigging is especially hard to identify in the world of real estate. There needs to be proof that multiple parties colluded to choose the winner rather than letting the person or organization receiving the bids choose the winner themselves.
Pay Attention To Antitrust Activity in Your Area
Real estate is a highly competitive field. Agents constantly fight to acquire the best clients in order to maximize their commission fees and annual income. However, this drive to earn more can lead to unethical behavior when left unchecked.
Pay attention to the real estate agents you work with. If you suspect there might be anti-trust behavior in your area, submit a complaint. You can either report the issue to the Antitrust Division of the U.S. Department of Justice or look for state and local antitrust offices near you. It is better to report unlawful activity and be mistaken instead of letting unethical real estate practices go unchecked.