Real Estate Newsletter
Antitrust Laws Restrict Broker Conduct
The federal Sherman Antitrust Act prohibits any combination, contract or conspiracy in restraint of trade, violations of which are subject to civil and criminal sanctions.
The Sherman Antitrust Act became law in 1890. However, it was only recently that real estate professionals became affected by the Act’s policy to support competition in a free marketplace by prohibiting predatory and unfair business practices. This was based on a 1980 U.S. Supreme Court ruling that real estate professionals and organizations are subject to the requirements and prohibitions of the Sherman Antitrust Act.
As applied to the real estate brokerage industry, the majority of civil and criminal actions have stemmed from the following prohibited practices:
- Price fixing
- Group boycotts
- Tying arrangements
- Territorial market divisions
Price fixing is when competing brokers agree to set commissions. Prohibited actions extend to all agreements that have the effect of manipulating the price of real estate services. Furthermore, such agreements do not have to be in writing for illegal price fixing to occur.
Group boycotts are concerted refusals to deal based on an agreement among industry members for the purpose of driving a competitor out of business. In the real estate industry, this usually occurs in the context of exclusions from multiple listing services and local real estate boards.
A tying arrangement is when a sale or purchase of one product is conditioned upon the sale or purchase of another product. In real estate, this usually happens in the context of a “list-back” agreement, where a broker, for example, is willing to sell parcels of land to a developer only upon the condition that the developer agrees to list the completed homes on the parcel with the same broker.
Territorial Market Divisions
Territorial Market Divisions occur when competitors agree not to compete with each other in certain geographical areas. An example of this is when real estate firms enter into an agreement not to enter into designated locations in an effort to avoid competing with each other.
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