5REP/per se/ antitrust/ fix price/boycott/FTC/Sherman act/clayton act/DOJ/Donnelly Act/TIE IN / VOWs

In 2008, the U.S. Department of Justice filed a lawsuit against Consolidated Multiple Listing Service of South Carolina for restraining competition among real estate brokers.

"Buying or selling a home is one of the most significant financial transactions in the lives of most Americans. The kinds of rules CMLS imposes stifle competition to the advantage of its members and the disadvantage of homebuyers and sellers." Prohibited members from offering home sellers the opportunity to avoid paying a broker's commission if the sellers located a buyer on their own. Required brokers to perform a prescribed set of services—such as being involved in the negotiation of a home's sale price and attending the closing—even if the broker's client would prefer to perform some of these tasks on his or her own in order to save money on the real estate broker's fee. CMLS rules also allowed Columbia real estate brokers to exclude rivals from outside Columbia who might have offered local consumers innovative brokerage options that would save them money or provide services that better matched their needs.

tie-in arrangement

providing of one service is made dependent on the customer or client obtaining another. "I can only offer this commission rate if you use the title company/inspector/mortgage broker I recommend.

Antitrust Law Goals

1.Protect consumers by promoting competition in the marketplace. 2.Outlaw unfair methods of competition.

The 1970 case against Prince George's County Board of REALTORS® involved a consent decree. What is this?

A compromise where the party agrees to stop certain illegal actions without admitting guilt A consent decree is a compromise.

The U.S. Department of Justice (DOJ) identifies other types of price fixing, including:

Agreements to establish or adhere to uniform price discounts Agreements to eliminate discounts to all customers or certain types of customers Agreements to adopt a specific formula for the computation of selling prices Agreements on terms and conditions of sale, including uniform freight charges, quantity discounts, or other differentials that affect the actual price of the product Agreements not to advertise prices or to refuse to sell the product through any bidding process

which entity should you report the violation to if you suspect a price fixing situation?

Citizen Complaint Center of the Antitrust Division

The Federal Trade Commission Act (1914)

Created the Federal Trade Commission (FTC), an agency with the purpose of preventing unfair methods of competition in commerce

Donnelly Act (1899)

Criminal fines up to $1,000,000 for corporations, up to $100,000 and four years imprisonment for individuals Violation is a felony

Sherman Act (1890)

Criminal penalties up to $100,000,000 and court-ordered supervision for up to 10 years for corporations, up to $1,000,000 and 10 years imprisonment for individuals Violation may be a felony

Antitrust Enforcement

FTC / Department of Justice's Antitrust Division /State Attorney General

Illegal Per Se

Per se means that guilt is established on the face of the circumstances—no need to prove intent. Absent per se circumstances, the court looks at the entire situation to determine guilt or lack thereof. Per se guilt is determined when there is agreement between competing entities to do or not do an activity that has the effect of always or nearly always restricting competition.

According to the U.S. Department of Justice, which type of antitrust violation is an agreement between competitors to set contract terms for a certain length of time?

Price fixing Besides commissions and discounts, price fixing may also apply to contract terms.

The Sherman Act (1890)

Prohibits monopolies and collusive actions that result in unreasonable restraint of trade, such as price fixing

Clayton Act (1914)

Recovery of three times the damages from money lost due to Sherman Act violations Antitrust Violation Penalties

The Clayton Act (1914)

Supports the Sherman Act by prohibiting mergers or acquisitions that would unreasonably reduce competition or create monopolies

PUNISHMENT

The Sherman Act permits (in certain cases) the maximum fine to be increased to twice the gain or loss involved. Include prison terms of up to 10 years. fines can be as high as $100 million for a corporation or $1 million for an individual may be ordered to make restitution to the victims for all overcharges. Victims of price-fixing conspiracies may also be awarded up to three times the amount of damages suffered in a civil suit.

The two real estate firms in one small town, Vineyard Realty and Homestead Homes, agree to charge the same commission rate to avoid clients selecting a firm based simply on price. What specific federal legislation prohibits this?

The Sherman Antitrust Act of 1890 expressly prohibits collusive acts that result in an unreasonable restraint of trade or reduced competition.

U.S. vs. National Association of Real Estate Boards

The board had decided that brokers should maintain the standard rates of commission it had adopted, and no business should be solicited at lower rates. The board also said that no member should charge less than the set rate when involved in the sale, exchange, lease or management of real property in the District of Columbia. After some deliberation, the Supreme Court rendered its decision and found that trade as used in "restraint of trade" included the business of real estate, and the act covered both interstate and intrastate business. Also, that price fixing applied to the sale of both services and goods, and that fixed or mandatory real estate commission or fees established by real estate boards violate the Sherman Act

The DOJ also notes another component to price fixing that's specific to real estate, which the National Association of REALTORS® sometimes deems price/term fixing.

This is when two or more firms agree to offer exactly the same terms in their agency agreements. Real estate professionals should never state or even suggest that there's a "standard" price or fee that all agents charge. This could be understood by consumers to be price fixing. Review the scenarios and identify whether they're examples of price fixing.

price fixing is

a conspiracy or agreement between business competitors to set their prices to buy or sell goods or services at a certain price poinT

VOWs

are password-protected sites that allow the broker's customers to search the MLS database on their own. NAR's policy restrains competition by requiring affiliated MLS's to adopt rules that will allow brokers to withhold their listings from other brokers' websites by means of an opt-out. in November 2008, are that the NAR was required to cease enforcement of the rules, and was prevented from passing new rules that would discriminate against innovative brokers.

U.S. v. National Association of REALTORS

challenging a policy that obstructed Internet-based brokers who offered alternative services and lower costs to consumers. NAR's policy stifles competition to advantage its members at the expense of home buyers and sellers across the country. Consumers benefit when real estate brokers are free to compete vigorously by offering innovative services.

U.S. vs. Kentucky Real Estate Commission

challenging a policy that prohibited brokers from offering rebates and other inducements to consumers. Restricting brokers from competing through rebates and inducements is a per se violation of the antitrust laws It also permits any broker whose license was suspended or revoked on account of offering a rebate or inducement, to request to have the license reinstated. Required the commission to cease any investigations or disciplinary actions relating to offering rebates or inducements, and it provided that any disciplinary actions against those who had utilized rebates and inducements were null and void. Required the commission to notify brokers that they can offer rebates and inducements to attract clients.

U.S. vs. Prince George's County Board of REALTORS®

ended in a consent decree. The case involved both price fixing and group boycotting, which often go hand in hand. the board agreed to stop: Setting fixed commission rates or suggesting rates Punishing members for not following the suggested commission rates Publishing schedules of commission rates Boycotting members who didn't follow the commission rate suggestions

Group boycotting

involves two or more businesses conspiring against another. when two or more brokers or agents refuse to cooperate and split commissions with another one, or when several brokerages in a certain area agree to stop running advertisements in a local newspaper. Some additional types of group boycotting include: Boycotting a competitor Boycotting a supplier or vendor Discussing or agreeing to the different treatment of a competitor as a group

Market allocation

occurs when real estate professionals from competing firms agree to divide their market—by geography, price range, property type, etc.—and then refrain from competing for business.

California's antitrust law is called

the Cartwright Act. Competitors agreeing not to do business with a specific company or individual Competitors agreeing to allocate customers, markets, or areas between themselves Competitors agreeing to buy or sell commodities, products, or services at a set price or rate Individuals or companies providing a specific product or service only if the consumer purchases another product of service Individuals or companies requiring a consumer to obtain a product or service from a specific entity

Antitrust Violations In the real estate

watch out for antitrust violations such as: Price fixing Group boycotts Market allocation agreements Tie-in arrangements a written document, verbal exchange, or even be inferred from conduct (such as a meeting between competitors followed by joint conduct). Without an agreement, there's no violation