Risk Management

ANTI-TRUST

Learning Objectives

At the end of this unit you should be able to:

• Have a good understanding of the Sherman Anti-Trust Act and know why the real estate industry is a likely candidate for violations
• Describe the three most common anti-trust violations as they pertain to real estate and how to avoid each
• Know the penalties involved with Anti-Trust violations

Introduction

Anti-Trust Laws and Unfair Business Practices are designed to promote the policy and practice of competition.

Some of the symptoms of a lack of competition are higher pricing and diminishing quality of a service or a product.

Real estate brokers compete with one another to obtain listings for sale. At the same time, they often cooperate with one another to secure buyers for those listings. This dual situation of competition and cooperation, which is unique to the real estate industry, can present many opportunities for Anti-Trust violations.

In light of this risk, the National Association of Realtors (NAR) has produced a 16-minute video entitled “Anti-Trust and Real Estate” which can be obtained through (NAR). This informative video explains the basis for Anti-Trust laws and how they pertain to you, as a real estate professional.

The foundation for federal Anti-Trust laws is the Sherman Anti-Trust Act of 1890.

Trust in Restraints of Illegal Trade: Penalty

"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by a fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000 or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court."

Note: the emphasis of this act is to prohibit the restraint of trade to allow for greater competition.

The three types of anti-trust violations which are most important in the Real estate industry

• Conspiracy to Fix Prices
• Imbalanced Commission Splits
• Conspiracy to Boycott

Conspiracy to fix prices

It is a violation of both State and Federal Anti-Trust Laws for there to be ANY agreement between competing real estate brokers to fix the prices that each will charge to a third party.

Let's look at some examples regarding Conspiracy to Fix Pricing which are prohibited:

• Brokerage A and Brokerage B agreed to charge all their clients x amount of commission on all listings.
• Brokerage A, brokerage B and Brokerage C agreed to pay a set amount to outside brokers for any referral.

A licensee tells her clients that her brokerage charges 6 percent commission on all their listings and that all other brokers charge the same amount as it is a "standard" in the industry.