How to Avoid Accidentally Violating Anti-Trust Laws in Real Estate
A True Story About What NOT to Say on the Internet
Welcome, noble title insurance agents of the realm! Gather around as we embark on a journey through a tale as old as time, or, older than the internet anyway. Today we’re exploring the Clayton Act of 1914 and the Sherman Antitrust Act of 1890. You might think these laws are as distant to your daily grind as growing your own food or hunting in the forest. But, oh, how the tides turn when Robinhood empties your pockets!
Robinhood and His Merry Men
Before we dive into the nitty-gritty, let’s set the stage. The Clayton Act and the Sherman Antitrust Act are like the Robinhood and Merry Men of antitrust laws in the real estate kingdom. They ensure that no single entity becomes the Sheriff of Nottingham of the market, hoarding all the power (and properties of Sherwood Forest).
Robinhood, aka “The Sherman Antitrust Act” passed by Congress in 1890 forbids predatory business practices such as price-fixing, group boycotting and tie-in agreements. It was passed to ensure healthy, free and fair free-market competition. The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”
Like Robinhood’s band of Merry Men, The Clayton Act, passed by Congress in 1914, is the sprightly sidekick to the Sherman Antitrust Act. It was introduced to reinforce and expand on its predecessor’s powers, addressing specific practices that the Sherman Act does not clearly prohibit. It’s particularly nifty at promoting labor rights limiting mergers and prohibiting corrupt business practices such as price discrimination and exclusive dealings.
From Hapless Agent to Evil Sheriff in 17 Words or Less
One hapless agent waded into outlaw territory in a Facebook group in August of 2023. Her question seemed innocent enough. She was wondering why she was continuing to face downward pressure on the fees she charges at closing because her competition kept lower prices, despite the fact that it seems like every other business in every other industry is raising prices like hot air raises a balloon. If she had stopped there, it might have been ok. But this is where she turned left instead of right. Innocently enough she stomped her foot and expressed her frustration by proceeding to say, “At some point I feel like Title Companies need to come together and say enough is enough.” Oh, no…like a bad D&D game when the player rolls a 1, poof, she was transformed into the Sherriff of Nottingham and transported to the dangerous forest of Sherwood.
Under normal circumstances in our capitalistic system, market prices are supposed to be determined by the forces of demand and supply. The Sherwood, er, Sherman Antitrust Act forbids any type of price-fixing in any industry, including by the Sheriff of Nottingham. An example of price-fixing in real estate is when competing real estate broker, real estate agents or title agents collaborate to set standard prices, management, or commission rates.
The sellers of any product or service are banned from consulting with each other and agreeing on a price for services, property or merchandise. Any consultation or fee discussion between competing brokers or agents is illegal and violates antitrust legislation. Commissions, management fees, closing costs or other prices must be determined through fair competition.
In the real estate industry, antitrust laws go a step even further. No actual consultation needs to take place between individuals about price-fixing to constitute an antitrust violation. A simple discussion among competitors about the pricing for services is considered an invitation to fix prices and is, therefore, a violation of antitrust law.
While these laws may be as old as the dust on the forest floor, they are still very active and relevant in our world. This is reflected by the anti-trust suit NAR lost in October of 2023 in Missouri and the several others that are pending nationwide.
Here’s another example of just how easy it is to fall victim to violating these laws in ways that might seem innocent and a natural course of doing business or even, just talking.
Real-estate brokers typically price their services based on a percentage of the sale price and it’s common for them to offer a publicly-announced share of that commission to any broker that brings in a buyer. These commissions may seem standard within a certain market but the keyword here is “seems” because they are technically not fixed at a particular price.
Although this violation is all too common, brokers and agents can’t tell potential clients that a given commission rate is standard. This is SO important! No such thing as a standard commission can exist, or it would be price-fixing. No local or national real estate board, or any other association of real estate agents, has the authority to set a commission rate or create any standardized fees for services.
The same is true for title insurance. Unless the price is set (or approved) by the state, such as the filed insurance premiums in many states, there is no such thing as a “standard” rate or price. Some states such as Pennsylvania, have very specific statues dictating what settlement agents can and cannot charge. For some of those fees, such as the cost of recording or certifications, the state dictates that the cost cannot be more than actual cost incurred by the agent. In this case, it is ok to say there is a “standard” cost for those things. However, other statutes or other fees within the same statute may grant the agent more leeway in setting the price. In this case, it must be fair and dictated by supply and demand, rather than discussed and agreed upon by competitors.
The Tale Recap
Remember, dear agents, TRID isn’t the only law of the land and the Clayton and Sherman Acts are not just dusty old scrolls. They are living, breathing outlaws, er, laws that ensure the real estate market remains as vibrant and diverse as Sherwood forest.
Your Quest Awaits
Here’s your mission, should you choose to accept it:
Reflect on Your Practices: Take a moment to consider if your business practices align with these laws. If you feel you need to raise your rates to cover costs and pay your staff a fair wage, then do so within the scope of your state statutes.
Educate Your Band of Merry Men (and Women): Share this knowledge with your team. Knowledge is power, after all and a rogue employee trolling the internet can stumble into big trouble if they aren’t careful.
Seek Guidance: When in doubt, consult with legal experts to ensure you’re on the right side of the law.
Now, go forth and conquer the real estate realm with fairness and integrity, just like a true hero! 🏰✨📜
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**DISCLAIMER**
The information provided here is for general guidance and educational purposes only. I am not an attorney and am not giving legal advice. Information should not be considered legal, underwriting, or financial advice and is followed at your own risk. Readers should consult with their attorney and/or underwriter to obtain advice tailored to their specific circumstances.