Antitrust & Social Media…A Costly Combination
Real estate brokers must maintain a constant vigil against inadvertent violations of antitrust laws.
One purpose of antitrust laws is to prohibit cooperation among competitors for the purpose of stifling competition. In the real estate industry, the only way to find success, financially and for the benefit of clients, is for a broker to work cooperatively with competitors. Simply put, brokers compete vigorously for clients, both sellers and buyers, but once a client is secured, the successful real estate broker must work cooperatively with competing brokers to find a buyer for seller’s house and to achieve a purchase agreement for a buyer. With this inherent combination of competition and cooperation, the real estate industry has always been a fertile ground for antitrust regulators and plaintiffs’ lawyers.
Moreover, “cooperation” that violates the law does not require an “agreement” that is written, oral or documented in any way. All that is required to prove “cooperation” that violates antitrust laws is the promotion of an idea by one competitor and action by other competitors. Said differently, even though there may be no actual agreement, formal or informal, for competitors to engage in certain conduct, if antitrust regulators or plaintiffs’ lawyers can show evidence that one broker promoted an anticompetitive thought and can also show that other brokers engaged in that behavior…even if the broker’s promotion and the actions of the other brokers are wholly unrelated…all the brokers may be liable.
Combine that application of the law with social media practices, where brokers casually reference commission rates, services provided, criticism or praise of other industry members or vendors to the industry and the outcome can be catastrophic. This article will provide a reminder of the basics of antitrust law and then describe some troublesome scenarios for brokers to consider when engaged in their own use of social media. It is critical to remember that violations of the antitrust laws do not require intent. To be guilty, a broker does not have to “intend” to stifle competition. All that a regulator or plaintiffs’ lawyer must show is the promotion of an idea by one competitor and the actions of other competitors. In other words, real estate brokers can (and do) inadvertently violate antitrust laws. Both Washington and federal law impose penalties and the right for injured parties (plaintiffs) to collect damages (even tripled damages) as well as attorney fees and costs. Washington law imposes a penalty of up to $500,000 on corporations that engage in anticompetitive behavior and up to $100,000 on individuals while federal law allows for criminal (felony) fines and imprisonment.
Antitrust Law
Washington real estate brokers are subject to two different, but very similar, antitrust laws. At the federal level, the antitrust law is known as the Sherman Act, enforced by the U.S. Department of Justice and the Federal Trade Commission. At the state level, antitrust laws are embedded within the Consumer Protection Act and enforced by the Washington State Attorney General. Additionally, both laws allow for civil claims by any person damaged by anticompetitive behavior.
This article is not a treatise on antitrust law. It is intended, instead, to synthesize the law into the components that are most relevant to real estate sales. As a result, the following explanation is an over-simplification of the portions of the antitrust laws that apply most directly to real estate brokers.
It is unlawful for a broker to be involved in any communication or action that results in price (commission) fixing, fixing of commission splits, fixing of offered services/terms or boycott of competitors or vendors.
Price Fixing
A common thread in many antitrust allegations is a conspiracy to eliminate competition by agreement of some competitors to a common price charged to consumers that forces other competitors out of the market. In the real estate industry, this would typically include an agreement by competing firms, or members of competing firms, to charge an agreed commission rate to consumers. It is unlawful for two or more real estate firms to agree that the commission rate charged to consumers will be a certain amount or not drop below a certain amount. (It should be noted that nothing precludes a firm from establishing a minimum rate of commission that brokers licensed to that firm may charge. Establishment of commission rates within a firm is very different from two competing firms collectively establishing a commission rate.)
Fixing of Commission Splits
Typically, a listing firm enters a listing contract with a seller and the two parties agree on a commission amount that seller will pay to the listing firm. The listing firm then advertises a commission rate that it will pay to (share with) a cooperating firm that produces a buyer. It is unlawful for two competing firms to agree on the amount of commission that will be shared with other competitors. Again, a distinction must be drawn. In nearly every transaction, a listing firm and a selling firm will agree as to the amount of compensation shared from the listing firm to the selling firm in that transaction. That is not unlawful. But, a third firm should never be part of that discussion and neither should firms agree, in advance of agreement in a transaction, as to the amount of compensation that will be shared in future transactions.
Fixing of Offered Services/Terms
In a listing agreement, listing firms and sellers agree as to the length of the listing agreement, the exclusivity of a listing agreement, the services that will be provided by the listing firm in exchange for compensation from seller and other terms. Competing firms should never agree as to the terms or services that will be negotiated with sellers in a listing contract. While an individual firm may establish policies for its brokers to use in negotiating listing agreement terms with a seller, two competing firms may not agree that certain terms or services will or will not be offered to sellers.
Boycotts
Boycotts arise in two different contexts. A boycott can be against a competitor or class of competitors or a boycott can be against a vendor to the industry. With respect to boycotts against a competitor, this antitrust violation typically arises in a situation where a competitor, or group of competitors, does something different from the rest of the industry. Perhaps the competitor offers lower commission rates than most of the industry or offers more services for a rate like that charged by most competitors. If other members of the industry agree to treat that competitor differently so as to injure the competitor’s business, which could include offering a different commission split to that competitor, not showing that competitor’s listings, disparaging the competitor’s business model or other actions that single out the competitor, that is an unlawful boycott. Similarly, if it is agreed that a vendor to the industry will be treated differently from similar vendors so as to force compliance with a desired outcome, that is an unlawful boycott.
It must be understood that if any fixing arrangement or boycott is determined to have occurred, there is no defense for the action. The only potential defense available to a firm is to dispute the firm’s involvement in the fixing or boycott scheme. Moreover, recognize that firms are liable for the actions of every broker licensed to the firm. For that reason, it is not just the designated broker who can get a firm into trouble. While a designated broker can establish prices and policies for the designated broker’s firm, members of two different firms cannot agree to fix prices, splits, terms/services or to participate in boycotts. Said differently, a designated broker may establish a policy that within the designated broker’s firm, no broker may charge a commission less than “X” amount. The firm may publicly advertise the commission rate that it charges. But, a broker licensed to that firm and a broker licensed to a different firm may NOT discuss the commission rates charged by their respective firms. Brokers who engage in anticompetitive behavior create liability for themselves and for their firms.
Recall also that a broker’s participation in an antitrust conspiracy does not require any formal documentation of agreement to the scheme. Often, all that is required is proof of a conversation and subsequent actions consistent with that conversation. As an example, four brokers may actively discuss refusal to advertise with a magazine until the magazine lowers its rates. A fifth broker, sitting at the same table, may say nothing during the conversation and not openly participate in any “agreement” to withhold advertising dollars from the magazine. But if that fifth broker, along with any of the other four, subsequently withholds advertising from the magazine, that fifth broker is equally liable for antitrust violations.
With all this information, bells should be going off in every broker’s head with respect to the fact that within the industry, many firms already offer similar commission rates, similar commission splits, similar services and listing agreement terms and no doubt utilize many of the same vendors. Since this conduct already demonstrates common actions, the need for a strict avoidance of communication on these topics should be obvious. This is where social media becomes dangerous.
Imagine a social media post in which a broker bemoans a low commission split just received in a cross sale with ABC Firm. Then imagine that other brokers chime in with condolences as to the unfairness of that commission split. Then, imagine that ABC Firm experiences a lack of showings or cross sales from the firms whose brokers expressed dissatisfaction with ABC Firm. These facts could lead to liability for an unlawful boycott.
Imagine that an inspector refuses to perform inspections on weekends and a broker, whose buyer is unable to schedule a timely, weekday inspection writes a blog piece about the inconvenience caused by this inspector’s policy. Imagine further, that another broker writes a comment saying: “Ha! Would serve him right if nobody scheduled a weekday inspection with him. Let’s see then if he would refuse to offer weekend inspections!” Thereafter, several brokers who follow the blog stop referring the inspector to their buyers. All those brokers could be liable for anticompetitive behavior.
Imagine a tweet where a listing broker congratulates a seller on a successful closing and then praises the seller for making the sale easy by offering the standard commission rate. The implication in this tweet would be that there is a standard commission rate, which of course there is not, as that would be unlawful.
Imagine a social media post where a broker is critical of a listing that offers a commission deemed unfairly low by the broker. Imagine further that another broker adds a supportive comment saying, “all selling office commissions should be at least “X%.” Imagine further that “X%” is the commission split offered most of the time by most listing firms. If the similar offering of commission splits was determined to be anticompetitive, then the brokers involved in the post could be liable for antitrust violations even though the social media conversation did not actually influence their practice with respect to commission splits.
It must be remembered that anticompetitive behavior does not require intent. Therefore, casual conversation in an online chat, seemingly harmless posts, comments that are typed in an instant with no particular thought given to them … can all be evidence of an antitrust violation. Brokers must recognize the topics of discussion that can lead to liability for anticompetitive behavior and avoid those topics, altogether, when engaging in social media. Brokers are trained to avoid antitrust discussions in face to face conversations. All of those lessons must be transported to the world of social media where conversations and comments are recorded, in writing, forever.
Members, if you’d like to submit questions to the Legal Hotline, e-mail legalhotline@warealtor.org. The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.