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Competition and Emerging Business Models


In today’s market, change is the rule rather than the exception. One current trend is brokerages practicing under new, nontraditional business models.

Emerging Business Models
Whether you embrace these models, or disagree with them, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have made it quite clear, new business models create competition in the industry and competition is good. Working to limit or eliminate new models, on the other hand, can open the door to an investigation for a possible antitrust violation.
 
Antitrust is a vast area of law encompassing many types of activities. It often involves attempts to limit, or remove, competition by engaging in tactics designed to chase it away. Obviously, if you’re simply doing better than your competitor and he or she closes down, you’re doing something right and your competitor wasn’t. But if you conspire with another company to “keep things status quo” or put your competitor out of business, you may have engaged in an antitrust violation punishable under federal and/or state law.

Moreover, the mere appearance of, or potential for, a violation is all it takes to get the DOJ’s attention—you don’t actually have to engage in the activity. If a comment, action, policy, etc., could be interpreted as anticompetitive, you may be inviting yourself to an investigation, regardless of your true intentions.

Two prevalent issues in the real estate industry are group boycotts and price fixing. Both may be used in attempts to influence what business models survive in a given geographical location. Unfortunately, accidentally becoming associated with a boycott or price-fixing scheme is quite easy to do.

Group Boycotts
The essential element here is collective action. Group boycotts occur when competing brokers (i.e., brokers from different companies) agree not to work with another competitor, thereby reducing that competitor’s business. Refrain from discussions with competitors about actions that would, or could, negatively impact another’s business.

For example, several competing brokers who are lunching together agree it’s not in their best interest to show houses listed by the new discount broker in town. This is a group boycott. (It’s also detrimental to those brokers’ customers, who won’t have the benefit of viewing additional listings while searching for a home.)

The appearance of a group boycott could also be created simply byBroker A casually commenting, “I’d like to drive that new discount broker out of town!” or “We need to stop these kinds of companies!” Although the brokers may not have formulated a plan for driving the new broker out, Broker A’s act of making either statement could suggest that intent. Moreover, if the statements lead the brokers to work toward the common goal of driving the new broker away, a group boycott has been born.

What Should You Do?
If another licensee complains about a new business model (or broker engaging in it), be sure to explain that, to avoid giving the appearance of engaging in anticompetitive activity, the conversation must stop.

If you’re present when others begin discussing new business models or brokers who “conduct business differently,” immediately change the conversation. If you’re unsuccessful, excuse yourself. If the meeting is being recorded, insist that your exit, as well as your reason for leaving, be noted on the record.

Group boycotts can also apply to Boards/Associations or other entities, such as newspapers or the radio, where licensees advertise. A boycotting conspiracy could be two Associations agreeing to exclude a third from participation in a joint program or from use of particular services. A boycott against a service could be competitors agreeing to cease advertising in the newspaper because they feel the paper charges too much, or because a discount broker/competitor also advertises there.

Price Fixing
Pricing must always be done independently. Don’t talk or e-mail with your competitors about your fees or other charges. Competing brokers aren’t allowed to agree on a standard commission rate to charge clients because all commissions are negotiable between the broker and the seller. Avoid any appearance of competitors having worked together to set fees. Never make, or allow others to make, comments like “Everyone charges this rate” or “The Board makes us charge this.” 

Let’s say two brokers are dining together and Broker A casually comments to Broker B that he’s increasing his office fee policy to X percent. Shortly thereafter, Broker B raises his office fee policy to X percent as well. The fact that the brokers discussed it suggests a price-fixing conspiracy, regardless of whether Broker B’s fee increase had anything to do with their conversation.

Likewise, competitors may not agree on a specific commission to offer cooperating brokers. This is true whether they (1) set a general commission for everyone or  (2) agree to each pay X percent to all cooperating brokers, but pay a lesser amount to Broker D, who practices under a nontraditional business model. (Note: The agreement to offer a lower commission to Broker D also suggests a boycott.) 

Never make comments such as “Everyone splits 50-50, so you should too,” or “By refusing to split 50-50, you’re going against Board custom or rules.”  It’s also wrong to tell another broker’s seller that no one will show or sell his or her listing due to the commission split he or she has authorized.

With diligence and attention to your day-to-day business practices, you can hope to avoid becoming associated with anticompetitive activity. Stay alert for anticompetitive behavior and its potential warning signs. Doing so can only assist you in avoiding liability somewhere down the ever-changing real estate road.

This article was written by the Florida Association of Realtors® legal department.