By Jeff Sorg
PORTLAND, OR (OnlineEd) – Price fixing, which is illegal, is any agreement between real estate licensees or brokerages to establish a commission rate. This concept was first established in the 1950 case of United States v. National Association of Real Estate Boards. However, price-fixing is not limited to cases where a fee or commission rate is agreed upon, rather it extends broadly to agreements that have the effect of raising, depressing, fixing, pegging, or stabilizing the price for real estate services. Price fixing cases brought under the Sherman Antitrust Act do not require an express agreement to adhere to an illegal plan. Tacit agreement to such a plan will do for a violation of the act. An agreement that is implied or indicated by an act or silence and is carried on without words or speech is a tacit agreement. The case of United States v. Foley is an example of how easily a broker can be found to violate the law without directly agreeing to the conspiracy.
In the Foley case, the Fourth Circuit Court of Appeals upheld the felony convictions of four real estate brokers accused of having conspired to raise commission rates. At a 1974 dinner party in Montgomery County, Maryland while complaining about the current market downturn, one of the defendants announced that his company would increase its commission rate from six to seven. Within months, all of the brokers who attended the party had increased their commission rate to seven. The court found that the dinner announcement and the ensuing discussion between the brokers, even though the brokers did not arrive at an express agreement, was enough to uphold the jury’s conviction of each of the defendants under Section 1 of the Sherman Act.
The 1985 price fixing case of Park v. El Paso Board of REALTORS® reached a similar conclusion. In this case, Park’s company, Action Realty, charged homeowners a $950 flat fee instead of a percentage of the selling price. Park was able to submit evidence to the court of practices by brokers in his Board and MLS that they boycotted his listings and discriminated against him in an attempt to put him out of business solely because of his reduced flat fee.
Because studies indicate that commission rates are relatively stable, real estate licensees should be aware that they are easy targets of price-fixing suits. Plaintiffs usually argue that such stability is due to a tacit agreement, express agreement, or other collusion among real estate professionals or real estate firms. It might be argued that commission rate stability, in and of itself, does not indicate a conspiracy, but can be explained solely by market forces and not by collusion. However, the best advice that can be given to any real estate licensee is never to discuss commission rates with another licensee, regardless of the setting.
For more about the author, Jeff Sorg, please visit the OnlineEd Web site at www.OnlineEd.com
Jeff Sorg is a co-founder of OnlineEd®, a Web-based vocational school founded in 1997 where he also serves as Corporate Secretary, Chief Operating Officer, and School Director. Sorg holds vocational instructor licenses in Oregon, Washington, California, and Nevada and has authored numerous pre-licensing and continuing education courses. Sorg was awarded the International Distance Education Certification Center’s CDEi Designation for distance education in 2008.
OnlineEd® provides real estate, mortgage broker, insurance, and contractor pre-license, post-license, continuing education, career enhancement, and professional development and designation courses over the Internet.