A broker who participates in the affairs of an association
of REALTORS® should
be alert to discussions at an association meeting relating to commission levels,
pricing structures or marketing practices of other brokers. Brokers who find
themselves in the midst of such discussions should immediately suggest that
the topic be changed, and if unsuccessful, should promptly leave the meeting.
If minutes of the meeting are being taken, they should insist that their departure
be noted for the record.
B. Use and Abuse of The REALTORS® Code of Ethics
The United States Supreme Court has held that industry
self-regulation through codes of ethics is a legitimate trade association
function so long as the code can be shown to promote competition by improving
industry performance or efficiency. Codes of ethics may not be used, under
any circumstances, to discourage or eliminate competition by, for example,
prohibiting or restricting creative, innovative or "alternative" business practices, no matter how "undignified", "aggressive" or "nontraditional" such
competitive practices may appear to be.
The REALTORS® Code of Ethics is no exception.
The Code of Ethics, as interpreted and applied through the official Standards
of Practice and Case Interpretations, has withstood analysis by federal and
state antitrust enforcement agencies and competent private antitrust attorneys.
Various Articles also have withstood legal challenges in several states.
The REALTORS® Code of Ethics can nevertheless be misused and abused. REALTORS® cannot
insulate themselves from antitrust charges by invoking the grievance or arbitration
facilities of a local association. The REALTORS® Code of Ethics does not
regulate the pricing, listing policies, or otherwise truthful advertising, of
a REALTOR®. Thus, the Code is not violated by REALTORS® who:
1. Charge "discount" or "flat fee" commissions;
2. Engage in "comparative," but otherwise truthful, advertising;
3. Act in the capacity of "buyer’s brokers", "transaction
brokers" or facilitators":
4. Offer "variable" commissions depending upon whether the property
is sold cooperatively or "in-house";
5. Accept "open" or "exclusive agency" listings; or
6. Employ general "mass media" advertising campaigns that reach persons
whose properties are already listed with other REALTORS®.
REALTORS® who pursue grievances seeking to prohibit these types of practices
or discipline REALTORS® who employ them are misusing the Code of Ethics,
and are exposing themselves and their association to antitrust liability.
C. Service on a Association’s Professional Standards
A REALTOR® who serves on a professional standards
committee must constantly be aware of the sensitivity of their position.
It is classic human nature for a person who is the recipient of an adverse
finding by a grievance or arbitration panel to conclude that the panel was
not interested in the merits of the case, but rather was engaged in a competitive
vendetta. A professional standards committee member must therefore be exceedingly
careful that no aspect of a grievance or arbitration proceeding gives even
the appearance of prejudice or unfairness.
D. Relations With Other Service Providers and Organizations
Allegations of group boycott are the most common antitrust claims to be asserted
against real estate brokers. A group boycott is per se illegal if the purpose
of boycotters is to deny a business access to goods or services necessary for
it to compete in the marketplace. Real estate brokers can become the targets
of boycott allegations if two or more brokers agree to refuse to cooperate
with a third broker, or to cooperate only on unfavorable terms or conditions.
Another type of per se illegal group boycott is targeted at a supplier or
purchaser, rather than a competitor of the alleged conspirators. Concerted
refusals to deal with suppliers or purchasers will be treated as per se illegal
whenever they involve the purposeful elimination of competition, regardless
of the ultimate motive or objective of the alleged conspirators. As a result,
real estate brokers may not employ group boycotts as a weapon against the providers
of other goods or services necessary or useful in the practice of real estate
E. Newspapers And "Homes" Magazines
A specific example of a temptation common for brokers to engage in a group
boycott occurs when brokers become frustrated with the advertising rates or
other practices of a local newspaper. This frustration can lead to a suggestion
that brokers should collectively agree to reduce their advertising, or refuse
to advertise altogether, unless and until the newspaper lowers its advertising
prices or changes its policies. Such a suggestion, if implemented, would constitute
a per se illegal group boycott.
As an alternative to a concerted refusal to deal with
a newspaper, some brokers and/or associations of REALTORS® acted to have instead acted to create of
alternative advertising vehicle, such as "homes magazines" or guides.
These are publications that contain advertisements for individually listed properties
and, in some cases firm advertisements. The creation of these alternative media,
whether through a local board of REALTORS® or through an outside publisher,
is procompetitive conduct that the antitrust laws encourage.
Rather than organizing
a boycott of an alleged monopolist, purchasers of the allegedly monopolized
product have joined together to offer a competitive alternative. It is important
to understand, however, that a joint venture to create a "homes magazine" guide
cannot include an agreement among the brokers in the venture, or the board
members, that they will only advertise in the homes guide and not in the local
newspaper. Such an agreement is a functional equivalent of an agreement to
boycott the newspaper and could be per se illegal. All those entitled to advertise
in the alternative publication must retain their freedom to advertise wherever
else they may find it beneficial to do so.
F. "Codes Of Mutual Understanding" With
Other Industry Groups
In their day-to-day business affairs, real estate
brokers regularly deal with persons in other sectors of the real estate industry,
or in real estate related businesses such as appraising, mortgage lending,
the practice of law, or insurance. Often an association of REALTORS® will create formal liaisons with associations
representing these other businesses, such as a local home builders or bar association
to discuss problems or issues of common concern. These liaisons, whether formal
or informal, sometimes include attempts by the two industry groups to establish "codes
of mutual understanding" or other agreements setting forth generally accepted
business practices that the two industries should observe when dealing with
While these agreements or codes may well be an efficient
way of reconciling differences between the two industries, they also present
potentially serious antitrust risks. This is especially true if the codes
address such matters as pricing or compensation practices, advertising, or
any other matters that deal with competition between or among persons in
the two industries. If such agreements are negotiated, either formally through
an association of REALTORS® and
its other industry counterpart, or informally between major firms in the two
industries, these agreements should be reviewed by competent antitrust counsel
before they are implemented.
In their day-to-day business decisions concerning the fees they charge to
clients or the compensation they pay to cooperating offices, real estate brokers
must be absolutely certain that these decisions are the result of independent
business judgments about market conditions facing the firm. Consultations
with competitors about these decisions can result in otherwise reasonable
actions being held to be per se illegal, or even felonies.
An antitrust compliance program is essential for every
real estate brokerage firm. The written program should be straightforward
and understandable by the firm’s salespeople, and kept current as laws and their interpretations
change. Furthermore, the importance of adherence to the policy by the firm’s
salespeople should be communicated from the highest levels of the company.
Salespeople cannot be expected to take seriously a policy that senior management
does not consider a priority.
Finally, antitrust compliance is not simply a means
to avoid treble damage liability and costly and protracted litigation. Universal
antitrust compliance insures the ability of all competitors to succeed to
the extent their skill, industry and foresight will permit. Once the firm’s salespeople understand
the "rules of the road" they are free to focus their energies on
the legitimate pursuit of additional listings, sales, and income for themselves
and the firm.
Dangerous Words and Phrases
The following are examples of words or phrases occasionally used by salespeople
that would permit a judge or jury to infer that real estate brokers are engaged
in an illegal conspiracy:
1. "I’d like to lower the commission rate,
but the board has a rule ..."
2. "This is the rate that everyone charges."
3. "The MLS will not accept less than a 120-day listing."
4. "Before you list with XYZ Realty, you should know that nobody works
on their listings."
5. "If John Doe was really professional (or ethical), he would have joined
6. "The board requires all REALTORS® to make their salespeople join."
7. "The best way to deal with John Doe is to boycott him."
8. "If you valued your services as a professional, you wouldn’t
cut your commission."
9. "No board member will accept a listing for less than ninety days."
10. "Let him stay in his own market. This is our territory."
11. "If he was really a professional, he wouldn’t use part-timers."
Berkshire County Board of Realtors® -
99 West Street, Suite 200 Pittsfield, MA 01201-5845 413-442-8049 Sandra
J. Carroll, Chief Executive Officer - Sue
O'Brien, Member Services Admin - Kim Gritman, Office Clerk