Antitrust Laws

What are Antitrust Laws?

Antitrust Laws are a set of federal and state laws which provide guidelines related to the prevention of the restraint of trade and protection of free competition.  It is the Sherman Antitrust Act, which was passed in 1890 that initially set forth the guidelines of what is a violation of antitrust laws.

Violations of the Sherman Antitrust Act can result in fines paid to the federal government of varying amounts and up to triple the damages Antitrust Lawspaid to the injured party.

Do Antitrust Laws only apply to real estate activities?

No, antitrust laws apply to all types of businesses in operation in the United States.  If you operate a business in the US, you are subject to regulation under the Sherman Antitrust Act.

For the real estate exam, you need to know the following violation of the Sherman Antitrust Act:

Tie-in Agreements

A tie-in agreement is any requirement to buy one product or service on condition that you buy another product or service.  Tie-in agreements are also known as tying agreements.

For example, a developer who is also a real estate broker agrees to sell one of the developer’s properties to a buyer only if the buyer agrees to list the buyer’s house with the broker.  This activity is a violation of antitrust laws.

Market Allocation

Market allocation occurs when brokers agree to divide the market among themselves and not compete in each other’s areas.  This action prevents competition because only one broker would be available for a seller to select to list their property.  Market allocation can occur not only by geographic area but also by price range, type of property, or some other criterion.

For example, two brokers in a town meet and agree to divide up the business within the town.  One broker will handle all the activity on the north side of town, and the other will manage all business on the south side of town.  Additionally, two other brokers meet and decide one will take all listings in the town above $400,000, and the other will take all listings below that amount.  Each of these brokers would be considered guilty of market allocation.

Boycotting

Boycotting occurs when two or more brokers conspires against another broker to reduce competition.  Sometimes it is referred to as group boycotting, which makes more sense.  If one broker decides not to do business with another because they feel they are unethical, it would NOT be considered to be boycotting.  However, if two or more conspire not to do business with another, it would be regarded as boycotting.

For example, a new broker to town is charging a low commission.  Two brokers get together and decide not to do any business with the broker.  This situation would be considered to be boycotting.

Price-fixing

A commission rate must be negotiable between the principal and the agent (broker).  Price-fixing occurs when competing brokers conspire to establish a standard commission rate rather than let the open market set the rate.  While a broker’s office can determine a commission rate, it must do so independently of any other broker.  Brokers must avoid even the impression of price-fixing.  References to “the going rate” or a “normal commission rate” imply that commission rates are standard, so this language should be avoided.

For example, brokers in a particular area meet and agree to accept only listings that have a 7 percent commission rate.  This scenario is price-fixing.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Easy

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel