Price Fixing, Collusion and the Realtor’s Settlement: There’s a Lesson to be Learned

You may not give much thought to collusion, the act of working with your competitors to fix or agree on prices. But collusion is illegal, and can get you sued, whether by consumer or by the government, as the recent lawsuit related to realtors’ commissions demonstrates.

Realtor’s Settlement

As you may know from buying or selling a home, realtors’ commissions were generally fixed, as a standard commission of 6%. Although anybody was free to negotiate and adjust that commission, that was the “agreed upon” commission by the national association of realtors.

Because that was the “standard rate,” many realtors did not negotiate with consumers to lower the commission.

That standard commission rate came at a high cost. The realtors fees could eclipse $20,000 when calculated on the average price of a home, and because the seller generally paid all commissions for both the buyers and sellers realtors, the inclination was to raise the price of homes, to build in that cost.

But that was, according to a lawsuit, price fixing. As a result of the lawsuit, the National Association of Realtors was forced to alter the fixed realtor commission pursuant to a settlement between the parties. The standard fee is now open to negotiation between buyers, sellers and realtors.

Also open to negotiation is who pays those commissions. In some cases, the buyer may be forced to pay his or her own realtor commissions, or the buyer may have to pay both commissions, depending on what is negotiated.

Will It Lower Prices?

Much ado was made about the settlement lowering home prices, and it remains to be seen if it actually will do that. Buyers who are now forced to pay their own commissions, may find their total cost to purchase properties going up.

The lowered realtor fees could also force realtors out of the market, and whenever there are fewer of anything, the demand goes up, driving prices up, which means that commissions may not go below 6%–they could well go above 6%.

Are You Engaging in Price Fixing?

It is common for businesses in the same industry, or even service people doing the same services (accountants, plumbers, contractors, landscapers, IT professionals—anybody) to talk about what they charge for certain services, to see what is “standard.” But seemingly innocuous questions to your competitors for helpful advice, like “what do you charge to do this or that,” can be seen as collusion.

It can extend to marketplaces—so, for example, if you hosted sellers on your website, but told them they couldn’t charge more than a certain amount, or less than a certain amount, that could be collusion and price fixing, even though you’re not the one actually selling anything.

Bear in mind that even if a private consumer doesn’t sue for price fixing, the government can also sue.

And collusion isn’t just about pricing—it extends to any agreement about marketing—for example, if everybody in an industry were to agree not to say certain things in ad campaigns, or in their service contracts.

Is your business being sued? Is your business violating state or federal trade laws? Let us help keep you out of trouble. Call the West Palm Beach business litigation attorneys at Pike & Lustig today.

Sources:

investopedia.com/terms/c/collusion.asp#:~:text=Types%20of%20Collusion%20Explained&text=Price%20fixing%20occurs%20when%20there,to%20set%20the%20price%20level.

vox.com/money/24106230/nar-realtors-settlement-real-estate-house-prices

fox13news.com/news/tampa-bay-realtors-react-to-major-shift-in-industry-after-settlement-ends-6-commission-rates