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Talking Commissions=Serious Consequences

man's hands behind his back in hand-cuffs

I am reposting this because some of the posts I saw this week, and some of of the comments that followed.

As a real estate professional you are held to a high standard. You must be aware of these regulations. It is your responsibility.

I AM NOT A LAWYER and I am not qualified to dispense legal advice. Please consult a lawyer and your broker for clarification on these issues.

Both local and national regulations exist to provide a mechanism for governments to discourage and prosecute anti-competitive trade practices. In the US the essential statute covering competitive trade practices is The Sherman Antitrust Act passed by congress in 1890.

Any discussions between brokers and sales persons of competing firms, planned, agreed upon, explicit, or implicit, regarding pricing or production can result in an investigation and serious penalties.

In addition, talking about a competitor in a derogatory matter that establishes a formal or implicit boycott ('don't do business with them,' 'nobody will do business with them.') of that organization would be a violation of these rules.

Never discuss commissions you are charging, with other agents or brokers outside of your brokerage. Never discuss a competitor with anyone outside your firm in a derogatory manner that could be considered a boycott.

On Your ActiveRain Blog Directed At Professionals:

Do not discuss agree or imply anything regarding commissions, rates, fees charged or paid, formally or informally.
Do not discuss imply or agree to anything regarding a boycott of a competitor.

Talk about rates with consumers, not your colleagues.

There are a lot of other rules surrounding this. Please refresh your knowledge on commissions, and antitrust laws.

Clarification:

Dusty wanted to know about brokers setting rates for their agents. Within your office these rules don't apply. It is only when you are discussing these things with a member of a competing firm that these rules set in. That does not mean within X Brand Real Estate. That means at one office under one broker.
These same rules can apply to any industry, however real estate home sales has a watch on it, the government actually sends out testers as a method of monitoring and enforcement.

The reason for this is? Some have found that real estate commission rates differ in their when compared to other competitive markets. Price fluctuation and stability is questioned by many economists when looking at real estate home sales.

Is it OK to complain or vent about another vendor? Yes, to a point. I'm not a lawyer however and can't advise on the finer details except to say that when you are talking about one of your competitors do not say anything about whether or not you or anyone else would do business with them.

Nima the point you bring up is an interesting one because being a mortgage loan officer, you're not a competitor with a lead broker. Any "agreement between competitors to not do business with a particular third party" would be considered a group boycott.

On the question of advertising prices. According to realtor.org, you can unilaterally set and advertise commission rates, as well as respond to the advertise rates set by others.

"The law does not preclude a competitor who establishes its commission rate unilaterally and without agreement with other companies from advertising that commission rate. The law also allows that competitor to engage in competitive advertising, in which the company explicitly compares its stated commission rate to the rates publicly promoted or advertised by other firms, provided that the advertising was truthful and not misleading. In fact, the policy underlying antitrust laws — promotion of vigorous and healthy competition — would tend to favor and encourage such comparative advertising since it helps consumers easily compare and contrast prices offered by various companies." 2006 realtor.org

Resources for Antitrust issues:

Michael Roberts I appreciate your example. I think it shows clearly that these are serious issues with serious consequences. Please take them seriously. Review your real estate education and stay in compliance.

These are some great comments everyone, I appreciate them. If you've got more to add please do so.

Posted by Caleb Mardini on 04/28/2007 05:49 AM

Comments (84)

commissions, rates, fees, antitrust

84 Comments on Talking Commissions=Serious Consequences

SEP

2006

Caleb, can you expand on this please?

I'm not sure I understand how to apply this information to myself. Can you give us some examples?

Any help is appreciated.

Caleb

I've been meaning to talk with you about the RealTalk Blog..........Hmmm. I guess not!

Where does this shake out if you are critical of either another blogger or his/her firms actions or business policies?

"Mr Caleb aka Don Caleb"

Now there is some really...really...really good advice. Glad to see it as a "Featured Post" Excellent. I like it. The laws that govern our Industry do not get tossed out the window just because we are inside "RainVille"...Obviously you agree! We have quite a few "good advice" features today. That's a Good Thing.

by "The Lovely Wife"...Kum La Ka Lakka...ROAR!

An excellent reminder, Caleb. It's very easy to oscillate to this topic during informal conversations and webspeak, but we definitely need to steer clear of even the slightest hint of impropriety on our parts.

Rich Jacobson, www.KitsapLife.com

Dave wrote: "Where does this shake out if you are critical of either another blogger or his/her firms actions or business policies?"

Here's my understanding....

If I say something along the lines of -- "I'm dealing with this agent who is a complete ninny. They don't understand fundamentals of the contract, they are rude, blah blah whatever" -- then that violates nothing in the Sherman Anti-trust Act, RICO, etc.

Now if I were to say (FOR ILLUSTRATIVE PURPOSES ONLY!) something like, "Dave Rosenmarkle at ABC Realty is a ninny. No one should ever do business with this clown!" then trouble may be brewing. The Feds could construe that as boycotting (not to mention it's a violation of the Code of Ethics).

The difference between these two examples is one "attacks" an unknown, the other names a specific person and/or brokerage and suggests boycotting them.

You are free to express your opinions of a person or business practice. You can flame discount brokers, full service brokers, or whatever to your heart's content. But if you even hint at boycotting them, or encourage others to not do business with them then you're playing with fire.

On the commission side, I can say, "I'll list your house for less commission than anyone!" There's nothing wrong with that. If I say, "I'll list your house for X%" then technically that is wrong (though in practice, it happens all the time and is generally overlooked). Now if you and I were to get together and say, "Let's get out there and undercut what Broker Bryant and his Lovely Wife are charging" then we need to be prepared to lose our licenses and potentially spend some time together in the pokey being married to the guy with the most cigarettes.

Another big no-no that you see a LOT and that IS frowned upon is making statements like, "The commission to list a home is X% in Phoenix." (with X being some number). That implys that we ALL are in collusion to set commission rates.

That's my understanding of the SATA and RICO laws. But like Caleb, I AM NOT A LAWYER. SEEK ADVICE OF COUNSEL.

Like Jay stated above, its the collusion part that will get you in hot water. I think the best advice would be if you aren't sure its legal to print-----DON'T. -Charles

www.lvrealty.net

Excellent Reminder

Jay said ... On the commission side, I can say, "I'll list your house for less commission than anyone!" There's nothing wrong with that. If I say, "I'll list your house for X%" then technically that is wrong (though in practice, it happens all the time and is generally overlooked).

I ask, why is it wrong? I as an independent contractor am free to set my commission rate wherever I choose. If I want to create a business model around a X% commission model I'm free to do so (and free to starve.)

Similarly, my office has a recommended commission scheudle in our policy manuals (which, to a degree, we are free to ignore.) Again, there is nothing to prohibit one broker from deciding what his business model will be.

The issue, as Jacqulyn put it, is collusion. I can't call Jay and set a commission rate for the Valley. That would run afoul of the antitrust set.

And please see previous disclaimers since I'm not an attorney either.

Jay & Francy,

You can declare what you charge to list homes. Nothing wrong with that. You just can't collaborate with other brokerages/agents about establishing the price. For instance language like "the standard commission in our market is x%" is bad.

I believe the two main concerns are Price Fixing and Group Boycotts.

What you do at your firm or as an agent has no plae being talked about with other agents period. If you tell another agent that you charge x% then that agent can use that info to adjust his/her rate. This is price fixing even if you don't mean fro it to be. I have actually posted the exact law more than a few times on other forums, people still argue that they feel they aren't doing anything wrong...I just stay away from the thread and let them dig their own grave.

Talking with another agent about what you charge, or posting about it on ActiveRain wouldn't be a good idea. But there is no law that restricts people from advertising what they charge for a good or service.

Caleb,

So glad you brought this up -- again. I've mentioned more than once the danger of discussing commission amounts. It is simply not allowed. This is not only in our profession. The moderators of a graphic listserv I'm a member of has a statement on their forum warning against this.

I am new so please excuse my questions I am just trying to learn as it seems when people try to explain it they tend to contradict themselves...

Jonathan said ... "I ask, why is it wrong? I as an independent contractor am free to set my commission rate wherever I choose. If I want to create a business model around a x% commission model I'm free to do so (and free to starve.)"

Yet I have been told that the ocmpany you work for can set a limit on what you charge by saying that you can NOT list for less than "X%" and if so the company will charge you and take the loss out of your cut. Is this right or wrong???

I don't think that discussing (or advertising) commission amounts is any problem as it related to price fixing or anti-competition.. I think coercing everyone to "set" a price is anti-competitive. I realy don't see any problems on ActiveRain with that.

Being publicly critical of an independent Realtor is perfectly fine, INASMUCH AS IT RELATES to service, profesionalism, or reputation. Publicly slandering a company and/or Realtor is scary because it opens you up to libel. Organizing a "boycott" of a partiular Realtor or company because of service is one thing.

Now, Organizing a boycott, or discussing a "scheme" to boycott discounters id flat out price-fixing. Complaining about them and wishing they'd go away is an expression of opinion.

I enjoyed this post because we are approaching uncharted territory here.

Very Good Points but all too many folks don't attend to them. Particularly the Boycott thing even implied can get you into serious hot water. I just attended an anti trust class and a portion of it referenced purposefully not doing business with DC brokerages. The Class was shown an under cover tape made by the Fed's of a Broker in Texas who made remarks about purposefully not doing business with XYZ to a "potential Client" who in fact was a plant for the Fed's. In the end he was sentenced to hard time, 6 figure fines personally and to his brokerage and of coarse he lost his license.

So Don't kind yourself comments that lead to unfair business practices can and do lead to serious actions. And Federal as well as State testers are out there looking for infractions. Thanks Caleb for bringing this to the attention of the group. Your advise is sound.

Informative blog===thank you!

Jay and LInnea Hanley

Unfortunatley this type of practice goes on everyday. The NAR or your local geoverning body is slow to do much about it. There is anti-trust violations in every type of industry, there is only so much you can do about it. Ask Bill Gates.

Where is Caleb? We are waiting for some of the questions to be answered, or atleast I am waiting.

I also have a question:

I recently delt with a lead generating company who ended up ripping me off and I told everyone not to use them. Is this not allowed now on activerain? Or did I misunderstood?

You can talk about bad experiences you had with other companies. You cannot try to organize a group boycott.

"A classic "group boycott," also known as a concerted refusal to deal, is an agreement or combined action among industry members to drive a competitor from the industry by denying the competitor a source of supply or a source of customers."

Good advice, it's also good to not slander other agents, you never know when you need them to sell your listing. Remember NAR ethics!

This post was excellent!! I think that the laws concerning this area have many gray areas and seems to be interpreted differently by everybody I have ever asked. I ask because I want to know EXACTLY what is ok and what is not in detail not just in general. It has been very informative and seems to touch on more important things than..."today i got a call from this agent who said...." While all that is very entertaining and I as a woman love the stories good and bad about our experiences I am glad to see something on here that sparks so much discussion about the rights and wrongs of certain aspects.

~Way to get everbody involved!~

I have a questions on Nima's question. Are lead-generating companies considered real estate brokers? If not, does that remove them from the 'boycotting' rules or 'saying something negative about another agent' rules?

Elaine, I maybe wrong but I believe any organized action by a group that is licensed against any entity can be interpreted as as voilation of anti-Trust. But I am no lawyer.

This is a must read and I will be passing it onto our Broker and agents. Price fixing is illegal and we studied it indeopth at business school and ethical behavor needs to be practiced if a brokerage company wants to stay in business. Thanks for the 411 on the 1890 law Caleb!!

Great reminder... Many of us need to review the Anti Trust Laws as well as those laws guiding RESPA

SEP

2006

I don't think anyone coomented on this....

Take the anti-trust quiz to see if you get it...

http://www.realtor.org/rmoquiz2.nsf/antitrustquiz?openform

To Nima's question - I think we're certainly free to give OUR experience with a company, product, system, theory - the potential problem comes when we say XXX is a lousy company, rather than, when I worked with XXX, none of the leads were valid and several potential customers yelled at me.

Maybe we can just complain and not mention the company or the person. Some days you just need to vent.

Personally I find it better to vent or commiserate with the person next to you as opposed to possible libel or worse. It is best to keep public comments about any competitor private ;) GREAT article Caleb.

Dustin wrote: Yet I have been told that the ocmpany you work for can set a limit on what you charge by saying that you can NOT list for less than "X%" and if so the company will charge you and take the loss out of your cut. Is this right or wrong???

You're right, there is a threshhold where if you cross below it the broker's splits change. But it's not saying you can't the listing. It still is a business decision for the agent to make. We all know this walking in the door, so if your business plan is to routinely list at levels below the threshhold, then this probably isn't the best fit for you.

Okay, the response is getting longer ... I've got to get my own post going rather than hijack this one.

Very informative. An exellent reminder of the Antitrust laws. Thanks!

Thanks for the reminder!

Jonathan said "You're right, there is a threshhold where if you cross below it the broker's splits change. But it's not saying you can't the listing. It still is a business decision for the agent to make."

The office can have a minimum fee that an agent is not allowed to go below. This is legal and any office can do so, and many do. Offices can set a standard for their agents, there just can't be a "standard" commission that everyone charges.

SEP

2006

Jonathan,

Let's say I'm your broker. I can say you always owe me 90% of 3%of the sale price on every sale. After that you are your own business, I am mine.

What's wrong with that? If you take a listing for $500,000 at x% that's your business. You still owe me $1,500 and not $1,000, that's all. You make your decisions and I make mine.

You havea prolem wi dat? :-)

Oops, not used to blogs where I can't edit my comments. Of course I meant 10% to broker and 90% to agent in my last comment, as the match suggests.

JAN

2007

As an attorney, which you say you are not, I would have to say that this is a bit over doing the issue... not discussing the issue at all is not the intention of the Federal Law... price fixing and anti-competitve prcatices is... simply discussing how one markets and promotes themselves, when a prospective client asks about whether commission he pays should be higher or lower than another propsect, is not anticompetitive practice, it is a marketing discussion.

So I have to say that over reaction may protect you from investigation, but talking shop with others in your industry is not, and has never been to my knowledge a vioaltion of any law...

Sorry, but I have to say I disagree with the reactionary nature of the post. I feel that we, as Realtors, often behave in such ways, even at the NAR level, to outside influence. "They" get us running and we keep running...

THAT sort of thing is not a road to success, or to "fair practice" but instead a road to panic and fear.

But it is what happens when people act on things they do not truly understand.

APR

2007

Caleb,

If that is the case then how can that post be within the guidelines of federal law when we are being bated into discussion.

Don't you think that the post should be deleted as well as the comments?

It sounds to me that if that is the case then we cant post anything regarding the subject.

Am I correct?

APR

2007

Unfortunately, I have to say that most of the issue is propaganda on the part of the NAR, which is the organization that is at risk... I am aware of many other industries where people from different companies discuss how the charge for services... merely discussing how one charges is not a sign of collusion, or an indication that price fixing is in play...

However, to protect their interests (the organizations' interests, whether they coincide with those of the members or not) the organization cannot have any display that there MIGHT be collusion or price fixing, which would of course indicate some sort of monopoly...

Never the less, we all seem panic stricken over these issues, and so the propaganda machine is doing well...

Just my paranoid 2 cents

APR

2007

Caleb,

Excellent post. That's a good reminder to all of us. Thanks for the post.

You know my answer to it!

This post is a classic. Darn the edit at the top got edited too quick I believe it said posts were feared rather than featured. It was changed "I am reposting this because some of the posts I saw this week, and some of of the comments that followed."

I wanted to say "I'm not afeared of no post" Post Busters....

Yet I say avoid being bated (or is it baited? ) into conversations.

I am clearly NOT an attorney, but after reading the verbiage of the law and using a little common sense, I have to agree completely with Paul. But, after hearing of some of the nonsense rulings made by judges from time-to-time, I can see why some stand clear of an issue for self preservation.

And this shows the true value of AR and their featured posts.

Don't read more into this than what it says or try to interpet this into individual thoughts. Don't fear our profession, embrace it. Follow the code of conduct, the rules set by your department of real estate and your contract with your broker and you will usually be within your legal parameters.

It would seem to me that experienced real estate people know the difference between bad mouthing in a harmful way and simply expressing an opinion which may or may not involve the use of a name or specific scenario. No reason for paranioa or overreaction. Frankly, as a discounter, I really don't care WHAT the comments are, but stop me from showing your listing and we'll be discussin' it with the judge before you can bat an eye!

Caleb: Good advice that will keep Active Rain alive and thriving!

Be careful what you say & be even more careful what you write. If you have to step on others to get to the top - is it worth it?

Good reminder. It's so easy to forget and start talking about commissions.

Caleb...Thanks for the reminder that we need to be careful and not talk specifics when it comes to commissions. I like the example of "x" and "x" plus or minus 1%, etc.

Regards...Jay

Great post on a very important topic!

Caleb,

The post you are referring to struck me as odd that the commission issue was being discussed so openly. However, minus that, I thought alot of the suggestions were extremely good and helpful. I was sorry to see it taken down but understood and was not surprised to see that it was. Thanks for keeping us all ever mindful of our responsibilities.

While it is definitely an ill-advised decision to break the rules of Sherman Anti-Trust in a one-to-one conversation with a competitor, it is especially foolish to do anything like that in writing, on a blog, where hard copies can be printed and/or e-mailed to the appropriate authorities: those people who can take severe actions against the offenders..

I have seen several blog postings that were inflammatory, several others that described Fair Housing Act violations, and still others that bordered very closely to the dreaded Anti-Trust subject that you described above.

One blog posting I saw recentlyy was a virtual "How to Commit Mortgage Fraud" post: with the REALTOR/author giving a step by step instructions on how to he did it...

I don't think he even realized that what he was doing was mortgage fraud....

If the Attorney General's Office finds out about it, I'm sure that he will find out that it is...

Thanks for this fabulous, informative post. I appreciate the insight, and I will certainly watch my words carefully.

Paul David, you hit it right Federal Law Sherman Anti- Trust Act , you can not discuss with a competitor about commissions is wrong, i ma not an attorney either but this taught in Real Estate classes, I am Glad Caleb picked it up on time so that those engaging in such discussion will know that their are consequences associated with such a violations.

Talk about real estate and run your own business. I don't build my business on the bones of others, either by gabbing about their failures or thinking about trying to get them out of the way by controlling their commissions.

oooo Ouch! I have been talking about R****n in regards to getting that buyer broker agreement signed in comments. Good points and perspective!

Excellent review and one we should all take seriously here. Sometimes we can get carried away and make little mistakes that can become huge problems.

Very informative!

APR

2007

Jonathan - you CAN edit (or delete) your own comments on a blog. Only your comments, no one else's - look on the options next to your name below your comment when you have logged in. I have gone back and edited my comments when I needed to correct a typo.

I guess that being a home builder makes me see this from a different perspective. I hate to differ with the 60 professionals above, but I think that these "ethics" rules are old news. I think that Zillow and Google and Web 2.0 and even Active Rain are increasing competition and reducing the rates that people can charge for poor services in our industry. Only the professionals will be able to charge when this industry is totally transparent.

As a non-REALTOR I too have found the hyper-sensitivity to price discussions too much. Two steel company executives discussing the relative merits of overseas imports or a new steel mill is considered protected speech, in an industry where there are only 50 companies globally. Two REALTORs discussing commissions is considered illegal, in an industry with what 1 million agents? I understand anti-trust, two home builders may not meet to expressly discuss "setting" prices. But when I tell another home builder "it's becoming very difficult to build a home under $200,000 in Valparaiso" I surely didn't break any laws.

I also have to disagree with these ethics rules that ban discussions of not using a certain person or company. Isn't that the whole point of the internet? Freedom to speak, to be responded to, to comment, to talk?

Here's what I'll allow, someone somewhere abused the system and went too far. Then a law was written, now common sense isn't in charge but some government regulator is, that's too bad.

Caleb, Whoa! I agree - I had commented on a post with a similar discussion. There are correct procedures, allowances and there are boundaries. Anyone who is a REALTOR® should learn and know them. Terrific comments above as well. Apparently a very "HOT TOPIC!"

Way to go Caleb. You have put into words some thoughts that I was having recently as well.

The Social side of this network causes us all to treat it as if we were all in the same office.

Good luck with this. You are correct. i found out that a post written by another agent outside of active rain about me violates a few of the things you mention. The problem is that it ia a tough one to do anything about because it crosses to many state lines. I was trashed pretty badly by a lender here on active rain. The post is still public with 80 or 90 negative comments. Since this stuff doesn't apply to lenders he can say anything he wants to. Active rain did apologize but the post is still public and is a shining example of how bad active rain can be. Oh and my attorney said that I could take action gainst Active Rain inc. too because the post is libelous too.

It appears to me that most of this issue is pertaining to NAR and accrues to NAR's benefit... competitors are not price fixing merely by discussing fees... the anti trust issue pertains to NAR, and it is NAR that suffers from the anti trust gorillas...

The members of NAR suffer too, but it is simply a result of NAR dictating certain aspects (for example, if a potential customer already is working with another agent or broker, we should not approach that customer) that wreak of anti-competitive activities...

Individual agents should be able, and are able, to discuss how they determine fee schedules, etc. Of course, for most businesses, this information would be considered proprietary, and part and parcel of their business strategy... sort of like a contractor who has bid on many jobs, and who worked many, and compares the results of the bids vs profit on the job, in order to bid future jobs. This contractor would have a competitive edge over a new young contractor who does not know how long it takes to complete such and such job... the costs are unknown...

Never the less, it is the umbrella organization that creates the issues in the first place.

Just my two cents

Caleb:

Very well done. I have noticed comments that are similar to what you have spoken of.

Yikes....my head wasn't ready for all this.....don't do this...well, you can do that.....but definitely don't do this....haha.....I need a break before I finish the comments.

The post was great. I always think aobut what I am typing....although if I am tired and typing you never know what might come out...lol

Amazing. I never realized so many people have the same promblems..

These are clearly things we should all keep at the forefront of our thought process throughout our day, not only in the "real world," but also online, where we're posting information for all to see. How's that for a paper trail?

MAY

2007

I think you have some numbers in those comments that break the law you are warning against breaking :)

Thanks Ardell!

MAY

2007

Caleb I just saw this post, so my reply is late but.... This is an issue where a LOT of people are confused. I'm on a different listserve where people occassionally start talking about commissions. I always always always object. They reply "we're not in the same marketplace, therefore it is not collusion". I have heard this SO often I have to believe that some idiot somewhere is teaching it. Most of the time, it seems to me that it's agents from a particular part of the country...but maybe I'm just imagining that. (I DO, however, think someone is teaching it. No way could so many people be so confused.)

Thanks for this post. The message still needs to be heard.

MAY

2007

I have not really studied this issue in depth. I do understand there are anti-trust laws, but I have not researched how they came into being, whom they protect, and whom they benefit.

I understand the subject of commission is a sensitive one related to the above law(s).

I don't know what NAR's ulterior motives might be (as alluded to in other posts).

I do tend to object to any laws that circumvent free speech and also that contribute to paranoia. I also wonder if consumers are served by this particular law. I don't know the answer. I would like to hear specific cases cited to flush this subject out a bit.

To just say you can't talk about something seems absurd on some level.

I am interested in the origins and criticism of the anti-trust law. I found this initial introduction interesting, particularly Greenspan's criticism.

MAY

2007

Deborah, You have the right to feel it's absurd, but it's not the speech that is at issue. The practice of collusion is what is being checked. The purpose of this post is to help the membership, but a question of the law is a greater issue that should be dealt with separately, as should Greenspan.

AUG

2007

this all gets a bit much... we run and hide, when in fact we are free to talk about what ever we want... we are not free to fix prices, but we are perfectly free to talk all we want about them.

OCT

2007

Caleb...

When time allows could you put this post in the new member group?

TLW...ROAR!

DEC

2007

Caleb, I realize this is very late. Thanks for posting this. Lenn Harley was kind enough to include your link in another post. I probably wouldn't have found this if she hadn't.

FEB

2008

Caleb, I didnt' read all of the comments, but when I am working with anoter broker to co-broker on a sale and we have agreed to split the commission with half going to each side, then we also need to know what the listing agreement was for commision on the property so that we know how much we ae splitting in half.

Someone with a current post linked to this older post of yours. Glad I found it and had a chance to read it. Great review on the topic, and very important. Long belated thank you for the great post.

FEB

2008

Always good to have a reminder.

FEB

2008

I have to wholeheartedly agree. It's definitely a sensitive issue, not to mention it's a concern for privacy. It should be handled with consideration and care.

Cheers,

Cindy

AUG

2008

I Caleb, same thing here in Canada, I heard it was different in the Caribbean's, on the contrary, the real estate board ruled a fixed percentage for all agents...

Anyway I wanted to know if my blog on referral fees was adequate or not?

Thanks

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