Commission Splits & Anti-competitive Behavior

Legal Hotline Text Bubble
Legal Hotline Text Bubble

Imagine a broker sending that text message to a listing broker. Unfortunately, your imagination probably does not have to work too hard to create this picture. Communications like this, in numerous formats, are heard around our state frequently. Text messages, email messages, office conversations, social media posts and agent-only remarks in MLS listings that communicate a message of this nature will certainly land our industry and our state in the eye of federal anti-trust investigators and prosecutors. 

A recent article in the Winter 2018 edition of RE Magazine focused on the definition of anti-competitive behavior. Already, the message bears repeating. In recent weeks, Legal Hotline questions have repeatedly asked a similarly themed question…what can be done about listing brokers who offer a split that is lower than what other listing brokers in our area typically offer? Merely asking that question could be a violation of anti-trust laws. 

Avoiding anti-competitive behavior is important all the time. It has never been more important than it is right now. Federal investigators (the Federal Trade Commission) and federal prosecutors (the Department of Justice) are currently meeting in Washington DC with industry leaders and industry newcomers to determine if there is a level playing field for new real estate business models. If there is reason to believe that existing industry members force newcomers and business models that differ from traditional brokerages to conform or fail, prosecutions will follow.

For a more detailed discussion of antitrust law and how it applies to real estate brokers, please see the article entitled “Antitrust and Social Media” in the Winter 2018 edition of RE Magazine. This article will not repeat the information provided in that article but will focus, instead, on issues related solely to attempts by brokers to force conformity in commission splits. “Commission split” refers to the amount that a listing firm offers, through an MLS, to pay a cooperating firm that brings a ready, willing and able buyer to purchase seller’s property. 

As a refresher, the federal antitrust law (the Sherman Act) is enforced by the U.S. Department of Justice and the Federal Trade Commission.  State antitrust laws, embedded within the Consumer Protection Act, are enforced by the Washington State Attorney General.  The laws allow for civil claims, monetary fines and criminal prosecution.

Anti-competitive behavior occurs anytime competitors cooperate with one another to stifle competition.  It must be remembered that “cooperation” that violates the law does not require an “agreement.” All that is required to prove “cooperation” that violates antitrust laws is the promotion of an idea by one competitor and action by other competitors. For example, the imagined (but all too real) text message quoted at the opening of this article promotes an idea.  If investigators see that text message and then determine that practices in the local community reflect some form of protest, action or boycott against listing brokers who do not offer an equal split with selling offices, the prosecutor will have sufficient evidence to pursue enforcement. The entire industry, at the local level and beyond, could be penalized because of one reckless statement by one industry member.

In recent weeks the Legal Hotline has been presented with several questions posing variations on this same theme. When a listing broker offers less than a 50/50 share of the total commission paid by seller, can other brokers respond in some format? Can brokers offer reduced compensation to that same broker when that broker represents a buyer? Can brokers refuse to show that listing? Can brokers contact seller directly to advise of the difficulty posed by the unequal split? The answer to all of these questions is an emphatic and unequivocal, “absolutely not!”

It is unlawful for two competing firms to agree on the amount of commission that will be shared with each other or with other competitors.  There is no standardized, expected or customary commission split and reference to commission splits in any of these terms would lay the foundation for an antitrust violation. Rather, the commission split must be determined between seller and listing firm. The statewide listing form requires listing firm to identify, on the face of the listing agreement, the amount of compensation paid by seller that will be shared with the cooperating firm. This provision allows the free negotiation of this issue between the listing firm and seller.  Every seller is free to demand and agree to the split that makes sense to the seller.  Some sellers will want to offer a larger or smaller split than other sellers. Every seller has the right to negotiate that term with seller’s chosen listing firm. There are no industry standards or norms dictating seller’s agreement to pay a pre-determined commission split. If seller and listing firm cannot agree on the amount of compensation paid to a cooperating firm, then seller and listing firm will not enter a listing agreement.

Brokers must guard against casual or inadvertent conversation that can lead to an antitrust allegation. Simply put, brokers should NOT discuss commission splits with one another. Designated brokers can create, implement and discuss office policy regarding commission splits with brokers who are licensed to the designated broker’s firm. Other than conversation between the designated broker and a broker licensed to the designated broker, regarding commission splits in listing agreements executed by broker, there should be no conversation between brokers regarding commission splits. Conversation between two brokers, in nearly every other context, regarding commission splits, is likely the first step toward an antitrust violation.

If a broker is in a conversation with another broker and the conversation turns to commission splits, broker should immediately terminate the conversation and if the conversation does not immediately cease, broker should remove him/herself from the conversation. These conversations could occur over lunch, in an association meeting or continuing education class, in an office meeting, over text or email (as in the quote that opened this article), in a social media format or in any other place that competitors communicate with one another. It is irrelevant whether the two brokers may be licensed to the same firm or members on the same team.  There is almost no justifiable reason for discussing commission splits with any person other than broker’s designated broker.  

Commission splits are always negotiable and that negotiation must happen between listing firm and seller. REALTORS®, if you are involved in a conversation with another broker about commission splits, end the conversation immediately.

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