Collusion in plain sight: The danger lurking in state association forms

1 month ago 10

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This is probably going to ruffle some feathers, especially among my colleagues and friends at various real estate associations, but we must have a candid discussion about the dangers lurking in the new association forms and agreements.

Over the past several weeks, I’ve been inundated with forms from coaching members across the country — new agreements forged by attorneys so keen on legalese that some of these new agreement forms are five, seven or even nine pages long! The idea of “less is more” has become “more is safer.” While in the legal world, this may be true, in real estate, this is causing some problems, particularly in scaring away buyers.

Plus, what I discovered is that, in their overzealousness, many organizations have created yet another legal minefield that could have big consequences for the real estate industry, brokerages and even individual agents — antitrust violations.

Let me get straight to the point — there is a glaring issue with so many of these forms that cannot and should not, be ignored. In reviewing over 20 different association forms from various states, I’ve identified a disturbing pattern: identical, or nearly identical, clauses that suggest a dangerous level of collusion between competing real estate companies.

Some examples of actual clauses that are identical or similar:

Buyer defaults on performance of a valid contract for sale, lease, exchange or exercised option, Broker’s fee shall be due on the date of default: Tennessee Association of Realtors, New Mexico Association of Realtors, Colorado Association of Realtors, Oklahoma Real Estate Commission, North Carolina Association of Realtors, Florida Realtors, Texas Realtors, Pennsylvania Association of Realtors
Consumer will compensate Broker if, within ____ [if left blank, 30] days after Termination Date, Consumer contracts to acquire any property which was called to Consumer’s attention by Broker or any other person or found by Consumer during the term of this Agreement: Colorado Association of Realtors, Florida Realtors, Texas Realtors, Pennsylvania Association of Realtors, Oregon Association of Realtors
There is no mention of specific marketing tools, except the authorization of a yard sign. Almost every listing agreement has the yard sign: Connecticut Association of Realtors, Long Island Board of Realtors (LIBOR), Pennsylvania Association of Realtors, South Carolina Realtors, Texas Realtors
MAINTENANCE: Owner agrees to maintain the property, including lawn, shrubbery and grounds until the day of closing or possession, whichever occurs first: Oregon Association, South Carolina Realtors, Pennsylvania Association of Realtors,

Now, is it possible that no one connected on association levels and talked through these forms to come up with the same verbiage? Maybe. It’s possible, of course, that is coincidental. Either way, in today’s world, it’s important to look at how all “coincidence” could be construed by a class action attorney.

Understanding antitrust violations

Antitrust laws are designed to prevent businesses from engaging in unfair practices that harm consumers. One key component of these laws is the prohibition of price-fixing — where competing businesses agree to set prices, thereby eliminating competition and depriving consumers of their right to negotiate.

However, antitrust violations extend beyond just price-fixing; they also encompass how businesses conduct their operations. When competing companies collaborate to establish uniform practices, such as the creation of identical business forms, it constitutes a violation of antitrust laws, according to the Sherman Act, which spells out what is considered price-fixing, bid-rigging and other forms of collusion, including the standardization of business practices among competitors.

This principle is supported by both the Federal Trade Commission (FTC) and the Department of Justice (DOJ), which enforce these laws to maintain competition in the marketplace.

The real issue: Collusion in form creation

Here’s the heart of the problem. Many of these association forms use the same language, particularly the shift from using the term “commission” to “professional fee.” This uniformity across states is not coincidental.

It indicates that people are somewhere meeting, probably online in a group of some kind, collaborating and sharing and replicating these forms. While I get “many hands make light work,” and they are trying to help each other, it is that uniformity that screams “collusion!” to the likes of a class-action attorney, such as Michael Ketchmark of Ketchmark & McCreight, lead plaintiffs’ counsel for a case known as Sitzer | Burnett.

But wait! There’s more!

There’s another layer to it. These forms are not created in isolation by impartial third parties. Instead, they are often developed by committees composed of representatives from competing real estate firms — firms such as eXp, Compass, Douglas Elliman and others.

According to Cornell Law School, “Collusion is when two or more parties secretly agree to defraud a third party of their rights or accomplish an illegal purpose.”

In my opinion, when you have competitors sitting around a table, collectively drafting the same agreements that they will all use in their business operations, you’ve got a classic case of collusion.

This isn’t just my opinion; it’s a fundamental principle of antitrust law.

“The Sherman Act outlaws ‘every contract, combination, or conspiracy in restraint of trade,’ and any ‘monopolization, attempted monopolization, or conspiracy or combination to monopolize,’” according to the FTC.

“Criminal prosecutions are typically limited to intentional and clear violations such as when competitors fix prices or rig bids,” the FTC continues. Collusion doesn’t only apply to price-fixing; it also covers the standardization of business practices among competitors.

The implications for real estate professionals

Here’s why this matters to you as a real estate professional: If you use these forms, you could be implicated in an antitrust lawsuit. These association forms are, in my opinion and the opinions of others, a ticking time bomb.

If attorneys like Ketchmark are scrutinizing these forms, and they come to the same conclusion that I have, they could argue that these forms were created through collusion, thereby violating antitrust laws.

Imagine the legal and financial ramifications if a court determines that these forms are, indeed, the product of collusion. The fallout could be devastating, not only for the associations that created them but also for the real estate professionals who use them. We could see more lawsuits, fines, and an even greater loss of consumer trust in our industry. That isn’t something we can afford to lose.

What you should do now

Given the risks, my advice is simple: STOP using your state association forms. I’m shouting this from the rooftops because the danger is real, and the stakes are too high to ignore. These forms are likely to be scrutinized in court, and, if the allegations of collusion stick, it could set us back again as an industry at a time when we are just now starting to find new footing.

Instead, consult with your legal team to create your own, or use alternative forms that are simple, easy to read, easy for consumers to understand and agents to present and that are not tainted by this potential antitrust violation. This might require extra effort, but it’s a small price to pay to protect yourself from the legal and financial risks that come with using these problematic forms.

I understand that this stance might be controversial, and it may even anger some within our industry. However, as professionals, we have a duty to protect not only our clients but also ourselves from the legal pitfalls that could hurt our careers. Many of the current association forms are a legal landmine, and it’s time we recognize the danger and act accordingly. Let’s stop relying on these problematic documents, and start taking steps to safeguard our profession.

The solution? Follow the lead of many of the larger brokers and consider the association forms as templates to be customized. Without the customization, brokers put themselves at risk of being named in the next antitrust litigation.

My goal in all of this is to help us continue to learn from the past and grow into a future where we are less likely to be besieged by these legal battles.