Why this article is important: Antitrust has long been an issue in real estate. When new players attempt to innovate in the industry, it’s often too easy for old-school players to maintain their stranglehold on their access to information and users — ultimately to the detriment of real estate sellers, buyers, tenants and MLOs.
Antitrust patronage dogs the industry
Antitrust behavior in real estate is back in the news. This time, commercial real estate is getting the antitrust treatment, just not from regulatory agencies.
Antitrust rules are long-standing state and federal regulations designed to promote fair competition in the marketplace, a Teddy Roosevelt era awakening. When a player becomes too powerful, making it impossible for “little guys” to compete, that’s when the courts consider stepping in to stop what has become a monopoly, with power to control an entire industry to the exclusion of others.
Recently, you may recall the National Association of Realtors (NAR®) losing their fee-fixing case on antitrust violations. In an effort to codify the crackdown on price fixing in the real estate industry, this NAR lawsuit indirectly led to the new buyer representation laws here in California. United-we-profit is gone, but yet to be policed.
Related article:
Introducing the Buyer Representation Agreement
The many faces of price fixing
One easy way for price fixing to occur is by allowing an industry — such as commercial real estate — to be dominated by a single provider of information.
CoStar is an online commercial real estate listing service and provider of data and analytics. It also owns sites like apartments.com, homes.com and LoopNet. Commercial Real Estate Exchange, Inc. (CREXi) operates a website offering similar commercial real estate services. Notably, CREXi provides a service publishing commercial properties marketed by brokers as available for sale or lease.
In 2023, CoStar sued CREXi, claiming it republished listing images which were originally published on CoStar’s website, a loophole LoopNet wanted closed.
In response, CREXi claimed CoStar is conducting antitrust activity, in violation of the Sherman Act, a federal law. Aside from having an oversized market influence, CoStar entered into exclusive arrangements in their dealings with brokers. The agreements prevented competitors of CoStar from accessing content and being able to compete. These dealings included:
technological barriers constructed by CoStar that prevented brokers from freely publishing properties available for sale or lease on competing platforms; andcontract language that directly or implicitly prohibited brokers from providing CoStar’s competition with properties for sale or lease.
CREXi claimed its only way to compete with CoStar was to unlawfully publish the photographs which appeared on CoStar’s website.
CoStar called CREXi’s antitrust claims a “sideshow” diverting attention from the real issue of copyright infringement on CoStar’s material. And yet, the court disagreed.
Gatekeepers want their keys back
As an economic principle, competition is imperative in a free market economy. Competition encourages innovation and efficiency, while keeping prices competitive for consumers.
For real estate, the longstanding prime issue has been to stop the price fixing of fees. And for industry players, that starts with how we provide and disseminate information published on property available for lease or for sale. Money, lots of it, is the hookup common in real estate industry efforts to consolidate earning power. Yup, the fix.
We saw this with the advent of the aggregators of online residential property available for sale like Zillow and Redfin (also an online brokerage). For years, many longtime real estate agents as members of the local MLS eschewed Zillow, fearing their expertise was no longer needed when “members of the consuming public” have direct access to properties held out for sale. Losing your gatekeeper’s key to access properties on the market can be scary – until a broker learns it is not.
Editor’s note — As we know, the value of a real estate agent is not in their access to property-for-sale or for-lease data, but in the expertise and understanding they bring to deals. Just think about it: §1031 replacement property, capitalization rates, CMAs and mortgage advice are involved in most transactions, either SFR or income property. And talented agent flourish in a recession. But we digress.
Monopoly power is the “substantial ability to control prices or exclude competition,” according to the court’s published opinion on the case. CREXi claims CoStar is doing both, in one instance hiking its fees charged to brokers by 300%-500% after purchasing a competitor.
Meanwhile, the court returned the case to the trial judge for further proceedings to determine whether CREXi’s antitrust claims against CoStar have merit.
Stay tuned for a resolution. Agents will likely be pleased; to no one’s surprise, big brokers and their union will not.