The Commerce Commission has warned the Real Estate Network Limited (REN) that it and its members risk breaching the Commerce Act. REN is a cooperative company representing approximately 95 per cent of licensed residential real estate agents in and around Christchurch. Last year it adopted a by-law setting a minimum for commissions payable between its members.

REN's 'network listings service' allows member agents to share with other members the details of properties for which they have sole agency. With effect from 1 June 2008, REN introduced a by-law under which it would decline network listings unless the fee to the selling agent was 40 per cent of the commission negotiated with the vendors. If the fee came to less than $3,000, a minimum fee of $3000 would apply. This by-law, known as the minimum commission provision, was voluntarily suspended by REN when it was notified of the Commission's investigation.

The Commission considers that the by-law constitutes an agreement between competitors, in this case REN members, that fixes, controls or maintains a price, being the fee payable by a listing agent to a selling agent on the sale of a property using the network listings service.

The Commission is also concerned that the minimum commission provision may be at risk of fixing, controlling or maintaining commissions payable by vendors on the sale of properties using the network listings service.

"As some vendors' commissions are less than $3,000 in total, setting a minimum commission may lead to agents increasing the commissions charged to vendors. It particularly affects those discount agents currently charging 1 per cent commission," said Deborah Battell, Commerce Commission Director of Competition.

"This warning serves as a reminder to all industries, not just the real estate industry, that price-fixing is illegal," Ms Battell said. "However, as the by-law had only been in place for a matter of weeks and REN co-operated with the Commission, a warning was considered appropriate in this instance."

"The Commission will continue to monitor behaviour in the real estate industry and will recommence investigations if any further concerns are raised about possible price fixing."

Background

Real Estate Network Limited (REN) is a cooperative company representing licensed residential real estate agents in and around Christchurch. As at 21 May 2008, it had 139 member shareholders from 92 different real estate firms. REN believes this is approximately 95 per cent of Christchurch's residential realtors.

The services offered by REN to its members include:

  • the operation of a network listings service, which members can use to share information about sole agencies to help them find another member who may have a client wanting to buy the property; and
  • the publication of the Realtor, a Christchurch real estate magazine available to the public.

Price Fixing. Section 30 of the Commerce Act prohibits price fixing, which is when people or businesses that are in competition with each other agree to control, fix or maintain the prices for the goods or services that they supply. Price fixing is deemed to substantially lessen competition under section 27 of the Commerce Act.

In order to establish a breach of the Commerce Act, there must be evidence of collusion between the people or businesses suspected of price fixing. An apparent similarity in prices or the timing of a price change is not sufficient evidence of collusion. It is also not illegal for a business to follow the prices of its competitors.

Anyone can take private court action under the Commerce Act in relation to restrictive trade practices. The option of private action is available even when the Commission has resolved the investigation in another way or did not investigate the matter. Only the Commission, however, can seek a pecuniary penalty for a breach of the Commerce Act.

Only the Courts can decide if the Commerce Act has been breached and set appropriate penalties.

If the Court finds that the Commerce Act has been breached, it may:

  • impose pecuniary penalties on businesses that must not exceed the greater of:

    - $10 million;

    or either:

  • three times the value of any commercial gain or expected commercial gain resulting from the breach; or
  • if commercial gain is not known, 10 per cent of the turnover of the business and all of its interconnected businesses (if any).