In the case Blough v. Holland Realty Inc., four couples contracted with new-home builders and subdivision developers to have new homes custom-built on particular lots in several Boise, Idaho, subdivisions.
The builders and developers had pre-existing agreements in place with exclusive real estate brokers, whereby brokers would receive a fee or commission on every lot sale and, also, every new home constructed in the respective subdivisions.
The buyers were required to pay commissions to brokers for their respective lots, and were also required to pay commissions to brokers for the built homes, in order to buy a lot in the subdivision (although most broker commissions were, technically speaking, paid by the builders and developers out of the fees paid by buyers for the lots and homes).
Consumers filed a class-action suit against the real estate brokers, alleging that the "tying" of real estate services regarding the built homes to the sale of the undeveloped lots violated the antitrust tying prohibitions of the Sherman Act, 15 U.S.C. Section 1. At trial, the district court held that the sale of undeveloped lots was the tying product, which was tied by the real estate services for the built homes.
However, the district court found, because there was no evidence that any market existed among buyers for real estate listing and marketing services for built homes, the tying did not violate the Sherman Act’s prohibition of restraints on competition.
The Court of Appeals upheld the district court’s ruling. For a tying arrangement to violate the Sherman Act, the appellate court explained, it must not only:
(a) tie two products together, and
(b) be created by a party with sufficient market power to coerce consumers into buying the tied product, but also
(c) cause "reduced competition in the market for the tied product."
In these cases, the court found, the buyers clearly did not want to pay for the brokers’ services on the built homes, which boiled down to an additional cost of building and selling the homes, which buyers were required to pay if they wanted the homes. Where there is no demand, there can be no foreclosure of competition.
Under this line of reasoning, to wit — that there exists no market for real estate listing and marketing services for their new homes — the tying arrangement did not foreclose any competition and, thus was not an illegal violation of the Sherman Act.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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