Lessons from the Competition and Markets Authority's (CMA) investigation into price-fixing by estate agents.
In 2017, the CMA found that a group of Somerset estate agents had agreed to fix the minimum prices of their commission rates for the sale of residential properties. This meant that local home owners were denied the opportunity of getting the best possible deal when selling their property.
The price-fixing cartel in the Burnham-on-Sea area was formed in early 2014, when a group of local estate agents met with each other to “have a chat about fees”.
At this meeting, they agreed to set minimum commission rates for residential property sales at 1.5%. Their aim was “to drive the fee level up” and make the agents “as much profit as possible”.
The estate agents took steps to ensure the minimum fee agreement was kept to by emailing each other when an issue arose, for example if one agent accused another of ‘cheating’ on the agreement:
If anyone is having problems with our agreement, […] let’s talk about it […] rather than going back to slashing fees!
Each agent also took it in turn to ‘police’ the cartel. Cartel members would report issues to the ‘policeman’, who would make sure everyone was sticking to the agreement, as shown in the email below:
It appears that [another cartel member] are being naughty tinkers […] I am working on proof […] with it going quieter, we just need to make sure we keep these fees up, eh!!!
Eventually, following publicity surrounding an earlier CMA case in the sector the cartel broke up in 2015 – much to the dismay of some of its members, who were not happy to see commission fee levels starting to drop again:
I just cannot see, why on earth, any one of us would think it is a good idea to give ourselves a 25%-30% pay cut for doing exactly the same job that we were doing last year???
We all know from recent experience that with a bit of talking and co-operation between us, we all win!!!
A few of the estate agents thought about re-starting the cartel. One even weighed up the financial benefits it had gained from the cartel against the amount it could be fined by the CMA if it was caught, but decided it wasn’t worth the risk.
How did this break the law?
Competition law exists to ensure businesses compete on a level playing field and it protects customers from getting ripped off.
Price-fixing cartels are amongst the most serious kinds of anti-competitive arrangement. In many ways, they are a form of stealing from customers – forcing up prices and reducing quality and choice.
In this case, the illegal agreement between the estate agents meant that local people selling their properties were denied the chance of getting the best possible deal, where normally they would have benefitted from agents competing against one another to offer better fee levels.
What action was taken?
Five of the estate agents involved were fined a total of over £370,000. The sixth estate agent was not fined as it was the first business to confess its participation in the agreement under the CMA’s leniency policy and cooperated with the CMA’s investigation.
What are the lessons?
- Be careful when talking business with your competitors – make sure you don’t agree not to compete with each other.
- Be especially wary of any conversations about pricing, or about a shared approach to pricing. Each business must set and decide its prices independently.
- Competition law applies to small businesses as well as large ones. The estate agents in this case were small local or regional businesses.
- The consequences of breaking competition law can be severe; fines can be as much as 10% of a business’ global turnover and a director can be banned from being a director of a company, or being involved in the promotion, formation or management of one, for up to 15 years. In the most serious cases, individuals can go to prison for up to 5 years.
- Competition law applies to all industries and the CMA will take action against those breaking the law.
- The Somerset estate agents’ cartel is the second recent enforcement case the CMA has taken in the property sector. The CMA remains committed to tackling illegal anti-competitive conduct in the sector.
What you can do
- Learn to recognise the kinds of behaviour that are illegal. A good place to start would be our introductory competition law guides
- If you think your business has been involved in illegal activity, you should notify the CMA as soon as possible – you may benefit from lenient treatment by being the first to come forward to the CMA. We also recommend that you seek independent, legal advice.
If you have information on other companies in your industry that may have been involved in an anti-competitive arrangement, report it to us.
We value your help in ensuring the UK is a fair place for all businesses to compete – and you may even be eligible for a financial award.