REAL ESTATE AGENCIES BELONGING TO THE FRANCHISE NETWORK AGREED TO APPLY A MINIMUM 3 PERCENT COMMISSION FEE TO CLIENTS

The Competition Council recognised that the company Capital Realty and 20 real estate agencies that signed a franchise agreement with it agreed to apply a commission fee of not less than 3 percent to clients, thus restricting mutual competition. A total fine of EUR 710,751 was imposed for violating the Law on Competition.

The Competition Council found that the franchisor Capital Realty and 10 real estate agencies entered into an agreement to charge a minimum commission of 3 percent (plus VAT) to real estate buyers from February 2015. Since 2017, another 10 real estate agencies have joined the agreement by signing franchise agreements with Capital Realty for the use of the Capital brand. The Capital franchise network operated almost all over Lithuania.

According to the data gathered by the Competition Council, regular meetings took place from February 2015 to December 2020, during which Capital Realty and real estate agencies collectively decided on measures to ensure that the franchise network would not apply a commission fee lower than 3 percent. They also agreed that agencies would not compete by offering cheaper brokerage services to the clients.

The transcripts of the meetings show that Capital agencies should not charge a lower commission because 3 percent is the "standard" and "general rule" (language unedited): "<...> as always, we are still hammering the nail and sticking to the standards. We have a common culture, common rules, common values that we share <...>. There is today a three per cent minimum commission plus VAT after signing a contract with your client." "Three, at least three per cent plus VAT is our standard Capital commission <...> in our company. It cannot be lower <...> because we are committed to the same standards. And we respect the work of ourselves and our colleagues and the quality of our service. Once again, that commission cannot go any lower <...>".

Heads of agencies have been in active e-mail communication and discussions on how to ensure compliance with the agreement (language unedited):

"As there are obviously a large number of brokers who are not only working for 2.5% commission, but there are some who are working for 1% or 1.5%, this is a complete self-depreciation and a damage to Capital's image."

"It would be good to circulate this letter to all of Capital. I have heard many times that there are Capital brokers who are trying to win a client over another broker by significantly reducing their commission. There are even comments to a particular broker "Oh how expensive you are, your colleagues have offered much cheaper and "unofficially"."

At one of the meetings, the managers decided to monitor more closely the terms on which agencies sign contracts with clients, data on the commission rates charged was collected and shared among themselves, and those agencies that were most diligent in complying with the agreement were identified as role models.

Jolanta Ivanauskienė, the Chairwoman of the Competition Council, stressed that this and other evidence gathered by the Authority confirms that Capital Realty and the 20 agencies agreed to restrict competition between them, which resulted in the disadvantage of the buyers of real estate who used the network's intermediary services.

"Franchise agreements should not be used as a cover for business representatives to enter into agreements that restrict competition. Agencies belonging to the Capital franchise network are competitors and should be able to compete with each other for clients purchasing both residential and commercial real estate. If there had been no agreement, agencies could have independently set a lower commission fee for brokerage services to their clients," said J. Ivanauskienė.

The following companies were fined for violation of the Law on Competition: Capital Smart - EUR 266 410, Capital Realty - EUR 88 880, Capital Team - EUR 60 540, R.E. Experts - EUR 46 580, Capital Real Estate - EUR 29 860, Reita - EUR 27 730, Vita Fortis - EUR 26 590, Capital Klaipėda - EUR 26 450, NT Partneriai - EUR 25 500, Kesė - EUR 18 380, CRB Partners - EUR 17 660, Paulius ir Brokeriai - EUR 16 280, Capital Centrum - EUR 16 150, Capital Experts - EUR 13 500, Capital Home - EUR 7750, Nervelita - EUR 8210, Capital Property - EUR 6150, Mano rezidencija - EUR 3790, Eurobrokeriai - EUR 2700, Grosena - EUR 1640. FM Fuel was fined EUR 1 because it did not generate revenue in 2023.

In the absence of sufficient evidence of an infringement, the investigation procedure was terminated for 7 agencies.

The decision can be appealed to the Regional Administrative Court within one month from the date of its delivery or publication on the institution's website.

This is the second decision related to real estate agencies' actions. In December 2022, the Competition Council determined that the Lithuanian Real Estate Agencies Association and its 39 members had agreed not to solicit each other's clients and brokers. A total fine of EUR 969,060 was imposed for violating the Law on Competition and the Treaty on the Functioning of the European Union.