UpNest Price Fixing and Antitrust

UpNest Price Fixing Collusion

A request to review practices of UpNest on the subject of consumer allocation practices, price-fixing, and reverse completion on file with the DOJ, CFPB, and the FTC.

A copy of the author’s official request that asks the United States Federal Trade Commission, the United States Department of Justice, and the United States Consumer Financial Protection Bureau to investigate UpNest, Inc. (dba UpNest, UpNest.com) and UpNest Partner Agents on the grounds of an alleged violation of the Federal Trade Commission Act of 1914 (15 U.S.C. Section 45) an alleged violation of the Sherman Antitrust Act of 1890 (15 U.S.C. Section 1) an alleged violation of RESPA Section 8 (12 U.S.C. 2607) as well as any other possible violations of antitrust and consumer protection laws currently ratified and enforced in connection with alleged broker-to-broker market allocation, consumer allocation, false advertising, unlawful kickbacks, wire fraud, and price-fixing practices.

Attn: Citizen Complaint Center, Antitrust Division
Department of Justice
950 Pennsylvania Ave., NW Room 3322
Washington, DC 20530
Attn: Office of Policy and Coordination
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave. NW Room CC-5422
Washington, DC 20580
Attn: CFPB Regulatory Implementation
Consumer Financial Protection Bureau
1700 G St., NW
Washington, DC 20552

Please find the information below with regards to possible antitrust violations.

What companies or organizations are engaging in conduct you believe violates the antitrust laws?

UpNest, Inc.
(dba UpNest, UpNest.com)
856 Mitten Rd., Ste 106
Burlingame, CA 94010
Phone: (800) 692-5010
CA DRE license # 01928572

In an alleged open collusion scheme with a vast partner network of UpNest Partner Agents who operate under competing brokerages and choose to execute blanket broker-to-broker referral agreements with UpNest, Inc. in an ongoing effort to restrain free trade in the US residential real estate representation sector.

Acting as the "spokes" within the "hub-and-spoke" broker-to-broker collusion scheme, UpNest Partner Agents are independent Realtors firmly affiliated with various brokerages such as Berkshire Hathaway HomeServices, eXp Realty, Windermere Real Estate, Keller Williams Realty, Inc., RE/MAX, Coldwell Banker, NextHome, Inc., HomeSmart, Compass, John L. Scott Real Estate, CENTURY 21, Realty ONE Group, Vylla, ERA Real Estate, Weichert Realtors, Better Homes and Gardens Real Estate, Fathom Realty, Intero Real Estate Services, John R. Wood Properties, Worth Clark Realty, Sotheby's International Realty, etc.

Consumer Allocation between Licensed Real Estate Brokers

UpNest is a licensed California broker DRE license # 01928572 that does not produce any services that are typically offered by real estate agents and does not represent consumers when buying or selling real estate in any state.

For consumers, UpNest claims that it "is an online real estate marketplace that matches home buyers and sellers with local Realtors®." This is false, UpNest is not a marketplace, instead, it is a licensed brokerage. UpNest brokerage refuses to compete with other brokers in an elaborate online scheme that organizes competitors into a collusion network via "non-binding proposals" distributed consumers on the demand side, and "blanket" referral agreements on the supply side.

In exchange for matching consumers with a colluding Partner Agent, UpNest is compensated by the Partner Agent with a blanket 30% of their commission, agreed in advance.

According to the company, brokers can join the partner network "without paying any upfront costs. Only pay for successful leads."

A blanket referral fee paid by the Partner Agents directly increases the cost of buying or selling a home for consumers. Once UpNest refers a customer to a Partner Agent, that agent, not UpNest, represents the customer from the initial meeting through closing, at which point the agent pays UpNest a portion of her commission as a referral fee. The final price and quality of such transactions are substantially worse.

UpNest is an open collusion arrangement between competitors that leads to an inefficiency known as "reverse competition" where referring brokers end up competing not for the consumer attention but for the attention of the middle-man who steers the consumer toward its network of brokers and away from competitors.

UpNest, effectively, orchestrates a hub-and-spoke conspiracy in which a firm (UpNest acts as the paper brokerage hub) organizes collusion among competitors via horizontal consumer allocation agreements. A hub and spoke conspiracy is correctly characterized as an agreement to eliminate competition among the spokes, wherein in this case, all Partner Agents benefit from knowing that UpNest will not allow them to compete severely with each other since this would directly negatively affect the aggregate referral fees received by UpNest.

UpNest, in effect, offers consumers some savings, but not as a competitive mechanism, but rather a product of price-fixed collusion. UpNest chooses the participants in the scheme, it unilaterally distributes leads from consumers in the interest of preserving the collusion, for which all brokers in the scheme pay with a 30% cut of their earned commissions.

The horizontal blanket referral agreement among the brokers is the central element of the scheme. Each broker, in effect, knows that every other broker in the scheme is tied into the 30% kickback, thus no one broker is offering truly competitive rates.

Such pay-to-play steering results in lower quality of service and/or higher commissions, fees, and price levels. In effect, UpNest turns consumers into a commodity for sale to a competing brokerage.

Both, UpNest and competing UpNest Partner Agents benefit from the consumer allocation scheme where both parties choose to openly collude, rather than compete with one another.

Partner Agents are independent licensed agents affiliated with other brokerages, and UpNest does not have any control over their actions. This scaled arrangement with third parties exists based on allocation between competitors that not only leads to consumer confusion but also adversely affects the final price of commissions. A referral agreement between UpNest and a Partner Agent for a random transaction that may or may not happen sometime in the future is executed in advance designed to restrain free trade.

Instead of representing consumers to help buy and sell homes, the company actively disengages from its licensed activities so that every UpNest Partner Agent knows that UpNest brokerage will not actively compete with them on any transactions.

UpNest owes absolutely no duty of care to consumers and takes no responsibility for the transaction facilitated by Partner Agents, despite receiving a direct financial benefit from the home sale or purchase completed by a referred brokerage. All consumers who use the scheme end up hiring two brokers for the work of one.

Price Fixing between Licensed Real Estate Brokers

As part of the consumer allocation agreements between UpNest and UpNest Partner Agents, these parties further engage in hardcore price-fixing of services.

UpNest systematically claims to consumers that it exists to save them from paying overinflated commissions and that it is free to use. This is false.

In reality, consumers always overpay for commissions due to the hidden kickbacks and price-fixed collusion between UpNest and UpNest Partner Agents.

While UpNest is perfectly free to set rates for services within their firm, price-fixing rates with competitors is a "per se" uncompetitive practice.

Saving consumers from having to pay excessive brokerage fees can never be justified with price-fixing, especially in exchange for a financial gain between brokers. The blanket referral fee received by UpNest for setting up these price-fixing terms is the only reason the collusion scheme functions. UpNest has no interest in saving consumers on fees, it is only interested in earning the largest kickbacks possible from the largest number of home sale transactions as part of orchestrating the scheme.

Section 1 of the Sherman Act states: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce … is declared to be illegal." This means that (1) there must at least two parties agreeing to take action, and (2) the agreed-upon action must restrain free trade. Price fixing and consumer/market allocation agreements are "per se" violations of the Sherman Act because these practices are inherently harmful to consumers; in other words, no defense or justification is allowed.

The free commerce belligerents in this hardcore price-fixing scheme are UpNest and any broker they refer a consumer to subject to these terms. These two independent parties are carrying out a common course of action by setting fixed commissions with the use of blanket referral agreements for mutual financial gain.

UpNest systematically steers consumers toward Partner Agents and away from highly competitive agents that operate outside the network. Agents must never agree on commission rates or rebate amounts with any outside party. Agents must take care to avoid even the implication that they have discussed or reached an agreement about their service fees, service offerings, and rates due to any outside influence with another broker.

Commission rates and buyer rebates should never be fixed through collusion. All commissions and rebates must be set by each real estate agent individually and may only be negotiable between the consumer and the real estate agent.

Further, it is a per se violation of antitrust laws for brokers to set "standard" referral fees that will be paid to other brokers. Real estate agents (only when they act in full brokerage capacity) may discuss or negotiate the referral fees concerning an individual transaction, but real estate professionals are not allowed to enter into a "uniform" or a "blanket" agreement on how a commission will be split, or a "standard" referral fee paid. The reason for this is exactly the premise behind the UpNest business model where brokers work to steer consumers toward other brokers in exchange for a pre-arranged referral fees, instead of offering a service.

Quality and honest real estate professionals establish pricing for their services independently, offer a tangible service, and without any kickbacks. Every single agent is different, and every single agent has an individual commission structure.

When UpNest colluded with Partner Agents in self-interest it offers homebuyers a "dangling carrot in front of the nose" to attract them toward the scheme, rather than to deliver genuine savings. The hidden fees between these brokers make it impossible for Partner Agents to offer consumers true market-rate savings. Brokers who pay 30% of their commission as kickbacks are unable to offer competitive rates to consumers in this scheme, making all price fixed commissions artificially inflated. There is never an open market condition that justifies hiring two brokers for the work performed by one.

UpNest scheme does not only harm consumers, but it also harms highly competitive agents. Some highly progressive agents utilize the Internet medium to promote savings that they offer to consumers. For example, Door.com Flyhomes Home Bay Homie Jovio Prevu Savvy Lane SimpleShowing TRELORA Yoreevo Faira Houwzer Reali are all relatively new brokerages that offer consumers flat fees, competitive listing rates, and sizable buyer rebates. These legitimate agents operate by competing with other brokers on levels of service and fees. For any of these agents to expand into new areas of operations, they must hire staff, open new offices, invest in advertising, and make similar high-cost expenditures.

On the other hand, for UpNest brokerage to expand to a new area takes a mere blanket referral agreement with a random broker and a new ads coverage area on Google Ads. Legitimate agents who offer genuine savings to entice consumers are harmed as a result of fake collusion-derived savings offered by the UpNest scheme.

While competitive agents work hard to promote savings, hire new agents and support staff, expand into new territories, UpNest promotes hidden kickbacks disguised as savings over the same medium - the Internet. Google does not care who pays them for ads, as long as their advertising fees are paid in full. Real estate remains one of the largest revenue pools for Google and Facebook, where broker collusion schemes are much more profitable to advertise and expand nationally. UpNest return on ads is 125x more than that of a competitive local agent who promotes savings because UpNest promotes in kickbacks from inflated commissions without any hard costs of operations.

Consumers can receive much greater refunds on the open market, but they are consistently bombarded with UpNest ads that heavily advertise their scheme to consumers offering "100% free service." Of course, no broker works for free. UpNest exigent fees are simply hidden with Partner Agent’s inflated commissions.

In effect, UpNest collects tens of millions of USD annually in hidden kickbacks, claims to offer false savings, and steers consumers toward an unethical set of brokers involved in this scheme, with the use of Google ads. On the other hand, consumers are faced with the impossible costs of buying homes while honest highly competitive agents who offer genuine savings are left high and dry due to the combined effects of "hardcore" antitrust violations.

Broker Collusion Schemes are Not Online Marketplaces

To entice consumers into the referral scheme, UpNest often advertises itself as a competitive online marketplace. This is false.

Online marketplaces are digital media products that offer consumers the widest possible choices of service providers without any ulterior incentives. For example, a well-known online service Yelp is an online marketplace where consumers can find a wide variety of services in the open online interface, can make informed decisions and can leave feedback for fellow consumers’ benefits.

Yelp does not steer consumers toward any one service provider, it does not hide providers, it does not enter info anticompetitive agreements with any providers. Almost every real estate agent in the United States has a Yelp profile and Yelp does not cut into their commissions. Yelp is not a real estate broker. Yelp sells optional ads as any other legitimate media service.

On the other hand, UpNest deliberately steers consumers toward brokers who have signed a collusion agreement with them. UpNest is a licensed broker. UpNest utilizes an elaborate price-fixing mechanism to allocate consumers toward a specific set of competitors and away from others. UpNest operates to restrain free trade. UpNest organizes direct competitors into a network.

For the government, it is important to distinguish these two very different propositions and the distinctly different reasons behind them. Yelp actively distributes unbiased data to consumers to improve commerce. UpNest actively distributes false and biased data to consumers to rake the largest number of broker commissions across the United States.

Collusion schemes such as UpNest are thriving in the broken real estate industry because brokers do not want to compete with one another. As fellow brokers, licensed just the same as UpNest, Partner Agents are fully aware that the 30% blanket referral fee paid to UpNest promotes their services over others. This fee is easily incorporated into the commissions because consumers do not pay brokers out-of-pocket.

Combined, out of $85 billion in commissions spent each year in the United States, $10 to $15 billion are currently lost to consumers due to “paper” broker collusion schemes. UpNest is just one of such schemes.

An Open Real Estate Marketplace™ can reverse this trend and deliver savings to consumers instead of kickbacks, provided that brokers are unable to enter into uncompetitive hub-and-spoke conspiracies with other brokers.

Blanket Kickbacks and Unearned Fees

RESPA (12 U.S.C. 2607) Section 8 narrowly allows payments under cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity. To comply in good faith with RESPA (12 U.S.C. 2607) Section 8 exception for cooperative brokerage and referral arrangements, real estate agents must render referral agreements on an individual basis, in a particular instance, for a particular transaction.

Sherman Antitrust Act (15 U.S.C. Chapter 1), effectively, requires all active real estate brokers to proactively compete for consumers without entering into blanket anticompetitive agreements that restrain free trade. An agreement or an understanding between brokers not to compete (or, in this case, to actively promote a network of competing brokers for a mutual profit) is a "per se" violation of antitrust regulations in the United States.

It is a "per se" violation of the Sherman Act for real estate brokers to agree on a "standard" referral fee that will be paid for producing a client. Real estate professionals are not allowed to enter into “standard” referral agreements with competitors because such agreements always restrict free trade.

Once the consumer is "farmed out" to a random UpNest Partner Agent, UpNest owes no duty of care to said consumer and takes no responsibility for the transaction, despite receiving a direct financial benefit from the home sale or purchase completed by a referred brokerage.

Actions of UpNest and UpNest Partner Agents directly increase the costs of owning homes in the United States due to added referral fees, consumer allocation practices, and reverse completion between brokers. In this scheme, both colluding parties benefit from offering consumers higher commissions. UpNest promotes Partner Agents as a way to limit competition with those agents outside of the network, and to encourage competing brokers to collude with them, thus limiting free-market competitive forces and steering consumers in self-interest.

As long as consumer allocation schemes, such as UpNest Partner Program, are allowed to operate, brokers looking to represent consumers are naturally encouraged to participate in the scheme. "There are no upfront costs, only pay us once the transaction closes," is an attractive proposition to a broker who acts on this proposition by simply increasing a quoted commission to any consumer who comes as a referral. Any broker who chooses not to participate in such schemes risks losing "free business." Such an environment is highly poisonous to a healthy real estate representation market.

UpNest Partner Program collusion scheme secretly harms real estate consumers and diminishes the efforts of competitive independent agents to provide a tangible service at an independently set competitive price.

The government must treat UpNest Partner Agents and UpNest as competing brokers because they are equally licensed as brokers and they currently choose "at-will" to collude with one another. Licensed brokers are not allowed to promote the services of competitors, they are required to compete with competitors. A broker must promote their services, within their firm, directly to consumers and exist to solely help consumers buy, rent, and sell real estate.

Activities related to collusion and consumer allocation between licensed brokers do not promote open competition. A criminal violation of the Sherman Act carries a maximum sentence of 10 years in prison and a $1 million criminal fine for individuals. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

The government must actively prosecute "paper" brokers based on active participation in broker-to-broker collusion, otherwise, consumers will continue to overpay tens of billions in commissions each year.

What is your role in the situation? For instance, are you a user, customer, competitor or supplier?

I currently develop and maintain HomeOpenly.com service. HomeOpenly is an Open Real Estate Marketplace™ designed and built to improve the homeownership experience in the United States.

HomeOpenly is a technology company that designs, builds, and maintains a series of online marketplace solutions with a focus on a home search, automated valuation modeling (AVM), home buyer's and seller's representation services, mortgage origination, refinance, home insurance, renovation, design, staging, home inspections, home security, moving, home maintenance, title, escrow, cash offer stand-in programs, home warranty, and other real estate products and services.

HomeOpenly operates subject to a 0% rake as our primary competitive advantage to establish a competitive fee schedule for service providers with the use of network effects. HomeOpenly is not a real estate broker and all service providers utilize our digital marketplace to compete for consumers individually. Our efforts are actively hampered by anticompetitive practices of UpNest.com because this paper brokerage systematically allocates consumers with their competitors brokers to earn kickbacks via price fixing.

Successful implementation of an Open Marketplace™ platform in the real estate industry requires full enforcement of existing antitrust laws that are enacted to protect US consumers.

As long as brokers can trade consumers as "leads" between independent service providers in exchange for blanket referral fees, Open Marketplace™ continues to operate at a competitive disadvantage.

If you have a question or comment about an antitrust issue, you may submit it to the Bureau of Competition at the United States Federal Trade Commission and/or to the Antitrust Division of the United States Department of Justice.

If you have a question or comment about federal consumer protection financial laws, including RESPA, you may submit it to the Office of Enforcement of the United States Consumer Financial Protection Bureau

Related to: antitrust, real estate, UpNest, consumer brokering, consumer allocation, market allocation, tying, home buying, blanket referral fees, kickbacks, price fixing, RESPA, Sherman Act, FTC Act, DOJ, CFPB, FTC

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Last updated: July 28, 2021
First published: July 28, 2021