IJ Fights Web Of Internet Licensing

August 2003

IJ Fights Web Of Internet Licensing

By Steve Simpson

With home prices as high as they are these days, you’d think that state governments would do what they could to eliminate legal impediments to home buying and selling. Unfortunately, when it comes to real estate services, the State of California has sided with old-style real estate brokers and against consumers and Internet companies, essentially driving the latter out of the state and limiting the choices of the former. As a result, IJ, on behalf of clients ForSaleByOwner.com and ForSaleByOwner.com Magazine, filed suit on May 14 in federal court in Sacramento challenging an absurd application of California’s real estate licensing laws.

ForSaleByOwner.com, the brainchild of New York Internet entrepreneurs Damon Giglio and Colby Sambrotto, is essentially an on line classified advertising and information service. Homeowners pay a flat fee to advertise their homes on the website and anyone with a computer and access to the Internet can search the site for free. Homeowners write their own ads and can include pictures and even virtual video tours. Buyers can search for exactly the home they want, research neighborhoods and schools and find other information on desired locales. The site also provides a wealth of information on buying and selling homes as well as searchable databases of mortgage companies, insurers, movers and the like. In short, ForSaleByOwner.com empowers consumers to buy and sell homes on their own, without using a broker and paying tens of thousands of dollars in commissions.

Unfortunately, the State of California does not see businesses such as this in a positive light. In August 2001, California’s Department of Real Estate wrote letters to a number of Internet real estate advertising companies telling them to get a real estate brokers license or get out of the state. The companies, however, aren’t brokers; they don’t represent buyers or sellers; they don’t negotiate real estate deals; they don’t collect commissions. Treating these companies like brokers is as silly as treating the automobile classified ads like car dealers or publishers of law books like lawyers.

Even worse, requiring companies like ForSaleByOwner.com to get a brokers license would put them out of business. Applicants must take up to two years of college-level real estate courses and work for a licensed broker before they are even eligible to take the brokers exam. And if California can impose these requirements on Internet companies, any state government can. In fact, the Missouri Real Estate Commission recently sent ForSaleByOwner.com a letter directing the company to obtain a license if it wants to keep advertising properties in that state. Having to obtain a brokers license in one state would be bad enough. Having to do so in 50 would be impossible.

Of course, licensed real estate brokers aren’t exactly shedding a tear for these companies. Running them out of business does away with pesky competitors and allows brokers to maintain a lock on real estate services and millions of dollars in commissions.

Consumers, however, get a raw deal. The Internet has emerged as a crucial tool for would-be homeowners—allowing them to shop online for homes, mortgages, and title and home insurance, among other services. Both businesses and consumers have recognized that in home buying and selling, as in other important transactions, access to information is vital.

The Constitution embodies this principle as well. The First Amendment guarantees not only that Americans may speak their minds, but that they may send and receive information vital to their daily lives as well. As the U.S. Supreme Court stated nearly 30 years ago, “[i]t is a matter of public interest that [economic] decisions, in the aggregate, be intelligent and well-informed. To this end, the free flow of commercial information is indispensable.”

California’s effort to license real estate advertising and information businesses tramples constitutional protections for the free flow of information and harms both consumers and the economy. As the birthplace of the information technology and Internet revolutions, California, of all states, ought to understand this. In short, it can’t be an information economy if government puts a stranglehold on information.

Steve Simpson is the Dunn Foundation Fellow in Constitutional Litigation.