Washington, D.C.—May the government restrict the speech of real estate advertising websites?

That is the question the Institute for Justice will seek to answer when it files a federal lawsuit on Wednesday, May 14, 2003, in U.S. District Court in Sacramento challenging California’s onerous licensing regime on behalf of two Internet real estate advertising companies—the New York-based ForSaleByOwner.com and a California affiliate that publishes ForSaleByOwner.com magazine in Sacramento. California requires Internet advertising companies, like ForSaleByOwner.com, to become licensed real estate brokers in order to provide, in essence, an online classified ad service. Securing such a license takes up to two years of college-level study and thousands of dollars, which, argue ForSaleByOwner.com founder Damon Giglio and Chief Operating Officer Colby Sambrotto, is completely irrelevant to the occupation the Internet entrepreneurs wish to practice.

“The First Amendment guarantees not only that Americans may speak their minds without having to obtain approval of government censors, but that they may send and receive information vital to their daily lives as well,” said Steve Simpson, an attorney with the Institute for Justice, which is representing ForSaleByOwner.com for free. “Laws such as California’s that require a license to distribute such information should be struck down.”

California’s code, in part, defines a real estate broker as anyone who collects an advance fee to “list,” “advertise” or “offer” for sale the property of another person. Individuals who violate these provisions by running print or online advertising services without a license face fines of up to $10,000 and a jail term of up to six months per offense. Companies that do so face fines of up to $50,000 per offense. In August 2001, California’s Department of Real Estate sent letters to a number of companies including ForSaleByOwner.com informing them that they must obtain brokers licenses to advertise properties in California. The Department also sent letters to homeowners who advertised their properties on ForSaleByOwner.com in an attempt to frighten them away. It worked; as a result of those letters, a number of ForSaleByOwner.com’s customers stopped using the service.

“For sale by owner” or “FSBO” companies, such as the two represented in this lawsuit, now hold as much as 20 percent of the market. A number of sites targeting homebuyers provide access to information on home prices, neighborhoods, schools, local laws and other information important to buyers. According to Nielson/Net Ratings surveys, the number of users of such sites has jumped by 17 percent in the past year. The market for these services will only grow as the younger, more Internet and tech-savvy generations begin buying homes. Unfortunately, however, government regulations too often fail to keep pace with the changes in the market. This is especially true with respect to online real estate services.

Simpson said, “This is an important test case with broad implications for e-commerce and the First Amendment. At a time when information is more important to the economy than ever before, government remains a serious impediment to the free flow of information and the economic benefits it promises.”

In its court papers, the Institute for Justice contends that California’s law is an unconstitutional prior restraint on speech, it is an invalid regulation of commercial speech and it improperly discriminates against certain companies and individuals based solely on the media they use to convey information.

“If California can require Internet advertisers to become licensed real estate brokers, other states can as well,” Simpson said. “Nearly every state requires real estate brokers to become licensed, many with requirements similar to California’s. So far, only a few have applied licensing provisions to Internet and print advertising companies. If all states did so, businesses like ForSaleByOwner.com, which depend on the ability to serve customers in many states, would become extinct.”

ForSaleByOwner.com distributes 1.2 million magazines and operates across the largest real estate markets in 23 states including California. It has succeeded by recognizing the value of the Internet to the real estate market and the growing interest in avoiding high broker commissions. And it has earned thousands of satisfied clients.

Said one ForSaleByOwner.com customer, “I placed my ad on ForSaleByOwner.com on December 25, 2002. I had an offer on my home in 4 weeks. My husband and I saved $35,000 by selling the home by ourselves. I couldn’t believe how easy it was.” Another said, “[I] learned a lot, saved $15K and sold my property with minimal effort. Excellent example of Internet at its best!!”

Its founder, Damon Giglio, pointed out, “Buying a home is not rocket science. Consumers increasingly want to avoid high broker commissions, and they should have that choice.”

ForSaleByOwner.com Chief Operating Officer Colby Sambrotto said, “It’s absurd to treat us like real estate brokers. We aren’t. We don’t represent property owners or buyers; we don’t give advice about particular transactions; we don’t negotiate real estate deals and we don’t charge high commissions like brokers do.”

ForSaleByOwner.com simply provides an advertising platform and information to homeowners for a flat fee, empowering individuals to sell and purchase homes on their own. There is no more reason to require ForSaleByOwner.com to become licensed than there is to require newspapers to do so simply because they include real estate classified ads.

The State allows newspapers to advertise homes for sale without obtaining a license, and California consumers have managed for years to navigate the classified ads without the government watching over them.

In 1999, the Institute for Justice scored one of the earliest victories extending free speech rights to the Internet when it helped strike down a Commodity Futures Trading Commission requirement that software developers and online content providers, become licensed commodity brokers despite the fact that they did not invest customer funds nor give person-to-person trading advice. Instead, they simply provide information and analysis to their customers.