Two recent court and commission decisions have brokers shaking in their boots - that Internet companies which advertise listings don't require a brokerage license to do so.

The companies, ForSaleByOwner.com and ISoldMyHouse.com, have successfully defended themselves against challenges that they are operating real estate brokerages without licenses. They claimed that they are merely moving classified advertising to the Internet, and that they shouldn't require a license to advertise homes any more than the local newspaper.

Coasts apart, a district court and banking commission agreed.

ForSaleByOwner.com, a New York Internet-based company, challenged a California law that said that Websites advertising real estate must have brokerage licenses while newspapers appeared to be exempt. After pressure from brokers, who argued that, unlike newspapers, ForSaleByOwner.com also provides marketing strategies, advice and tools to consumers in the same way a broker does, the California Department of Real Estate began enforcing the law last spring, asking ForSaleByOwner.com to comply.

Instead, ForSaleByOwner.com went to court. The First Amendment was at stake, the company said.

Judge Morrison England Jr. of the District Court in Sacramento ruled in November 2004 that the defendants had "not established why this should require Web sites like ForSaleByOwner.com's to obtain a California broker's license ... when online services doing exactly the same thing are not subject to any licensing requirement so long as they are operated by a newspaper." In short, the court saw "no justification whatsoever for any distinction between the two mediums."

In similar news, ISoldMyHouse.com which is operated 1-800-East-West Mortgage Company, Inc., was challenged in a complaint brought by The New Hampshire Association of Realtors in August. The New Hampshire Bank Department commissioner ruled that a mortgage company that operates a for-sale-by-owner Website doesn't need a real estate brokerage license to do business.

Peter C. Hildreth, commissioner for the New Hampshire Bank Department, said the mortgage company "is performing activity which is both permitted to banking subsidiaries in New Hampshire and is not real estate 'brokerage' as defined under banking law or under state law."

"(East-West) has not signed a brokerage agreement with anyone, has not represented anyone as an agent or a fiduciary for the sale, purchase or other disposition of real property and, by charging a flat fee for its advertising, has not had its compensation contingent on any event having to do with the eventual sale of an advertised property," the order also says.

Some brokers blame the erosion of agency-level service for the rulings.

"The issue of FSBO publications marketing real estate for sale became a much larger problem for the real estate industry when NAR worked to abrogate the common law of agency," says Tom Hathaway, president of The Buyer's Agent, a buyer's brokerage franchising firm. "NAR had the one indisputable argument supporting regulatory oversight removed by endorsing transactional brokerage, where no one is responsible to the consumer."

But agency might not have as much to do with the rulings as the real estate industry's underestimation of the determination competing companies have to cash in on real estate marketing without incurring losses and liabilities.

Brokers have been saying profitability is at a crisis point for years. Agents are demanding so much of the brokers' profits that the industry has one of the highest labor-to-management costs in business. Much of the activities surrounding real estate transactions are time-intensive, such as showing homes, becoming familiar with neighborhoods, and negotiating contracts. Brokers and agents perform these jobs and more under continuing pressure on their commissions, often not getting paid at all. And when they do complete a transaction, they must be covered by E & O insurance to protect the brokerage and its agents from financial exposure.

It's no wonder some companies are looking for alternative ways to cash in on real estate. They have picked a niche - consumers who desire to save money. They also neatly avoid all the costly, time-consuming, risk-raising tasks of brokerage. The new breed of Internet FSBO advertisers have few costs - no agents, no liability, no activities for which they aren't paid, and they get paid up front for advertising of listings.

The real problem for brokers, may be the loss of agency, as some say, but it appears more compelling that the culprit is profitability. For brokers to compete, they must contain the other costs of brokerage besides advertising listings that have spiraled out of control.