Real estate practices in three states have recently caught the attention of the federal government. Assuming that the feds have any business fiddling with the decisions of state real estate regulators -- an assumption one should not make too quickly -- the complaints deserve some study.

First, we have the matter of broker rebates in Kentucky. The Justice Department has filed a civil antitrust lawsuit on the grounds that state rules, which prohibit Kentucky real estate brokers from offering rebates and other inducements to attract customers, are a violation of the Sherman Antitrust Act.

The Department says the ban harms buyers and sellers by reducing competition.

"Restricting brokers from competing through rebates and inducements is a per se violation of the antitrust laws that, as confirmed by the brokers themselves, inflicts higher prices on Kentucky consumers," according to R. Hewitt Pate, Assistant Attorney General in charge of the Department's Antitrust Division.

Second, the Justice Department and the Federal Trade Commission have asked the Texas Real Estate Commission to reject a proposed rule which, says FTC Chairman Deborah Platt Majoras, "would restrict the ability of limited-service real estate brokers to respond to the demands of Texas consumers."

"The likely result," she continued, "would be higher prices and fewer options for the state's consumers, with no offsetting benefits."

Lastly, earlier this month the Antitrust Division of the Justice Department asked the state of Oklahoma to reject legislation which the Department says would "eliminate the ability of Oklahoma real estate professionals to offer a selection of real estate services, sometimes called fee-for-service or menu pricing."

Every profession, by its nature, seeks to establish its turf. Take a look at the requirements to become a barber or a plumber and you'll be amazed at the length and exactitude of the regulations.

Such standards have been established because there's a need to protect the public against incompetent, uneducated and unfair practitioners. At the same time, the inevitable by-product of every regulatory scheme is that some prospective competitors are eliminated.

In effect, there's a trade-off. If one assumes that any regulation is necessary -- and that too is an assumption which deserves some examination -- then by definition, the public has reduced choices and licensed professionals have fewer competitors.

For the most part, this trade-off is accepted because the alternative is worse. No one wants an unlicensed surgeon removing a spleen or an incompetent plumber hooking up a gas line. Waiting for the marketplace to catch up with such folks doesn't work because the harm will already have been done.

The question which must always be addressed concerns the matter of how much regulation is appropriate. Or, seen another way, at what point is regulation simply a device to limit competition?

When it comes to turf, the history of brokerage is not especially different from other professions. Advertisements by attorneys, pharmacists and optometrists, as examples, were once restricted -- bans which surely did not do much good for the public -- or new competitors.

Efforts in real estate to now create "limited service" rules and ban client rebates are counter-productive, unnecessary and impossible to enforce. Here's why:

The market for real estate services is both vast and diverse; not every client requires or wants the same service. To meet marketplace needs one can argue that most brokerages, if not every brokerage, now offers both a menu of services as well as rebates and inducements.

Here's an example: Smith wants to list an investment property for sale. He contacts broker Jones. Jones offers to list the property with a standard form and standard terms. It's a starting place in the bargaining process.

Seller Smith says, no, I need this and I don't need that. Jones agrees to modify the listing contract to get the business -- in effect, Jones, a traditional full-service broker -- offers a menu of services.

Broker Jones also agrees to something less than the original commission offer. The brokerage for which Jones works would never be called a "discounter," but to list a property that is well located, well priced and well maintained, Jones agrees to a reduced fee. You can call that reduction a "discount" or a "savings" -- and you can just as easily call it a "rebate" or an "inducement" to list with Jones.

The federal challenges we now see, are part of an ongoing effort to eliminate the last vestiges of anti-competitive practices. For example, many states have long-standing rules which limit the distribution of real estate information by claiming that real estate publications need a brokerage license. Just this November a court told California it could not enforce such a licensing requirement because it violates the First Amendment.

The problem we have today is that state lawmakers create standards which state regulators are then required to enforce. You can bet with absolute certainty that most regulators, especially those who are also brokers, want no part of such requirements.

The central reason to dump anti-competitive initiatives is that while such efforts don't work, the marketplace does. Buyer brokerage, as one example, was long opposed by much of the real estate community. Now such representation is entirely common and despite worries to the contrary the world of real estate brokerage has hardly come to an end.

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