The National Association of Realtors has a message for state realty associations who might feel intimidated by the Justice Department's and the Federal Trade Commission's recent moves against "anti-competitive" regulatory and legislative actions affecting real estate licensing: Hold your ground and don't panic.

That's the gist of a memorandum to state Realtor association executives from NAR's top legal expert, general counsel Laurene K. Janik. A copy of the internal memorandum was obtained by Realty Times.

Janik's advice came in the wake of three recent, unexpected interventions by federal agencies into what had previously been licensing issues within the exclusive -- or predominant -- purview of the states. At the end of March, the Justice department sued the Kentucky Real Estate Commission on antitrust grounds for prohibiting brokers licensed in that state from providing commission rebates to clients. On April 8, Justice warned the Oklahoma state legislature to reject pending legislation that would have redefined the minimum standards of service necessary for a broker's license, effectively preventing certain fee-for-service or limited service, discount-fee brokerage models from operating in the state.

Finally, two weeks ago the Justice department joined with the FTC in a letter to the Texas Real Estate Commission urging it to reject a regulatory change similar to Oklahoma's minimum service rule that was pending before the commission. The three unusual moves -- plus ongoing federal probes of NAR's VOW online MLS access rule and a congressionally-sanctioned study of "competitiveness" within the realty brokerage industry -- have raised eyebrows nationwide.

Janik's memorandum to state realty association leaders underlines the industry's concern.

"It is rare, perhaps unprecedented," wrote Janik, "for the DOJ or FTC to lobby state legislatures or real estate commissions on matters involving real estate licensure." However, said Janik, state associations need to understand the key limitations faced by federal agencies when dealing with state legislatures and regulatory bodies.

For starters, the Justice department and FTC may have a bully pulpit from which to issue comments and advice to the states, but federal antitrust laws do not empower them to examine statutes adopted by state legislatures.

"Once (a) law is enacted," wrote Janik, "neither the DOJ nor the FTC can successfully challenge the law" -- even if the agencies believe it may be anti-competitive. "A regulation of a state real estate commission cannot be found to violate the antitrust laws as long as the regulation was issued pursuant to a policy clearly articulated by the state legislature to displace competition with regulation by a state agency. Thus, if a real estate commission adopts rules that carry out real estate brokerage policy set by the legislature, an attack on that rule by the DOJ or FTC should fail."

Finally, said Janik, "efforts by Realtors to lobby the state legislature or the state real estate commission for legislation or regulatory actions are protected by the First Amendment as long as they are undertaken in good faith."

Bottom line: If Realtors want to set minimum service standards or ban commission rebates, they need to persuade their state legislatures to enact statutes that sanction such policies. Even if a state legislature adopts a law that has an exclusionary effect on certain categories of real estate brokerage models, that is the legislature's prerogative and the feds can't sue the state's elected representatives for antitrust violations.

Published: May 2, 2005

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.