Property Website Wins Ruling

The California Department of Real Estate was wrong to insist that a website had to obtain a real estate broker’s license in order to publish paid ads listing properties for sale, a federal judge has ruled.

The case involving ForSaleByOwner.com was being closely watched by the real estate industry, which has seen its traditional methods challenged by upstart firms exploiting consumers’ mushrooming use of the Internet.

The company charges customers an upfront fee to list their properties on its website, which also publishes other real estate-related information but does not act as a broker in transactions.

In his ruling, Judge Morrison C. England Jr. of the U.S. District Court in Sacramento said the state’s statute “appears wholly arbitrary” because it was requiring ForSaleByOwner to get a broker’s license while allowing newspapers that publish the same information -- online and in print -- to operate without one.

“There appears to be no justification whatsoever for any distinction between the two mediums,” England wrote in his opinion, which was filed last week.

Even if there were a need to delineate differences back when the law was enacted in the 1950s, “that does not mean that the same rationale” for exempting newspapers exists today, “given the vast advances in technology that have occurred in the meantime,” he wrote.

Colby Sambrotto, ForSaleByOwner’s chief operating officer, said the ruling vindicated his position that a stand-alone website should not be held to a different standard from other similar entities.

His company, based in New York, sued the state in 2003 after it was sent a cease-and-desist order for operating without a broker’s license. The website was allowed to continue operating pending the outcome.

The state “took too hard a line,” he said. “They either didn’t understand that the law was outdated or were just unwilling to consider that.”

Tom Pool, a spokesman for the Department of Real Estate, said his agency was “reviewing its options” on appealing the decision or reviewing terms of the statute.

How -- or even whether -- to control real estate services in the Internet age has become a topic of intense debate within the industry, which has tried to restrict how real estate information is shared while defending its system of agent commissions based on a percentage of a house’s sale price.

The ForSaleByOwner case was merely the latest attempt “by organized real estate to corral these new intermediaries,” said Steve Murray, an industry consultant and editor of the trade newsletter Real Trends.

“This is a battle in the war between what has been and what will be” the future of the industry, he added.

Efforts by the industry to rein in new companies have attracted the attention of some in government. The Justice Department is investigating possible anti-competitive practices by Realtors, and Rep. Michael G. Oxley (R-Ohio) has called for a review of consumers’ access to online real estate listings.

Still, the need to regulate real estate activities, whether online or off, remains, said June Barlow, general counsel for the California Assn. of Realtors. England’s ruling, she pointed out, did not attack the need for a licensing law, just how it was applied.

“The more intriguing question is: As online sites become more and more rich with information,” Barlow said, “when do they need to be regulated to protect the consumer? That still has yet to be resolved.”