June 10, 2016

Court rules that you need a real estate broker license to advertise for sale by owner homes

By Anastasia P. Boden Attorney

Leslie Young started her business—eList.me—to help people who want to sell their homes without the use of a real estate broker, or “for sale by owner” (FSBO).  The way her business works is she enters information about FSBO homes into online databases, and those databases publish that information in the form of advertisements on various websites.  Leslie calls herself an “advertising agent,” or an advertising “broker.”  She doesn’t show homes or interact with potential buyers; the advertisements connect buyers directly with sellers. And Leslie doesn’t handle any client funds or complete any closing paperwork.  She is paid per advertisement that she posts online, regardless of whether the property sells.

Nebraska law calls Leslie’s business the practice of “real estate brokerage,” and requires a license for it.  The licensing requirements are onerous; they require her to pay a fee, take courses in real estate brokerage, obtain insurance, and pass a background check.  Not only are these requirements costly, they are irrational.  The courses have nothing to do with advertising FSBO homes, and even if she were to take them and get the license, Nebraska law forbids licensed brokers from advertising FSBO homes.

PLF filed a lawsuit on behalf of Leslie alleging that the Nebraska licensing law violates her right to free speech and her right to earn a living free of arbitrary government interference.  Yesterday, the Eighth Circuit Court of Appeals upheld the law on the basis that law regulated the conduct of real estate brokerage, not speech, and could constitutionally be applied to Leslie because she was acting like and calling herself a “broker.”

The court cited the fact that 1) Leslie entered into “listing agreements” with FSBO sellers, 2) she used her status as a licensed California broker to place their listings on certain online databases, and 3) she used terms like “advertising broker” and “agent” on those listings.  Of course, PLF had argued that all three of those facts were exactly why the statute implicates speech.  Engaging in a “listing agreement” is entering into a contract to advertise.  Placing a “listing” in an online database is putting an advertisement on a certain medium.  And the use of self-descriptive terms has long been analyzed under First Amendment scrutiny.

The Eighth Circuit’s opinion contradicts the long line of cases that hold that when a law is triggered by speech, it is subject to First Amendment scrutiny.  It’s true that a regulation of an occupation isn’t necessarily subject to First Amendment scrutiny just because it tangentially affects speech.  But where the underlying profession is speech itself, the law regulates speech, not conduct.

The opinion also contradicts a recent Fifth Circuit decision that struck down a Texas law under the First Amendment, and held that the plaintiff could call herself a “psychologist” even though she was not a licensed psychologist.  Though the state had claimed that her use of the term “psychologist” might mislead the public into thinking she was licensed, the court held that the solution to any potential confusion was more speech, not less.

Leslie and PLF attorneys are evaluating their options.  In the meanwhile, Leslie’s advertising business has been silenced.

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