Historically, some states have forced out of state real estate investors to employ only local brokers. Such rules forbid participation of brokers not licensed locally, regardless of the out of state broker's qualifications. The result has often been that buyers have to choose between staying out of these states, or relying on the advice of a stranger in making a major financial commitment.

There are signs that this practice may be on its way out. Just last week, a federal judge in Kentucky ruled that that state's out of state broker rules violate the Commerce Clause of the U.S. Constitution:

In his recent ruling, federal judge Charles Simpson III wrote, “These prohibitions constrain interstate commerce in the purchase and sale of Kentucky real estate, isolating Kentucky from the national brokerage market, a result made unconstitutional by the Commerce Clause.”

The judge further noted, “A consumer who maintains a trusted relationship with a broker should not be compelled to accept the services of a stranger in order to make that transaction.”

Simpson rejected the state’s defense of the laws on consumer protection grounds, saying that the ‘turf state’ laws may actually make the buyer more vulnerable to fraud.

“While licensure protects the public from the unscrupulous and incompetent brokers, the court cannot discern how prohibiting cooperation between an out-of-state broker and a Kentucky-licensed broker reinforces this protection,” the judge wrote. “It appears that the prohibition’s main purpose is to ensure that virtually all commissions are kept in Kentucky. This is achieved, however, at an unconstitutional cost to interstate consumers.”

 
The story appears online at commercialpropertynews.com

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