A federal judge in Sacramento this week rejected the California Department of Real Estate’s attempt to dismiss a First Amendment lawsuit brought by ForSaleByOwner.com. The suit claims the state’s law that requires the FSBO company to obtain a real estate broker’s license to legally conduct business in the state is unfair.

ForSaleByOwner is expected to file motions for summary judgment in the case by this summer. Trial, if necessary, will be held early next year.

The lawsuit was filed in May 2003, after ForSaleByOwner, a Web-based real estate advertising company, refused to go along with the state’s demand that online real estate advertising companies be licensed real estate brokers.

The state asked that the case be dismissed, arguing that its effort to license real estate advertising and information Web sites was a routine exercise of its power to license entry into a profession and is directed at “conduct” rather than speech, according to ForSaleByOwner’s legal representation, the Institute for Justice.

The Institute for Justice is a non-profit, self-described “libertarian public interest law firm.” It claims California’s real estate law represents an unconstitutional prior restraint on speech and alleges the practice is invalid regulation of commercial speech that discriminates against certain companies based on the type of media they use–in this case, the Internet.

“The First Amendment guarantees not only that Americans may speak their minds without having to obtain approval of the government, but that they may send and receive information vital to their daily lives as well,” Steve Simpson, an attorney with the institute, said in a statement. 

“The State may not license the dissemination of general advertising and information,” he added.

California requires Internet advertising companies like ForSaleByOwner.com to obtain real estate brokerage licenses. But ForSaleByOwner claims it’s a classified advertising service that shouldn’t be forced to obtain a brokerage license. The company lists for-sale-by-owner properties nationwide and doesn’t operate a real estate brokerage in any state. The state does not require newspapers to obtain a license.

The battle between the California DRE and FSBO Web sites has been brewing since August 2001 when the DRE began sending stop-it-or-else correspondence to operators of Web sites that sell classified advertising of for-sale-by-owner houses. The FSBO Web site operators have been accused of selling real estate without a license and the DRE has demanded that they either get a California broker license or stop soliciting California home sellers and buyers.

ForSaleByOwner charges home sellers a flat fee that varies by location and service and in return provides sellers a national forum to advertise their properties. The comprehensive Web site also provides real estate consumers with a menu of links to affiliated services companies and “how-to” information about mortgages, neighborhoods, credit reports, home buyer and seller check lists, school reports and the like.

But the Web site doesn’t get involved directly with home buyers and sellers.

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