FTC Staff Comment Before the Virginia Real Estate Board Concerning Proposal to Permit All Brokers to do Business Through More than One Firm

UNITED STATES OF AMER.ICA
FEDERAL T~E COMMISSION
WASHINGTON, D.C. 2OS80
~~1t./Wtl
COMMISSION
APPROVEO .,
,"
January 	9, 	1987
Ms. 	Florence 	R. 	Brassier
Assistant 	Director
Virginia 	Real 	Estate 	Board
3600 West 	Broad 	Street
Richmond, 	VA 	23230-4917
Dear 	Ms. 	Brassier:
The 	Federal 	Trade 	Commission's 	Bureaus 	of 	Competition,
Consumer 	Protection 	and 	Economics 	are 	pleased 	to 	submit 	this
letter 	in 	response 	to 	the 	Virginia 	Real 	Estate 	Board's 	(~Board")
request 	for 	~ublic comments 	on 	proposed 	changes 	to 	its
regulations.
I. 	~nterest and 	Experience 	of 	the 	Federal 	Trade 	Commission
The 	Federal 	Trade 	Commission 	is 	empowered 	under 	15 	U.S.C.
55 	41 	et~. 	to prevent 	unfair 	methods 	of 	competition 	and
unfair 	or 	deceptive 	acts 	or 	practices 	in 	or 	affecting 	commerce.
Pur~uant to 	this 	statutory mandate 	the 	Commission 	has 	attempted
to 	encourage 	competition 	among 	members 	of 	licensed 	professions 	to
the 	maximum extent 	compatible 	with 	other 	legitimate 	state 	and
federal 	goals. 	For 	several 	years 	the 	Commission 	has 	been
investigating 	the 	competitive 	effects 	of 	restrictions 	on 	the
business 	practices 	of 	state-licensed 	professionals, 	including
real 	estate 	brokers, 	optometrists, 	dentists, 	lawyers, 	physicians
and 	others. 	The 	Commission's 	goal 	has 	been 	to 	identify 	and 	seek
removal 	of 	restrictions 	that 	impede 	competition, 	increase 	costs
and 	harm consumers 	without 	providing 	significant 	countervailing 	.
benefits.
II. 	Overview of 	Comments
We 	support 	the 	Board's 	proposal 	to 	expand 	current 	Regulation
S 1.7 	to permit 	all 	brokers, 	not 	just 	principals 	of 	brokerage
firms, 	to 	do business 	through 	more 	than 	one 	firm. 	We 	believe
this 	change 	will 	promote 	competition 	and 	enhance 	consumer
welfare.
1 	These 	comments 	represent 	the 	views 	of 	the 	Bureaus 	of
Competition, 	Consumer 	Protection 	and 	Economics 	of 	the 	Federal
Trade 	Commission 	and 	do 	not 	necessarily 	represent 	the 	views
of 	the 	Commission 	or 	any 	individual 	Commissioner. 	The
Commission, 	however, 	has 	reviewed 	these 	comments 	and 	has
authorized 	their 	submission.

Florence 	R. 	Brassier 	Page 	2
We 	also 	discuss 	several 	Board 	regulations 	that may 	adversely
affect 	competition and 	harm consumers, 	and 	that 	the 	Board 	might
therefore 	wish 	to 	reconsider. 	These 	rules 	fall 	into 	two
categories: 	(1) 	existing 	and 	proposed 	regulations 	that 	establish
sUbjective 	standards 	for 	whether 	a 	person-may hold 	a 	license~ 	and
(2) 	an 	existing 	regulation 	that 	restricts 	a 	broker's 	use 	of 	his
or 	her 	residence 	as 	a 	place 	of 	business. 	While 	we 	recognize 	the
Board's 	legitimate 	consumer 	protection 	interests 	in 	these
regulations, 	including 	the 	goals 	of 	assuring 	competence 	and
preventing 	fraud 	and 	deception, 	we 	believe 	the 	regulations 	may 	be
overbroad. 	They may 	have 	the 	effect 	of 	unnecessarily 	restricting
competition 	in Virginia 	real 	estate 	markets 	by 	excluding
competitors 	who may 	be 	inclined 	to 	offer 	consumers 	lower 	prices
or 	new or 	different 	services. 	Because 	such 	loss 	of 	competition
harms 	rather 	than 	protects 	consume 2s, 	we 	recommend 	that 	the 	Board
delete 	or 	amend 	these 	regulations.
III. 	Allowing 	All 	Brokers 	to Associate 	with More 	than 	One 	Firm
We 	applaud 	the 	Board's 	proposal 	to 	amend 	Regulation 	S 1.7 	to
allow 	all 	brokers, 	not 	just 	principals 	of 	firms, 	to 	associate
with 	more 	than 	one 	brokerage 	firm. 	This 	change 	should 	increase
competition 	among 	firms 	for 	broker 	associates 	and 	improve 	the
quality 	of 	brokerage 	services 	available 	to 	consumers. 	We 	believe
that 	consumers 	will 	be 	better 	served 	to 	the 	extent 	that 	they can
obtain 	direct 	access 	to 	the 	resources 	of 	more 	than 	one 	brokerage
firm 	through 	the 	use 	of 	a 	single 	broker.
IV. 	Reaulations 	that 	Incorporate 	Subjective 	Standards 	for
Obtaining 	or 	Maintaining 	a 	License
We 	are 	troubled 	by 	some 	other 	parts 	of 	the 	Board's 	proposal,-
however. 	For 	example, 	several 	of 	the 	proposed 	regulations 	seem
to 	incorporate 	standards 	for 	licensure 	that 	are 	more 	subjective
than 	is 	necessary. 	Proposed 	Regulations 	SS 	2.l.A, 	2.3.A.6 	and
2.4.A 	contain 	language 	requiring 	applicants 	for 	various
professional 	licenses 	to 	have 	-a 	good 	reputation 	for 	honesty,
tru~hfulness and 	fair 	dealing 	and 	be 	competent 	to 	transact 	the
business 	of 	a 	real 	estate 	broker 	or 	a 	real 	estate 	salesperson 	in
2 	We 	express 	no 	opinion 	on 	the 	other 	proposed 	or 	existing
regulations 	of 	the 	Board 	not 	discussed 	in 	this 	letter.

Florence 	R. 	Brassier 	Page·3
such 	a 	manner 	as 	to 	safeguard 	the 	interests 	of 	tne 	pUblic."3
Proposed 	Regulation 	S 3.S.NN 	provides 	that 	the 	Boara 	may 	revoke
or 	suspen~ a 	license 	or 	otherwise 	discipline 	licensed 	brokers 	for
"being 	unworthy 	or 	incompetent 	to 	act 	as 	a 	real 	estate 	broker 	or
salesperson 	••• 	or 	0iherwise 	engaging 	in 	improper, 	fraudulent,
or 	ciishonest 	conduct." 	The 	regulations 	do not 	specify how 	such
determinations 	of 	reputation, 	competence 	and 	impropriety are 	to
be 	made.
We 	recognize 	the 	consumer 	protection 	goals 	that 	underlie
those 	regulations, 	including 	the 	purposes 	of 	assuring 	competence
and 	preventing 	fraud 	and 	deception. 	In 	the 	absence 	of 	more
precise 	definition, 	however, 	we 	are 	concerned 	that 	the
requirements 	are 	unduly 	subjective and 	could 	be 	applied 	in 	a
discriminatory 	fashion, 	with 	anticompetitive 	effects. 	We 	are
particularly concerned 	that 	innovative 	or 	nontraditional
competitive 	strategies, 	such 	as 	offers 	by 	brokers 	of 	low
commission 	rates 	or 	of 	services 	that 	differ 	from 	the 	traditional
array 	of 	brokerage 	services, 	may 	be 	unfairly 	disparaged 	by
traditional 	competitors. 	Complaints 	along 	these 	lines 	could
discourage 	or 	prevent 	nontraditional 	brokers 	from 	obtaining 	or
maintaining 	a 	Virginia 	license 	under 	the 	above-quoted
regulations. 	The FTC's 	Los 	Angeles 	Regional 	Office 	conducted 	a
nationwide 	survey 	to 	assess 	the 	actual 	experiences 	of 	such
nontraditional 	brokers. 	The 	problem most 	frequently 	reported 	was
disparagement 	of 	their 	business 	strategies 	by 	traditional
brokers, 	including 	statements 	to 	consumers 	that 	the
nontraditional 	brokersSwere 	operating 	in 	an 	unethical 	or
unprofessional 	manner.
We 	believe 	that 	the 	Board's 	efforts 	to 	pursue 	legitimate
consumer 	protection 	interests 	should 	be 	reflected 	in 	specific,
obj~ctively verifiable 	standards 	to 	the 	maximum extent
possible. 	We 	note 	that 	all 	of 	the 	regulations 	of 	the 	Board 	other
than 	Proposed 	Regulations 	55 	2.l.A. 	2.3.A.6, 	2.4.A 	and 	3.S.NN 	are
3
4
5
Proposed 	Regulation 	S 	2.l.A 	is 	similar 	in 	content 	to 	the
Board's 	current 	Regulation 	5 	2.l.lA. 	The 	only 	change 	is 	that
Proposed 	Regulation 	S 2.l.A would 	require 	applicants 	to 	"be
competent" 	while 	the 	existing 	regulation 	only 	requires
applicants 	to 	have 	a 	good 	reputation 	for 	competence.
This 	regulation 	is 	pre-existing 	and 	has 	merely 	been
renumbered 	in 	the 	proposed 	regulations.
See FTC 	Los 	Angeles 	Regional 	Office, 	Federal 	Trade
Commission, 	The 	Residential 	Real 	Estate 	Brokerage 	Industry
278-92 	(1984).

Florence 	R. 	Brassier 	Page 	4
in 	that 	form. 	We 	also 	note 	that 	many 	of 	the 	Board's 	regulations
address 	the 	same 	goals 	underlying 	the 	subjectively 	stated
regulations 	-- 	the 	goals 	of 	assuring 	competency 	and 	protecting
consumers 	from 	what 	the 	Board 	has 	determined 	to 	be 	improper 	acts
or 	practices. 	It 	therefore 	appears 	that 	the 	Board's 	concerns may
already 	be 	adequately 	addressed 	by 	the 	objectively 	stated 	rules,
and, 	furthermore, 	if 	the 	Board 	determines 	that 	additional
regulations 	are 	desirable 	it 	may 	be 	possible 	to 	draft 	them 	in
objective 	rather 	than 	subjective 	terms.
For 	these 	reasons, 	we 	urge 	the 	Board 	not 	to 	adopt 	Proposed
Regulations 	S5 	2.l.A, 	2.3.A.6, 	2.4.A 	and 	3.5.NN, 	or 	to 	modify
them 	to 	incorporate 	objective 	standards.
V. 	Regulation 	of 	a 	Place 	of 	Business 	in 	a 	Residence
Proposed 	Regulation 	5 	3.l.B 	states 	that 	-[n]o place 	of
business 	shall 	be 	in 	a 	residence 	unless 	it 	is 	separate 	and
distinct 	from 	the 	living 	q~arters of 	the 	residence 	and 	is
accessible 	by 	the 	public. w
We 	are 	concerned 	that 	this 	regulation 	may 	create 	an
unnecessary 	entry 	barrier 	to Virginia 	real 	estate 	markets 	for
brokers 	who 	wish 	to 	operate 	on 	a 	part-time 	basis 	or 	who wish 	to
enter 	and 	exit 	the 	market 	as 	market 	conditions, 	personal
circumstances 	or 	other 	conditions 	dictate. 	In 	particular, 	this
regulation. raises 	the 	costs 	of 	entry 	for 	part-time 	and 	other
-frinqe ft 	brokers 	who wish 	to 	operate 	out 	of 	their 	residence 	but
who 	do 	not 	have 	sufficient 	space 	in 	their 	homes 	to 	dedicate 	an
entire 	room 	exclusively 	for 	business 	purposes. 	In 	addition, 	to
the 	extent 	that 	this 	regulation 	requires,a 	broker's 	in-home
office 	to 	have 	its 	own 	outdoor 	entrance, 	it 	would 	make 	entry
6
7
This 	regulation 	is 	pre-existing 	and 	has 	merely 	been
renumbered 	in 	the 	proposed 	regulations.
We 	are 	concerned 	that 	the 	requirement 	that 	a 	place 	of
business 	in 	a 	residence 	be 	waccessible 	by 	the 	public,· 	taken
together 	with 	the 	requirement 	that 	it 	be 	separate 	and
distinct 	from 	the 	living 	quarters, 	may mean 	that 	a 	business
office 	located 	in 	a 	residence 	must 	have 	its 	own 	outdoor
entrance.

Florence 	R. 	Brassier 	Page 	5
even more 	costly 	for 	those 	fringe 	brokers 	whose 	homes 	woulR 	have
to be 	extensively 	reconstructed 	before 	they 	could 	be 	used.
This 	regulation may 	raise 	market 	entry costs 	for 	many 	fringe
brokers 	to 	the 	point where 	entry 	is 	no 	longer 	feasible 	for 	them
and may, 	as 	a 	result, 	cause 	substantial 	loss 	of 	competition 	and
consumer 	harm. 	This 	is 	so 	because 	part-timers 	and 	others 	on 	the
fringe 	of 	the 	market may 	be 	more 	inclined 	to 	adopt 	aggressive,
nontraditional 	competitive 	strategies. 	We 	question 	whether 	any
legitimate 	consumer 	protection 	goal 	could 	outweigh 	the 	loss 	of
competition 	and 	the 	resulting 	consumer 	injury 	that may 	be 	caused
by 	this 	regulation. 	Moreover, 	it 	is 	not 	clear 	to 	us 	that 	this
regulation 	provides 	any 	countervailing 	benefit 	to 	consumers.
We 	recognize 	that Virginia 	Code 	S 54-733 	requires 	that
W[e]very 	resident 	real 	estate 	broker 	shall 	maintain 	a 	place 	of
business 	in 	this 	state. w 	Rowever, 	this 	statutory provision 	does
not 	require 	either 	a 	place 	of 	business 	separate 	and 	distinct 	from
living 	quarters 	or 	an 	outdoor 	entrance 	that 	is 	separate 	from
living 	quarters.
For 	these 	reasons 	we 	urge 	the 	Board 	not 	to 	adopt 	Proposed
Regulation 	S 	3.l.B.
VI. 	Conclusion
In 	sum, 	we 	support 	as 	pro-competitive 	and 	pro-consumer 	the
Board's 	proposal 	to 	change 	Regulation 	S 1.7 	to 	allow 	all 	brokers,
not 	just 	principals 	of 	firms, 	to 	operate 	with 	more 	than 	one
brokerage 	firm. 	However, 	other 	regulations 	con~ining subjective
licensure 	standards 	and 	restricting 	the 	use 	of 	a 	residence 	as 	a 	.
place 	of 	business may 	have 	the 	unintended 	impact 	of 	harming
consumers 	by 	hindering 	competition without 	advancing 	the 	Board's
legitimate 	consumer 	protection 	goals. 	In 	particular, 	these
regulations 	may 	unnecessarily 	limit 	competition by 	excluding 	from
Virginia 	real 	estate 	brokerage 	markets 	competitors 	who may 	be
motivated 	to 	offer 	consumers 	lower 	prices 	or 	new or 	different
services. 	Consequently, 	we 	recommend 	that 	the 	Board 	delete 	or
amend 	these 	regulations.
We 	appreciate 	this 	opportunity 	to 	comment on 	the 	proposed
regulations. 	We 	have 	referred 	to 	a 	Commission 	staff 	report 	on
8 	Such 	brokers, 	in 	order 	to 	enter 	the 	market 	through 	an 	in-home
office, 	would 	be 	faced 	with 	the 	costly 	alternatives 	of 	either
renovating 	their 	residence 	or 	relocating_

Florence 	R. 	Brassier 	Page 	6
residential 	real 	estate 	brokerage. 	We 	would 	be 	happy 	to 	supply 	a
copy 	of 	the 	report 	or 	to 	provide 	any 	other 	assistance 	you 	desire.
Sincerely,