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LOUISVILLE, KY-A group of commercial property owners and real estate brokers has filed a federal lawsuit challenging certain regulations and practices by the Kentucky Real Estate Commission. Specifically, the suit alleges that the commission has misused its regulatory authority to exclude regional and national commercial brokerage firms from the Kentucky market.

The five-member commission, according to its website, is empowered to “regulate state licensing and education of real estate brokers and sales associates and to safeguard and protect the public interest.” But the plaintiffs argue that the commission is working to protect special interests by ensuring broker payments stay within the state.

Stuart Cobb, assistant state’s attorney general, is representing the commission in the litigation. Cobb says that contrary to the allegations, the regulations set forth by the commission are intended to allow for the discipline of brokers who engage in unethical conduct or fail to provide competent service.

“They’ve been trying to represent Kentucky as protectionist, as trying to shut out national firms, and that’s not our intention at all,” Cobb tells GlobeSt.com. “We have reciprocity with 19 states, and it’s simple to become licensed in state. The regulations are hardly a way to protect local brokers against national competition. But to broker in Kentucky, you have to be willing to submit to the jurisdiction of the real estate commission.”

According to new regulations outlined in the commission’s literature, it is “improper for a broker licensed in Kentucky to aid, abet or otherwise assist any individual who is not actively licensed in Kentucky to perform real estate brokerage in this state.” The prohibition includes a Kentucky broker assisting a non-Kentucky licensed individual with listing, selling or managing Kentucky property for a buyer or seller. A non-Kentucky licensed individual includes someone who may be affiliated with a national franchise and may have a license in another state, but is not actively licensed in Kentucky.

It is this regulation that has Palo Alto, CA-based Marcus & Millichap, as well as owners and investors up in arms. The commission’s adoption of licensure laws violates the rights of Kentucky property owners and others under the Commerce Clause of the United States Constitution, they say. The regulations severely limit access to capital markets, preventing interstate trade and harming property values.

Doug Bibby, president of the Washington, DC-based National Multi Housing Council, says the group fully supports the plaintiffs in the lawsuit. It is so supportive, in fact, that the organization is considering filing a letter of amicus regarding its official position on the matter.

“If you over-regulate a sector of the market, you disrupt it and create inefficiencies; you are less likely to get optimal prices or the right mix of potential investors,” Bibby tells GlobeSt.com. “If you can’t bring investors or bring capital to a market, that market suffers.”

Bibby admits he first learned of the commission’s regulation after being contacted by Marcus & Millichap. With thousands of initiatives taking place at the state level nationwide, it’s difficult to keep track of every piece of legislation, he admits. But this issue was one the organization felt it needed to address. “The people they are trying to protect are on the board,” Bibby says.

The commission’s board members include: Lois Ann Disponett, owner and principal broker of Lois Ann Disponett Real Estate Co. in Lawrenceburg; Arvel McMahan, principal broker of Coldwell Banker McMahan Co., Delbert Ken Perry, principal with Ken Perry Real Estate; Ron Smith, principal broker of Ron Smith Realty in Louisville; and Michael E. Plummer a practicing attorney in Northern Kentucky.

Bernard Haddigan, managing director with the Atlanta office of Marcus & Millichap, says national and international investors that have solidified relationships with national brokerage firms should not have to surrender their associations to comply with Kentucky regulations. Rather than forging a new relationship with a local broker, Haddigan says, investors will simply look for other investment markets.

“All brokers are not created equal; they come with a wide range of skill sets and a wide range of expertise,” Haddigan says. “With this regulation, the state is losing a wide range of national and international capital. All we’re trying to do is join a cause that preserves open markets.”

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