Commercial Real Estate Industry Benefit From Overturned Turf S

[Tony Hardy]

The United States District Court for the Western District of Kentucky issued an order declaring Kentucky's so-called "turf state" laws unconstitutional. The "turf state" laws, which are practiced in seven other states, prohibit cooperation between Kentucky real estate brokers and out-of-state real estate brokers.
According to the court's ruling, "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 purchase and sale of real
estate is often a costly and complex transaction," the decision continued.
"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."
Rejecting Kentucky's defense of its turf laws on consumer protection
grounds, the court noted that "the complete exclusion of a buyer's broker
from the transaction may well render the foreign buyer/lessee more
vulnerable to fraud. While licensure protects the public from unscrupulous
and incompetent brokers," the decision continued, "the court cannot discern
how prohibiting cooperation between an out-of-state broker and a Kentucky
licensed broker reinforces this protection. It appears that the
prohibitions' main purpose is to ensure that virtually all commissions are
kept in Kentucky. This is achieved, however, at an unconstitutional cost to
interstate commerce."
The lawsuit, which alleged that the turf state laws harmed consumers by
preventing access to the national market for commercial real estate
brokerage and depressing real estate prices, was filed by a group of
consumers, real estate brokers with Marcus & Millichap Real Estate
Investment Services, a national commercial real estate services firm based
in Encino, Calif. leading the suit.
Harvey E. Green, president and chief executive officer of Marcus &
Millichap, called the ruling a victory for all consumers. "The court's
ruling has important implications for other 'turf states' and vindicates
the rights of commercial real estate investors, who should not be forced to
choose between seeking fair market value for their property or violating
state laws," says Green, who led the lawsuit on behalf of Marcus &
Millichap. "This action was about open markets and fairness, not just for
Kentucky property owners, but for taxpayers and those who purchase property
in all turf states, regardless of where they reside."