Real Estate Broker Challenges ‘Insane’ Law Requiring an Office With Landline Phone

A Pennsylvania broker is suing to end the state's century-old requirement that real estate professionals must have a dedicated office separate from their home.

Kevin Gaughen says he spent $35,000 a year on rent, taxes, utilities, and insurance to maintain the 1,000-square-foot converted Lemoyne office he's had since 2017. A Pennsylvania state law requires that brokers maintain a physical office, where they hold licenses and records.

But Gaughen says he, like many brokers, spends most of his time at properties, in showings and with clients in other places. So he says he's seen more state inspectors there than clients.

"To be quite frank, the only reason I have an office is so the government can come to inspect it, and that is insane," Gaughen told reporters after filing the complaint on Wednesday in Pennsylvania state court.

The Pennsylvania Real Estate Commission declined to comment on the lawsuit. But the language of the circa-1929 office requirements in the law state that they're intended to allow for privacy and to ensure brokers have proper oversight of real estate agents and other employees.

Corporate domicile

While real estate professionals don't need to conduct all their business in the office, the state's regulating agency, the Pennsylvania Real Estate Commission, can conduct office inspections a few times a year, according to the law.

The checklist its state inspectors bring when examining offices is pretty specific, too: The office needs a landline phone, filing cabinets, a conference table and a sign outside.

And you can't get away with just a home office, either—offices located in a residence must have a separate entrance.

The commission can issue fines for non-compliance, starting at $250. And it could potentially revoke a broker's license.

Gaugen doesn't think that rule works in the modern world.

"Real estate brokers, we don't spend any time in the office, we're always on the move," Gaugen said. "We're showing houses, we're meeting with clients."

"And like any business person, we've got cell phones. We've got computers. We've got the internet. We can work from anywhere."

Christian Lansinger, of the Institute for Justice, a law firm representing Gaugen, said it views the requirement as anticompetitive.

The lawsuit also argues that the requirement takes housing out of the market, since brokers often use converted residences. Gaugen himself used to rent out his current office space as an apartment, something he'd like to do again.

"This is definitely an arbitrary requirement that doesn't serve the clients or protect customers," Lansinger said. "It just hasn't evolved with the times."

A few other states have some form of office requirements for real estate professionals, including Virginia, Maryland and Illinois. But not many lawsuits have yet challenged those office requirements specifically, Lansinger said.

The Pennsylvania Association of Realtors doesn't have a position on the matter. But it noted in a blog post a few years ago that its legal hotline gets a lot of calls about how the rule works and where brokers can conduct business.