Last month, the FTC staff sent a letter warning North Carolina’s General Assembly that a pending bill regarding the state’s real estate appraisal board could run afoul of competitive principles. The staff notes that it is prepared to investigate and recommend challenges to potentially anticompetitive actions by state appraisal boards. However, in light of Supreme Court precedent on state sovereign immunity, it is not certain that the FTC could successfully challenge state board actions with which it disagrees.

The North Carolina bill aims to clarify standards regarding acceptable compensation for real estate appraisers. The FTC staff letter explains that under Dodd-Frank’s amendments to the Truth in Lending Act, appraisal fees must be “customary and reasonable.” In rulemaking adopted pursuant to that law, the Federal Reserve has said this means that “the marketplace should be the primary determiner of the value of appraisal services.” The rule provides further that appraisal fees will be presumed to be “customary and reasonable” if: (1) they are reasonably related to recent rates paid for comparable appraisal services in the same area, pursuant a six-factor analysis, or (2) they are determined according to a survey of “objective third-party information.”

States are free to impose their own regulations to ensure compliance with Dodd-Frank’s appraisal independence requirements. But the FTC letter warns that the North Carolina bill creates narrower standards than the Federal Reserve rule for determining whether fees are presumptively customary and reasonable. It explains that although the bill contains some language from the federal six-factor method, “in actual practice” the bill may limit evaluation of fees to the survey method. Furthermore, according to the staff, the bill expands the definition of customary and reasonable appraisal fees to include “offers of compensation” and to include “recent rates paid by the consumer.” These divergences from the Federal rule could inflate the prices for appraisal services, according to the letter.

The letter notes further that the Commission recently filed an administrative complaint against the Louisiana Real Estate Appraisers Board, alleging that through regulations on appraisal fees, that board—which is controlled by active participants in the appraisal industry—is unreasonably restraining price competition for appraisal services. By contrast, the North Carolina bill has not even been passed, much less has the appraisal board taken any action pursuant to the new law.

Should the FTC ultimately decide to bring a complaint, it will probably face an argument that the appraisal board is entitled to immunity under the Supreme Court’s 1943 decision in Parker v. Brown, which interpreted the antitrust laws to confer immunity on anticompetitive conduct by states acting in their sovereign capacity. In a more recent case, the Supreme Court explained that when a nonsovereign actor—there, a state board regulating the practice of dentistry—is controlled by active market participants, it enjoys Parker immunity only if (1) the challenged restraint is clearly articulated and affirmatively expressed as state policy and (2) the policy is actively supervised by the state. That case is called North Carolina State Board of Dental Examiners v. FTC.

The FTC staff letter states that the North Carolina appraisal board “appears to be controlled by active market constituents,” so that any board activity pursuant to the house bill “would be subject to federal antitrust law unless independent state officials actively supervise the Board’s activities, assuming the bill satisfies the clear articulation requirement.” Accordingly, the letter “urge[s]” the General Assembly to consider whether non-market participants should independently supervise the appraisal board. More generally, it further “urge[s]” consideration of whether the proposed “will promote competition and benefit consumers.”

It is yet to be seen whether the North Carolina legislature will take the FTC’s urgings into account in its lawmaking process.