Brokers often call the WRA Legal Hotline with questions about marketing prizes or premiums. REALTORS® must abide by license law advertising rules as well as the REALTOR® Code of Ethics requirements when offering prizes or premiums. Before beginning a promotion, company policy and procedure should also be reviewed. The most frequently discussed considerations and limitations are addressed in this “Best of the Legal Hotline” article.
Promotions and incentives
What should a broker consider or be concerned about when advertising a promotion, such as providing a voucher for a free professional cleaning service at closing?
Incentives may be offered to sellers or buyers to induce them to sell or purchase real estate or to work with a particular broker. Incentives can be offered in any amount as a gift certificate, cash or personal property such as a home warranty plan, a savings bond, an appliance or some other item. Such incentives must be clearly documented in advance — prior to closing. The party should have a clear and thorough understanding of the incentive’s terms and conditions. This documentation in advance is necessary to establish that the incentive is not a fee-splitting arrangement with an unlicensed individual, which would be illegal under Wisconsin law.
The content of the promotion must comply with Wis. Admin. Code § REEB 24.04, which requires that advertisements not be false, deceptive or misleading to the public. As well, Standard of Practice 12-1 of the REALTOR® Code of Ethics indicates that “REALTORS® may use the term ‘free’ and similar terms in their advertising and in other representations provided that all terms governing availability of the offered product or service are clearly disclosed at the same time. (Amended 1/97).” Also see Standard of Practice 12-3, which relates to offering prizes and premiums, in the gray box on the next page.
The law does not allow the broker to engage in false representations. One way to assure proper communication in an advertisement is by obtaining an objective opinion: ask a friend, who is not involved in real estate, to read your advertisement and explain the terms and conditions to you based only on the content of the ad. Be sure your friend can answer these two questions: do you understand what is being offered, and can you explain what must be done to earn the incentive? If you have to add additional explanation to make the ad clearer, the ad is not finished yet.
Standard of Practice 12-3
The offering of premiums, prizes, merchandise discounts or other inducements to list, sell, purchase, or lease is not, in itself, unethical even if receipt of the benefit is contingent on listing, selling, purchasing, or leasing through the Realtor® making the offer. However, Realtors® must exercise care and candor in any such advertising or other public or private representations so that any party interested in receiving or otherwise benefiting from the Realtor®’s offer will have clear, thorough, advance understanding of all the terms and conditions of the offer. The offering of any inducements to do business is subject to the limitations and restrictions of state law and the ethical obligations established by any applicable Standard of Practice. (Amended 1/95)
Monetary incentives
What if a broker offers an incentive that is a monetary or cash incentive?
Any time a broker offers a buyer incentive, the broker must be aware of potential pitfalls, such as possible impacts on a buyer’s financing or procuring cause implications. In addition to the previously discussed advertising requirements, the buyer should consult with the buyer’s lender about the offered incentive. The buyer’s qualification for any specific loan may be limited by the receipt of cash incentives. It is important to assure the incentive is timely disclosed to the secured lender to avoid any claim of mortgage fraud. As to procuring cause, a buyer who changes brokers midstream to receive a monetary incentive may leave two brokers claiming to be procuring cause.
Although the buyer may choose to work with an MLS broker offering buyer incentives, the drafting of that offer does not assure that the drafting broker is procuring cause. If a cooperating broker is offering a cash incentive and drafts the offer for the buyer, that broker may or may not turn out to be the procuring cause of the sale. Brokers in this situation cannot rely on receiving any commission and may need to stand ready with other resources to fund the incentive.
Prizes for "likes"
A broker discovered a Facebook page where another broker offers an entry into a prize drawing for anyone who “likes” the Facebook page. Are licensees allowed to offer prizes in this manner?
The same rules that apply to print advertising also apply to social media and online advertising. The fact the information is going out via an electronic means does not change the Wisconsin Administrative Code advertising rules and the applicability of the Code of Ethics.
The primary concern in such a trade for liking the broker’s Facebook page for a chance at a prize offering is whether the drawing for a prize would be part of an illegal lottery under Wis. Stat. §§ 945.04(5) & 945.02. A contest is generally defined as a lottery if a participant must give consideration to enter and the award is determined by chance. “Consideration” is anything that would be a financial or commercial advantage to the promoter, such as the participant sending in a coupon or visiting the store, with some exceptions.
For example, a contest in which every licensee who showed one of a broker’s listings is eligible to enter a drawing for a vacation is arguably an illegal lottery. The fact that the agents are showing the broker’s listings is consideration to the broker, and the drawing is by chance. When considering the action of liking the broker’s Facebook page, this would appear to have a consideration component, more than just visiting a location.
The statutes provide that just visiting a business location without being required to pay an admittance or buy anything is not deemed consideration. Thus a drawing for a prize may be held at an open house provided everyone who attends is eligible to enter the drawing. See the Department of Agriculture, Trade & Consumer Protection’s Guide to Contests and Promotions online at datcp.wi.gov/Consumer/Law_at_Your_Fingertips/Prizes_and_Sweepstakes/Illegal_Lotteries to learn the characteristics of an illegal promotion as well as www.doa.state.wi.us/divisions/gaming for definitions and information about lotteries and other gaming.
Finder's fees
The broker’s condominium listing has been tough to sell. The seller and broker have brainstormed different promotion ideas. The two would like to advertise to the rest of the condominium association owners that they could earn a “finder’s fee” if they direct a buyer to the listing. Would the seller need to offer this “finder’s fee?”
Wis. Stat. § 452.19 prohibits real estate brokers from paying referrals or finder’s fees to unlicensed individuals. Under this statute, a broker cannot compensate unlicensed persons for referring others to the broker. In this situation, another condominium owner cannot be compensated by the broker for referring a friend or a prospective buyer to the broker.
Wis. Stat. § 452.19 provides, “No licensed broker may pay a fee or a commission or any part thereof for performing any act specified in this chapter or as compensation for a referral or as a finder’s fee to any person who is not licensed or registered under this chapter or who is not regularly and lawfully engaged in the real estate brokerage business in another state, a territory or possession of the United States or a foreign country.”
The seller may be able to offer fees to other unlicensed individuals in exchange for the names of prospects. It is best if the seller advertises this promotion, but if the broker is asked to advertise this, the promotion should be authorized in the listing contract or an amendment thereto. Any language used to advertise the incentive or finder’s fee offered by the seller should clearly state that “the seller is offering …” or “the seller will pay …”
Tracy Rucka is Director of Professional Standards and Practices for the WRA.