Legal Issues: Advertising

Topic: Advertising

Answers Your Legal Questions

  1. General advertising guidelines and the License Act
  2. Can a licensee offer a cash inducement to a buyer or seller?
  3. Premarketing lots before closing on land transaction
  4. Internet Data Exchange
  5. Advertising on the Internet without involving a real estate agent
  6. Advertising and including agent's name
  7. Advertising and team name
  8. Advertising FSBO listings
  9. Liability in sales based on the virtual tour
  10. The Trouble with Virtual Staging
  11. Can I obtain a managing broker license and not manage an office?
  12. Managing Broker designation in advertising

IAR Wins Settlement Agreement in Advertising Rule Case Against IDFPR - June 2006

1. What are some general guidelines for advertising that a real estate licensee should be concerned about?

Below are some general guidelines for advertising that can be found within the body of the License Act. See Sections 10-30, 10-35 for License Act requirement on advertising in the Real Estate License Act (.pdf file). Also see 1450.715 and 1450.720 of the Rules for the Administration of the Real Estate License Act of 2000. Article 12 of the REALTOR® Code of Ethics offers additional guidelines for advertising.

  • The general requirement for advertisements and communications is that they not be in any way false, deceptive or misleading to consumers, when taken as a whole. The ad cannot be misleading or deceptive on its face, nor can it be misleading in practice.
  • The broker's business name must be included in the ad, but there is no specific type size requirement.
  • Current License Act and rules are silent as to phone numbers. It would likely be okay to include a phone number that differs from the general office number so long as it is in no way false, deceptive or misleading, and it is permitted by the broker of the office.
  • A sponsored or inoperative licensee, when not using his or another broker's services, may advertise "by owner." However, any "for sale by owner" sign or ad must contain the statement "broker owned" or " agent owned." "Solely owned" means the licensee (1) has 100% ownership alone, (2) has ownership as a joint tenant or tenant by the entirety, or (3) holds 100% beneficial interest in a land trust.
  • Beyond advertising requirements, further written disclosure is legally required when a licensee has any ownership interest in the subject property (See Section 10-27 of the License Act).

2. May a licensee offer a cash inducement to a buyer or seller?

It is not a violation of the License Act to offer cash or another type of inducement to a party to a transaction. It is still illegal, however, to offer compensation to an unlicensed person for referring business to you.

A broker must be certain that the inducement is going directly to the actual owner of the property he is listing or to the party taking title to the property. The License Act further requires that whenever a licensee advertises merchandise or services as being "free" that all conditions of the offer must appear in the ad. This means that if you place a clause in the ad saying, "call the office for further details," you may have an incomplete ad. You must place all limiting conditions of your offer in any advertising of the promotion, e.g. offer contingent on sale closing.

A listing or selling office that offers an inducement to a buyer should notify the seller in writing prior to submitting an offer that the buyer will be receiving the cash or merchandise.

3. I am a broker representing a buyer/developer. He is now under a contract to purchase the land for subdivision and he wants to "pre-market" the lots before closing on the land transaction. May he list them on MLS, or otherwise advertise them for sale?

The important fact to remember here is that title does not transfer till the purchase of the land is complete. In other words, the developer/buyer cannot transfer good title to the land, or any part thereof, to any subsequent buyer until the developer/buyer becomes the owner of the property. Title does not transfer until the land transaction closes. As any real estate practitioner knows, a lot can happen between the time a contract is formed and the closing of the transaction. (This is true especially in subdivision development where the developer must undoubtedly meet requirements of the Illinois Plat Act and any other applicable local regulations before the land can be successfully subdivided, which specific requirements will not be addressed for purposes of this question).

On the other hand, the developer could advertise what he does have for sale. At this point, on the facts above, he owns only rights in the contract to purchase the land. He could transfer those rights to a third party (assuming provisions in the land purchase contract would allow this). He, along with your help as his real estate representative, could probably even market this in some manner. However, you must keep in mind your duties under the License Act to avoid any advertising that would be in any way false, deceptive or misleading. Thus, you would want to be certain when doing any advertising that the ads contain clear language that sufficiently explains the situation. You might even do an ad campaign soliciting interest should the land transaction be consummated. This becomes the developer's business decision based on your advice and input from his other advisors.

Developers sometimes handle "pre-marketing" by taking deposits and contracts that are specifically conditioned upon the consummation of the first land sale from potential lot buyers. In addition, developers have actually sold options to potential lot buyers contingent upon consummation of the land sale.

Regarding your question about listing on the MLS, there are a couple concerns. First, under the License Act (and probably MLS rules), you must have the written consent of the owner to advertise the property for sale. Keep in mind, on these facts, you do not yet represent the owner. You represent the contract buyer. Second, if the land was listed with another brokerage company, that firm may have the exclusive right to market the property for sale pursuant to an exclusive right to sell agreement. As a result, without some agreement with the current listing broker, you could not expose the land (or subdivided lots) to the MLS until title transfers and your developer client owns the land.

The situation might also be that the developer went directly to the landowner that was not represented by another broker to effect the purchase of the land. In that case, you probably need to get permission of the landowner to list the land as available for sale. The terms of the purchase contract between the developer and the landowner may actually contain the necessary permission to list, so you should check that contract for such a provision.

4. Please give a short description of NAR's Internet Data Exchange Policy (IDX).

I think it is most helpful to describe this policy in terms of Broker Reciprocity. Simply put, it is a method that has been adopted by many local MLSs whereby the members give each other permission to post active listings on members' public Web sites. In other words, ABC Realty, Inc., by virtue of its membership in the MLS with an IDX policy in place, gives XYZ Realty permission to post ABC's listings on XYZ's Web site and vice versa. According to NAR's policy, those MLS members not wishing to participate in the Broker Reciprocity program can opt out on a blanket or listing by listing basis. A broker should not however, try to opt out on a listing by listing basis to keep his listings off of other Web sites while still displaying other members' listings on his own site.

NAR provides a list of guidelines and options from which the local MLSs can choose. Each MLS has adopted those options that best fit its members' needs. A list of the NAR options is given below:

  1. The MLS might prohibit display of confidential information (i.e. cooperating fees offered to other offices).
  2. The MLS might require that any listing displayed identify the listing firm.
  3. The MLS might require that the identity of the listing agent be included.
  4. The MLS might require that the information displayed not be modified (to protect MLS copyrighted formats for display of listing information).
  5. The MLS might require that the display of other Participants' listings indicate the source of the information being displayed and require Participants to refresh that information at least once every seven days.
  6. The MLS might require the Participants to indicate on their Web sites that the information being provided is for consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. (i.e. don't sell the listing information to moving companies).
  7. The MLS might establish reasonable limits on the number of downloads available in response to an inquiry.
  8. The MLS might limit the right to display other Participants' listings to only those offices holding membership in that MLS.
  9. You should check with your local MLS as to the options adopted for your IDX policy.

Licensees must remember that regardless of the options selected by their MLS, any advertising must still present a "true picture" to be in compliance with the Act and the Code of Ethics. Thus, if other firms’ listings are displayed on a Web site in front of a password-protected area or firewall, that information is considered advertising under the Act, and must identify the listing firm.

5. I have seen several Internet-related businesses that appear to offer assistance to homeowners to help them sell their own homes without involving a real estate agent. Is this legal?

We should begin this discussion with a reminder that anyone who owns a home is free to try to sell it on his/her own. However, a homeowner may also choose to enlist the services of a real estate agent to assist in the sale of the home. Now, we need to analyze what the Illinois Real Estate License Act of 2000 (the Act) says relative to brokerage activities, thus requiring the person or entity acting as a "broker" to have a real estate license. Let us first look at some key provisions of the Act, and then analyze some sample fact situations.

The Act contains the definition for "broker" as any person or entity who for another and for compensation performs any of the activities enumerated at Section 1-10. Specifically, if a person "assists or directs in procuring or referring of leads or prospects, intended to result in the sale, exchange, lease, or rental of real estate," and that person (or entity) is acting on behalf of someone else, and expects some form of compensation (direct or indirect), a real estate license would be required. (Section 1-10, definition of "Broker," subparagraph (8)).

There are also certain exemptions to the licensure requirement found at Section 5-20 of the Act. There is an exemption for “any medium of advertising in the routine course of selling or publishing advertising along with which no other licensed activities are provided.” (Section 5-20(9)). The question then becomes, where is the line between providing space for advertising and assisting in the procurring of prospects for the sale or lease of real estate?

Let us assume facts where ABC, Inc. hosts a Web site in which it sells space on its site to homeowners where they may post their own ads relating to the sale of their property. ABC, Inc. provides the space and the homeowner pays some flat fee for the space. ABC, Inc. does not dictate the content of the ad, but might only review it to be certain it does not violate other general advertising laws. This fact situation would appear to fall under the "advertising" exemption of Section 5-20(9).

Now let us consider facts whereby ABC, Inc. hosts the Web site and also provides prefabricated signs to the homeowner. These are "for sale" signs that the homeowner purchases from ABC, Inc. So, not only has ABC, Inc. provided space for the homeowner to place an ad on the site, ABC, Inc. has provided signage to assist the homeowner in selling the home. If the homeowner is paying ABC, Inc. for the creation of the sign, these facts may put ABC, Inc. outside the exemption in the Act and into the definition of an entity assisting or directing the procuring of prospects for the homeowner, because ABC, Inc. is receiving compensation for these services.

If we take the fact situation one step further and add an element by which ABC, Inc. not only provides ad space on its Web site, provides signage to the homeowner, but also provides some sort of informational packet that gives the homeowner tips or advice of any kind relative to selling his own home, and ABC, Inc. gets any sort of compensation for these services, ABC, Inc. would need a real estate license in the State of Illinois, on these facts.

As always, the answers to these questions depend on the actual facts in any given situation and those facts would need to be analyzed by the Ill. Dept. of Financial and Professional Regulation in accordance with the provisions of the Act.

6. I was reviewing the advertising guidelines in Section 10-30(f) of the License Act (the Act) and it appears that I must include the agent's name in all advertising even if I am the managing broker and just want to do some general advertising for the company. Is this true?

No. Admittedly, Section 10-30(f) of the Act might seem to require that an agent's name be included in all of a real estate firm's advertising. However, the idea behind Section 10-30(f) of the Act is that business cards are an advertising medium. As a result, an agent’s business card must include the agent’s name and the name of the agent's sponsoring broker.

There is, however, a rule in place that clarifies this question. The language of the License Law Rules Section 1450.715(d) states as follows: "Nothing in Section 10-30 of the Act shall require a sponsoring broker to include the name of one of its sponsored licensees on signs or other general advertising of the sponsoring broker." So, this language in the Rules makes it quite clear that a sponsoring broker is free to run ads that do not include an agent's name so long as the name of the real estate firm is identified in the ad.

7. I am a member of a team within a sponsoring broker's company. If my team has its own "team name," may I use that name in my advertising?

I have heard and seen many advertisements that do contain a team name that might be different than the sponsoring broker's company name. It is important to consider what the Real Estate License Act of 2000 (the Act) and the rules under the Act say on this issue. First, consider that a sponsored licensee must advertise under his/her sponsoring broker's company name. (Section 10-30(d)). Next, consider that the content of advertising must not be false, deceptive or misleading in any way. (Section 10-30(a)). Third, consider that a sponsored licensee is prohibited from advertising under his/her own name.

So, if a group of sponsored licensees, or one licensee together with an unlicensed assistant(s), operates under an assumed "team name," the sponsored licensee(s) would not be in compliance with the Act and its rules if it is an individual team member that registered this name as an assumed name (i.e., the team registered the team name as a DBA, "doing business as"). However, if you look at Rules Section 1450.120 regarding assumed names, you will see that the sponsoring broker can register and do business under an assumed name. So, while the sponsored licensees could not establish and register a DBA, if the sponsoring broker were to register the team DBA with the appropriate authorities, and assign this name to the team within the sponsoring broker's office, the advertising using the team name could be done in accordance with the Act and the rules.

If the sponsoring broker is affiliated with a franchise, the sponsoring broker's company name must appear in all ads showing that affiliation.

It is also important to remember that the ad content must not be deceptive or misleading and must still contain the sponsoring broker's company name or a properly registered assumed name for the sponsoring broker. There are certainly other legal issues to consider when operating as a "team" within a brokerage company. You should contact your company legal counsel for specific advice as to ad copy and for advice on how to register an assumed name.

8. I am a licensed real estate agent in Illinois and I would like to have a section of my Web site available for "for sale by owners" to post their own properties for sale. Would this be legal?

There probably is a way to do this legally, but you should consider the following before you offer a section of your Web site or provide a separate Web site for "for sale by owners" (FSBOs). First, you should check your independent contractor or employment agreement to see if there are any restrictions, and also make sure that your managing broker has no objections if you offer this sort of "service." Check any office policies that might be in place for your brokerage firm. In addition, you need to keep in mind that all of your advertising must be done in the name of your sponsoring broker's company. Also, all representations that you make to the public must be truthful and not misleading. So, if you make space available to FSBOs, it should be clear to the public visiting this area of your Web site or some site that you provide, that these are not your company's listings.

Finally, one of the largest difficulties may involve how or whether to police or control the content of the FSBO ads. If the items posted are not under your control, this could become a troublesome issue. You should ask your broker and your company's attorney how you might post some language that makes it clear to the public that you are not responsible for the content of the FSBOs ads. You certainly would not want to risk a complaint that you have violated fair housing regulations based on content found in the FSBO ads, just to point out one example. As you can see, this seems like a simple concept but it is not one that should be entered into without serious business and legal considerations.

9. A listing agent was concerned when a buyer purchased a property without ever physically seeing the listed property. The buyer was a soldier on active duty in the military and was unable to do a physical walk-through. He had, however, viewed a virtual online tour of the property that did not show marks on the basement walls from previous water damage in the basement. Buyer bought the property without ever actually seeing it, moved in, experienced flooding in the basement and threatened to file a lawsuit and/or License Law complaint against the listing agent/office for misrepresenting the property. What result?

I don't know that there is a clear answer to this question. However, we may see his type of scenario more as consumers and clients rely on technological means to examine real estate without physically walking through the property. I think we need to start by asking a few more questions. What is a virtual tour really? Is a virtual tour just a form of advertising or is it really supposed to be a "tour" that could be used in place of a physical walk-through? The answer here may very well depend on actual facts in a particular situation.

Let us consider a couple different scenarios. First, assume that the listing agent assists or oversees the creation of a "virtual tour" that will appear on the agent's Web site along with other information about the listing. In this scenario, let us also assume that the "tour" consists of a few still photos showing views of the main rooms/areas in the property. Also, we don't know anything about the circumstances of buyers viewing the property on-line. The listing agent might even consider adding language to explain that this tour is provided for marketing purposes only and should not be used in place of a physical visit. On these facts alone, I think the listing agent would have a pretty good argument that the virtual tour constitutes advertising only and the buyer should have made an effort to physically see the property. Also, the listing agent would want to make sure the seller client has completed the required disclosure form that would be given to the buyer prior to becoming bound on any contract. Thus, the seller should have the argument that any known defects have been disclosed under the Illinois Residential Real Property Disclosure Act.

Now let us consider some facts on the other extreme. Suppose there is a virtual tour included with other information on the listing agent's Web site. The tour is one that is more like a movie version and it leads the viewer on a virtual "walk" around every room. In our example, the listing agent and seller take great care not to show the viewer the side of the basement where the water stains are present on the walls. Let's consider that this buyer is a soldier on active duty overseas and his only access to his future home prospects is via the Internet. The buyer views the virtual "movie-like" tour and based on his virtual walk-through, he contacts his agent to make an offer on the property sight unseen. The buyer agent does so, the seller accepts the contract, the seller supplies all required disclosure reports and they consummate the deal. When the soldier moves in to his new home, the basement floods terribly after the first rain and the soldier is looking for someone to sue.

Of course there are many questions here. One question would be whether the seller disclosed the water problem on his seller disclosure report. Another might even be whether his buyer's agent had any duty to do a physical inspection of the property in place of his buyer client knowing his client's special circumstances. And still another would be whether or not the purposeful exclusion of the water-stained wall from the tour was a misrepresentation of the physical condition of the property. If the buyer agent or the buyer walked through the home, this defect would have been patent or obvious. The seller's duty is to disclose latent or hidden physical material defects that would not be obvious to someone walking through the property. On the facts given above, I think there could be an argument that the purposeful exclusion of the water stained wall added to the fact that the listing side knew the buyer was not going to be able to view the property himself could provide a basis for liability on the part of the seller and his agent.

NOTE: Buyer's Agent Role in the Virtual Sale

This was not part of the original question, but we should also consider the duties of the buyer's agent. I do think the buyer's agent should take care that she is fulfilling her statutory duty to serve her buyer client's best interest. On the latter example, I don't think it would be out of the question for the buyer agent to share in the responsibility to the buyer. The question for the buyer agent becomes whether or not there is any way to protect her against liability. I don't think this would be easy to do given the buyer agent's statutory duties to the buyer and having the knowledge that the buyer will not be able to view the property himself. In our example, the wall stains are obvious to the person who walks through the property. The only protection for the buyer's agent might well be the affinity that the buyer develops for their agent that may result in the desire not to sue or involve them in the dispute. The buyer's agent should also take great care to recommend that inspections by experts be done in cases like these.

As technology changes the practice of real estate brokerage and very likely changes the way consumers and clients behave, everyone should take great care to think how the information is being presented and how it will be used and/or relied upon. In the past you may have been trying to market the property and put "the best foot forward." However, you may now need to indicate that this material is for marketing purposes and should not be relied upon in lieu of a physical inspection of the property or; in the alternative, you may need to present a more balanced view in the virtual tour. And, as always, agents should remember to consult with their brokers and company legal counsel for specific guidance and advice.

10. I have heard of companies that offer “virtual staging” to real estate agents in order to enhance their ­listings. This service seems to be used in situations where the property is vacant, in disrepair or some combination of these things. Should I have any ­concerns if I work with one of these companies?

A: Yes, you should be concerned to the extent that you have legal and ethical duties to make accurate representations of properties that you are marketing for sale or lease. Your advertising must not be false, deceptive or misleading. Let’s consider an example: You have a vacant home listed for sale and you are going to place advertising on the Web. You would like to offer a virtual tour and you hire a virtual staging company to help you. If you add furniture and other items to each vacant room that does not exist you might be able to argue that even though you have changed the appearance of the property you are not being deceptive since the room exists as it is and the furniture is not part of the real estate. On the other hand, what if the virtual staging company removes the water stains on the basement wall or cracks in the ceiling? This certainly seems to have gone too far and the ads are now misleading. In the abundance of caution, I would suggest that any time an agent uses this type of service and is representing something as fact that is not really there it should be noted somewhere obvious in order to avoid any confusion.

You should also consider situations where the virtual stager wants to help you improve the “virtual curb appeal” of a listing. Let’s say the stager adds a fresh coat of paint, maybe some landscaping and a “new” garage door that is not at all like the actual one that is barely hanging on in a lopsided manner. On those facts, I think you can see that this could be considered misleading. If you are going to “jazz up” your listing, take care to explain that you have used a virtual staging service and then be prepared to make the argument that you are not being misleading when and if someone complains that this is not the actual state of the property.

11. If I am the managing broker on file with the Illinois Department of Financial and Professional Regulation (IDFPR), as the managing broker for my company must I include this designation in my advertising?

Generally, yes, on these facts you would need to include managing broker when you use your name in your advertising. However, there is now an exception in the Act when your name is on a “for sale” or similar sign (e.g. a “for sale” sign name rider). In that case you do not have to include managing broker on the sign.

If you are a managing broker licensee, but not designated with IDFPR as a managing broker for your company, you must not use the term managing broker in your advertising. IDFPR says you can use the term “broker” with a modifier that is truthful, not deceptive in any way, and otherwise meets the advertising guidelines of the Act.

 

Updated January 2012

 

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