Avoiding misleading advertising tactics and other legal issues

QUESTION:
Recently, a broker in my area was advertising her listings well below the actual market price (or maybe even her agreed listing price), in order to attract multiple offers. This appears to be some sort of “program” or “strategy” used by the broker, and the broker might be training other brokers in this “method.”  The property is listed in the regular section of the Multiple Listing Service (MLS) listings for sale. It is not placed in the MLS section reserved for auctions. Do you see any problems with this method of marketing listings?

ANSWER:
My answer to this question is an emphatic yes, there are issues, absent any other actions or facts to help a consumer understand the situation.  This strategy is problematic under both the Illinois Real Estate License Act (the Act) and the REALTOR® Code of Ethics.  A REALTOR® has both a legal and ethical obligation to present a true picture in all representations made, whether in advertising or anywhere else, i.e. an MLS. If, in the broker’s professional opinion, a reasonable listing price for a property is $500,000; to advertise that property for $150,000 (without any qualifying or explanatory language) is both unprofessional and misleading to consumers.  The facts presented here suggest no specific qualifiers or indications that the property being marketed is the subject of an auction or a bid-collecting situation, where the bidding is to start at $150,000.

Arguably, the situation could be saved by adding provisions such “Bids starting at $150,000,” or “Property subject to auction.” The broker should add language explaining to consumers that $150,000 is not the expected ultimate sales price but a starting point for bids or offers until the market dictates the true selling price. Just how much clarification language is needed to avoid charges of misleading advertising will be the subject of factual analysis in the context of a complaint case.

The $500,000 listing should not be placed in the regular listing section of the local or regional MLS.  If the MLS has a section for auctions, this would be the appropriate spot for this type of listing on these facts. In short, the broker should clearly explain what is occurring.

To advertise or represent a property for sale at thousands below what the actual market value should be without offering any qualifiers or explanation would fail the “reasonable person” test for truthful advertising under both the Act and Code of Ethics.  In addition, this becomes difficult for cooperating brokers in the area who field inquiries from buyers whom, while they might be financially qualified to purchase a $150,000 property, are clearly not financially able to buy at $500,000.  Facts must be assessed to determine whether the marketing price that might start below the expected market value of the property becomes so unreasonable as to be, in fact, misleading.

NOTE: Views expressed are those of the author based only on the facts presented.

QUESTION:
We read that there were some recent amendments to the Illinois Real Estate License Act (the Act). Please summarize those changes.

ANSWER:
Gov. Rauner signed House Bill 5210 which amends the Act and the changes will become effective on Jan. 1, 2019.  Among some technical changes to the Act, there are two substantive changes about which brokers should be aware:

Change #1: The Act currently provides, at Section 10-20(e), that a licensee can form a one shareholder corporation for the purpose of receiving her compensation from the licensee’s sponsoring brokerage company, even though the human licensee is the one that has an independent contractor/employment contract with the sponsoring company. There was always some confusion as to whether the entity receiving the owner licensee’s compensation had to be a corporation. The amended provisions allow for the formation of a one-owner (one licensee) business entity.  Thus, a one-member Limited Liability Company (LLC), could be used for this purpose. Note that the one-owner entity is not licensed as a real estate brokerage, does not conduct its own, separate brokerage business; but it does have a stated purpose of receiving real estate compensation earned by the licensee owner. For clarification, see Section 1450.745 in the current* Administrative Rules under the Act. (bit.ly/RELA_AdminRule) Also, check out Jeff Baker’s recent DR Legal News article on the subject [bit.ly/License_Act_Changes].

Change #2: Another change to the Act is that the branch office license requirement is eliminated. Instead, the Illinois Department of Financial and Professional Regulation (IDFPR) will require the sponsoring brokerage company to maintain a list of physical office locations. Illinois REALTORS® will continue to keep the membership informed as to new developments on IDFPR’s administration of this provision.

*Revised rules pending

2018-10-02T11:24:34+00:00October 5th, 2018|Legal, Illinois REALTOR® Magazine|0 Comments

About the Author:

Elizabeth A. (Betsy) Urbance, General Counsel and Vice President of Legal Services has served the association’s members as Legal Hotline Attorney since 1994. Urbance is a 1984 graduate of Western Illinois University and received her law degree from the University of Missouri School of Law in 1987. She is licensed in both Illinois and Missouri.

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