"Be Careful Out There"

“BE CAREFUL OUT THERE”

Last week’s Realtor Magazine highlighted a June survey by the National Association of Realtors® showing a jump in the number of members using social networking sites for business purposes to 84 percent from 33 percent a year ago. Wow! If you’re one of them, or considering becoming one, we urge you to keep reading.

WEB 2.0 Use it Wisely To Avoid Liability, by G.M. Filisko, an attorney and writer based in Chicago.

What’s not to love about Web 2.0? If you’re like a growing number of sales associates and brokers, you’ve created a profile on Facebook, MySpace, LinkedIn, and other social networks; you blog on your own website; and you’re about to Tweet your followers that you’re staying on top of industry news with the latest issue of New Jersey REALTOR®. You’re building your brand – and it costs you nothing but your time.

Smart as that marketing strategy is, it’s critical not to forget the legal hazards of immersing yourself in Web 2.0 technology. “The Internet is like so many other tools that have come into the real estate field over the years,” explains Mike Thiel, associate counsel at the NATIONAL ASSOCIATION OF REALTORS® (NAR) in Chicago, Ill. “There’s a much steeper adoption rate than there is an understanding of all the potential legal risks.”

Think the risks seem remote? Consider Lucas Lachuga, a Miami, Fla. Sales associate who was dumped by EWM, REALTORS® in January 2008 after he and the firm were slapped with a $25 million defamation suit by developer Tibor Hollo. Lachuga had blogged that Hollo had gone bankrupt in the 1980s – which proved to be untrue – and predicted that the high-rise condo Hollo was developing would have a high default rate. In December 2008, Lachuga publicly apologized to Hollo for those comments to settle the lawsuit.

How can you avoid being dragged into a similar dispute? Here’s a primer.

Know the Jersey Rules

The New Jersey Administrative Code, which sets forth the regulations governing brokers and sales associates, has been amended to explicitly cover electronic media. “The requirements for broker and sales associate advertising are fairly straightforward,” says Daniel Posternock, a partner at Barron & Posternock, LLP, a Moorestown, NJ law firm that advises real estate brokerages. “Without question, advertising encompasses all electronic media, including e-mail and the Internet.”

Marshall McKnight, public affairs officer for the New Jersey Real Estate Commission (REC), confirms that view. Discussions by brokers and sales associates about real estate issues online at blogs and social networking sites – such as Facebook and MySpace – are considered advertising, he says.

The rules are easy to violate with a careless post. For instance, all advertising by sales associates must include the name under which you’re licensed and the name of the broker through whom you’re licensed. So a quick Tweet on Twitter stating, “Just listed: Four-bedroom, two-bath home in great neighborhood in Moorestown. Call Kathy at (555) 555-1212” would run afoul of the code because it doesn’t identify the associate’s full name or the name of her broker, among other possible violations.

“That regulation might be simply addressed by having an appropriate electronic signature automatically appear after each communication,” explains Posternock. Example: Kathy Smith, The Smith Team, ABC Realty, Moorestown, (555) 555-1212.

How is the REC policing online activities? “The commission receives complaints from consumers, attorneys, and the industry,” explains McKnight. “It also opens complaints on its own and does spot checks, which could include the Internet.”

If you think the REC has enough work on its hands that it can’t follow your online meanderings, you may be wrong. “One sales associates told me he’d been followed on Twitter by the Colorado Real Estate Commission,” explains Brad Hands of Brad Hanks Seminars in Denver, Colo.

Hanks adds: “Even if the real estate commission isn’t watching, you can bet your competitors are. If you’re not careful, you can find yourself in front of a real estate commission or ethics committee trying to justify yourself.”

A code violation could also mushroom into a bigger problem. A violation of the administrative code in certain circumstances might be considered a violation of the New Jersey Consumer Fraud Act, exposing a licensee to treble damages and reimbursement of all related fees and costs.

For more information on complying with the regulations, contact the REC’s consumer assistance hotline at (609) 292-7272 or (800) 446-7467. The REC also has an investigator available to answer questions from the industry, says McKnight.

Another Code to Follow

You must also comply with the REALTOR® Code of Ethics, which has been amended to cover online activities. Here are a few highlights:

The Code requires that you be honest and truthful in real estate communications. “While that’s pretty self-explanatory, we’ve been running into people who are blogging and aren’t being careful,” explains Marcie Roggow, a Sioux Falls, SD REALTOR® who teaches seminars on the Internet and the Code of Ethics. “They might be making comments that aren’t truthful, for example, about what’s going on in the market.”
The Code of Ethics also requires that you identify yourself fully in all advertising and that sales associates identity their affiliating broker. “All communications have to be identified as coming from a real estate sales associate,” explains Roggow. “Your signature box must include your company name, how to contact you, and your affiliating broker’s name. In addition, the affiliating broker must be identified on every page of a website in a readily apparent manner. That requirement applies to a company, a sales associate, or a team.”

The Code also prohibits deceptive use of key words or other devices to direct, drive, or divert Internet traffic or otherwise mislead consumers. “My friend has a real estate company called West Austin Properties,” explains Roggow. “Another sales associate chose a similar website name, but within his site, he uses the words ‘West Austin Properties’ continually. If consumers are using that search term, they’ll be directed to his website. It’s wrong because he’s playing off a name that’s already taken.”

Maintaining confidentiality is also critical. Roggow offers a few examples of potential breaches:

“Here’s a Tweet: ‘Just got an offer $70,000 lower than asking price. Seller still isn’t budging much,’” explains Roggow. “Followers know who’s Tweeting, and they can find that sales associate’s listings, so they can pretty much figure out which property is getting an offer of $70,000 or less.”

“Another post included an address and said there were three offers and that the property sold the first day,” says Roggow. “To disclose that you had multiple offers, you must have the seller’s permission.”

More Law, More Risks

You must also be aware of the murky law of copyright, which governs what text and images you can “lift” from others. “The general rule is to avoid using anything you’re not sure is cleared for use,” says Peter Perkowski, a partner at Winston & Strawn in Los Angeles, CA who specializes in intellectual property law. “You don’t want to use a photo or test protected by copyright. You also don’t want to use names or titles protected by trademark without the authority to do so.”

The most obvious problems arise when you pull images you don’t own into your site. If you’re editorializing that something’s goofy in a blog post, you can’t simply drop the Disney character Goofy’s image onto your blog.

Can you post text from another source on your site? “There’s a lot of disagreement about what’s permissible with linking and using even a few paragraphs of copy,” says Perkowski. “One side argues that providing a short excerpt with a link is fair use under copyright law because you’re designating the origin of the text and not using more than necessary to provide your commentary. The other side takes a strict interpretation of fair use and says it’s improper because you’re driving traffic to your website with copy that’s not yours.” The lesson? Think carefully about which material you post under your name.

Finally, as Miami, FL sales associate Lachuga now knows all too well, you must be careful in what you say about others. “Be conscious of defamation and libel,” says Thiel. “We haven’t seen much litigation in the real estate world yet, but there have been instances in which associates have made allegedly defamatory comments about other associates. A sales associate might say John Smith hasn’t earned the CRS designation, yet John Smith says he has and then accuses the first sales associate of impugning his character and saying he lied when he said he had the designation. It’s really simple to get into these sorts of disputes.”

The Brokers Role

Brokers, you know the drill – if your associates use WEB 2.0 with abandon, you could bear the brunt of the fallout. “Everybody who operates a website, is involved in Twitter, blogging, or getting on Facebook, LinkedIn, or another side has risk,” says Thiel. “But brokers have additional risk because they’re responsible for supervising everyone in their office who works for them.”

To protect your company and provide guidance for sales associates, create policies and procedures governing online activities.

Katie Raynolds, an NAR staff attorney in Chicago, Ill suggests a few potential policies. One might require that sales associates ensure that their posts are honest, accurate, and factual, and prohibit the posting of certain content, such as gossip, rumors, falsehoods, defamatory comments, the copyrighted material of others, personal attacks, or harassing or otherwise inappropriate or offensive content. Another might require sales associates to include disclaimers on their sites, such as: “The postings on this blog are my own and do not necessarily reflect the opinions, policies, positions, or strategies of my broker.”

NAR’s Risk Management Committee has created a model brokerage Internet policy, “Risk Management & the Internet.” It suggests covering topics such as what content must receive prior approval before sales associates can post it online and establishing a key contact for the office or firm who will handle all Internet issues and advise associates on company policy. “Disclaim as much liability as you can,” recommends Thiel, “and require indemnification from sales associates if their violation of your policy causes harm to your company.”

Experts also recommend that you monitor your associates’ activity. “Brokers say it’s overwhelming and there’s no possible way they can oversee their associates’ Internet activity,” explains Hanks. “We brokers have the ultimate responsibility for what our associates post on the Web. We can’t extricate ourselves from that.”

How do you tackle that mammoth task? “Ask every one of your associates to give you a list of all the social media sites they’re on and all the domain names they own,” says Roggow. “Associates are going to say, ‘That’s none of your business; it doesn’t fall under selling real estate.’ But it does.”

Then figure out a way to monitor those sites, even if it’s only spot-checking activity. “Maybe you should ‘friend’ your sales associates on social networking sites, subscribe to their blogs, and follow them on Twitter,” suggests Hanks. “At least set up Trackur or Google Alerts to see what’s being said about your company and sales associates. Eventually this could become a full-time position where a staff person in monitoring and managing the Web.”

Remember, your goal is to guide associates, not stifle their innovation. “The purpose isn’t to limit the use of these tools but to manage their use and manage your risk,” explains Thiel. “You can never completely eliminate your risk, but you can manage, minimize, or mitigate it.”

Article reprinted from NEW JERSEY REALTOR®. September 2009.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.