THERE REALLY IS NO SUCH THING AS A FREE LUNCH—OR A FREE APPRAISAL

This month we look at what types of incentives the New Jersey Real Estate Commission allows licensees to offer to potential clients.

THERE REALLY IS NO SUCH THING AS A FREE LUNCH—OR A FREE APPRAISAL

The New Jersey Real Estate Commission’s rules on licensee advertising limit the types of incentives licensees can provide to potential clients. The rules apply to all categories of advertising, including “publications, radio or television broadcasts, all electronic media including E-mail and the Internet, business stationary, business cards, business and legal forms and documents, and signs and billboards.”

Under N.J.A.C.11:5-6.1(m), licensees are permitted to offer “free, discounted or other services or products in advertisements or promotional material,” but:

“No offering of free, discounted or other services or products, including the offering of a free appraisal, shall be made by a real estate licensee in any advertisement or promotional material or otherwise where the promotion or offering involves a lottery, a contest, a game or a drawing, or the offering of a lot or parcel or lots or parcels, or where the consumer is required to enter into a sale, listing or other real estate contract as a condition of the promotion or offer.”

This rule specifically prohibits a Licensee from offering “free or subsidized homeowners warranties, property, radon and pest inspections, surveys, mortgage fees, offers to pay other costs typically incurred by parties to real estate transactions, and coupons offering discounts on commissions charged by brokerage firms.” Anything that confers a “monetary benefit” on the consumer is included in the prohibition.

Likewise, verbal offers of free or discounted services in exchange for signing a listing agreement are not permitted. Under NJSA 45:15-17(j), an agent is prohibited from making using any “plan, scheme or method” of promoting the sale of real estate using a contest, lottery, or offer or free or discounted services.

Disclose, Disclose, Disclose

To make the point, the rule also requires that the licensee provide the consumer with a written disclosure, delivered to the consumer at the time of the offer, which shall state in a clear and conspicuous manner that the consumer is “not required to enter into any sale, listing, or other real estate contract as a condition of their receipt and use of the free, discounted or other services or products included in the promotion or offer.”

This disclosure must also state whether the consumer is “required to perform any action to qualify to receive the free, discounted or other services or products offered,” and specify the actions. If the delivery of the offered services is to occur separate from the time of the offer, the delivery date must also be specified in the disclosure.

If the licensee is receiving compensation for participating or promoting the offer, the amount of the compensation must also be disclosed to the consumer. If the compensation arrangement between the licensee and the person paying the licensee is subject to RESPA, then all RESPA formalities of disclosure must be followed, as well.

What is the effect of this rule?

The practical effect of this rule is that a Licensee cannot attract new clients with offers of free or discounted appraisals, home warranties, home inspections, and the like, if the offer is conditioned on the client signing a listing agreement.

A licensee’s offer to reimburse a potential client for a service at settlement still falls under the rule’s definition of “monetary benefit,” and is not permitted.

Likewise, the licensee cannot reduce his or her commission at settlement in order to “pay” for the offered free or discounted service. That, too, is a monetary benefit to the consumer, and is prohibited by the rule.

A licensee also can’t verbally make the offer to a consumer. While a verbal offer may not technically fall under the definition of “advertising,” it would still fall under the broad category of “plan, scheme or method” to offer free or discounted services in exchange for signing a listing agreement, and that practice is prohibited under NJSA 45:15-17(j).

So what is a licensee to do?

So how can a licensee offer of a free or discounted service and still comply with the rule? The rule itself gives us a clue. N.J.A.C. 11:5-6.1(m)(4)(ii), provides that the disclosure the licensee is required to provide to the consumer must list the specific actions the consumer is required to take in order to receive the offer. The rule goes on to state: “[f]or the purposes of this paragraph, a consumer’s attendance at any listing presentation, informational session or other meeting is considered to be an action by the consumer.”

So under the rule, an advertisement could offer a free or discounted service to a consumer in exchange for that consumer’s attendance at a presentation or meeting. The advertisement must contain a disclaimer that states the specific actions the consumer needs to take to receive the offer, the date of delivery of the free or discounted service, and also conspicuously note that the consumer is not required to enter into a listing agreement to receive the offer. If the licensee is being compensated for participating in the offer, that information must be included on the disclosure.

-Melanie M. Levan

***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.