Free gifts could mean free trouble Use care in advertising giveaways

By James L. Goldsmith, Esq.

Generally, our laws favor freedom in advertising. Competitors use ads to distinguish their services and prices which, in a competitive market, usually means better services and lower prices. It also leads to "giveaways" such as gifts and guarantees not ordinarily provided. The Pennsylvania State Real Estate Commission has imposed a regulation pertaining to the advertisement of giveaways; hence, special care must be exercised in advertising their availability.

The regulation is found in Title 49 of the Pennsylvania Code at Section 35.306 (more commonly referred to as section 306 of the Rules and Regulations of the Pennsylvania State Real Estate Commission). The section is entitled Advertisements of lotteries, contests, prizes, certificates, gifts and lots. While you might attract business by promoting a lottery ("Register at our open house and win a free flat screen TV" might increase traffic), it's also illegal! Basing eligibility for the prize on one's paying a fee or giving or doing something in exchange for a chance of winning (e.g., entering a listing or buyer agency contract, touring an open house, etc.) constitutes an illegal lottery. Lotteries that benefit nonprofits may be lawful, but they require a special permit. So for all practical purposes, we're talking about advertisements that offer gifts, money and/or guarantees for use of your services (e.g. "buy through me and I'll pay $1000 of your closing costs at settlement").

Anyone seeking to offer an incentive to a potential buyer or seller should carefully review section 306 when crafting any advertisement referencing the gift. The regulation is largely designed to prevent "bait and switch" schemes that lure consumers with lofty promises, but fail to produce. (Our clients who were promised a free sewing machine if they toured a facility and considered purchasing a campground membership only to find that the sewing machine operated on two AA batteries!)

Details that need to be included in the advertisement are the fair market value of the gift or service offered, the prerequisites for its receipt, a description, any limitations, and the number of gifts or services offered if applicable. If there are substantial limitations (e.g. applicable to the purchase of a property for $100,000 or greater; settlement to occur within three months, limited to a specific geographic market, etc.) then your ad will require substantial space! Will it suffice to merely indicate that the details and limitations can be obtained by contacting a telephone number or website? The regulation does not so provide, but makes clear that the advertisement "shall contain" the information required.

Promises of a guarantee should also be considered in the same classification as gifts. Eligibility has to be spelled out in the advertisement as well as an adequate description of the guarantee so that the consumer, before contacting the advertiser, knows exactly what is to be provided.

A violation of regulation 306 is also likely a violation of a similar provision of the Real Estate Licensing and Registration Act as well as its prohibition against misleading advertising. With a maximum fine of $10,000 per violation, sufficient incentive exists to carefully heed the Commonwealth's requirements. Further, brokers who fail to supervise and control the advertisements of their affiliated licensees are at risk for disciplinary action as well.