The advertising commandments for Texas REALTORS®

Increased use of the Internet, CD-ROMs and other new media doesn't alter the fundamentals.

1. Be honest
2. Do not create misleading impressions
3. Identify salesman and broker
4. Obtain owner's written permission for yard sign.
5. Do not discriminate in ads.
6. Do not conceal information.
7. Follow the Code of Ethics.

by Jerome L. Prager   As we settle into the Information Age, many of us are becoming more comfortable with instant communications, instant retrieval of information and instant satisfaction of our needs as consumers. New technologies are enabling real estate licensees to promote their firms and properties with more information and in a more appealing format than ever before.

In addition to many of the traditional media such as classified newspaper ads, yard signs, multiple listing services and various home magazines, brokers are using electronic media including videos and computer-generated descriptions of homes to give the public instant access to information about themselves and properties.

The increased exposure and avenues for advertising only underscore the importance of understanding the rules and regulations that affect real estate advertising, as well as guidelines from the National Association of REALTORS® (NAR) and local associations of REALTORS®.

This article provides Texas REALTORS® with an overview of those rules and regulations. For this discussion, the terms "advertising" and "marketing" are used interchangeably. The term "licensee" refers to both a licensed broker and a licensed salesperson, as defined in the Texas Real Estate License Act (TRELA), Article 6573a of the Texas Revised Civil Statutes.

Marketing the broker and the salesperson

Generally speaking, honesty and truthfulness in advertising is the most fundamental concept in all applicable statutory law, rules and regulations. The laws allow brokerage firms to advertise and promote their services and special expertise, as long as those advertisements are truthful. Section 5 (z) of TRELA says the Texas Real Estate Commission (TREC) may only restrict advertising that is "false, misleading, or deceptive." TREC may not adopt any rule that restricts a licensee in the use of any particular medium for advertising or the use of the licensee's voice or picture in an advertisement.

Section 15 (a)(6)(P) of TRELA authorizes TREC to take disciplinary action against a licensee who is responsible for an advertisement (in any media) that is likely to deceive the public or that in any manner tends to create a misleading impression, or one that fails to identify the advertiser as a licensed real estate broker or agent.

There is no clear line that delineates the difference between mere puffing, on one hand, and exaggeration, ambiguity or inaccuracy, on the other hand. Aggressive licensees who opt to walk a fine line are placing their licenses in jeopardy.

All marketing materials and advertising copy should be reviewed by a broker who is familiar with the rules to ensure compliance. Questionable marketing materials should be submitted to the broker's legal counsel for review and approval.

TREC rules for regulating advertising by licensees [Title 22 of the Texas Administrative Code (TAC), Section 535.154] require brokers to file an assumed name certificate with TREC if they transact business under a name other than their legal name. Any advertising under an assumed name that does not readily identify the broker as a real estate licensee must specify that the advertiser is a real estate agent or broker.

Article 12 of the NAR Code of Ethics admonishes REALTORS® to present a true picture in their advertising and representations to the public, as well as clearly identify their status as a broker, appraiser, leasing agent or property manager in any advertising.

Some licensees use inducements in their advertising, such as offering a free market analysis, a free home evaluation or other similar enticements. This kind of advertising is permissible. However, special attention should be given to spelling out all the terms related to the availability of the offered product or service. If there are hidden "hooks," a REALTOR® may end up as the respondent in a professional standards hearing. Standard of Practice 12-1 of the Code of Ethics requires disclosure of all of the terms governing the availability of the service or product, as well as the potential for the REALTOR® to obtain a benefit from a third party. If the prospect is required to obligate himself (e.g. list the property) to the REALTOR®, the offered service is not free or without charge and, therefore, the promotional material is considered misleading and deceptive.

Marketing listed properties

"A licensee has a duty to convey accurate information to members of the public with whom he deals," according to 22 TAC, Section 535.156(d).

Before advertising any property, a licensee must have the written consent of the owner. The consent may be obtained in the written listing agreement or other appropriate agreement signed by the owner. Listings may be taken only in the broker's name and not in a salesperson's name. All advertising must include information identifying the advertiser as either a broker or salesperson. The salesperson's name may or may not be included in advertisements, but, the broker's name must always be included. As a matter of practice, the broker's name should always appear first and in a more conspicuous manner than the salesperson's name. In this manner, the advertisement will not imply that the salesperson is responsible for operating the brokerage business.

Additionally, Standard of Practice 12-6 of the Code of Ethics requires REALTORS® to disclose any ownership interest they may have when advertising unlisted real property for sale or lease. TRELA also requires a licensee to disclose when the licensee is acting in a dual capacity as both broker and undisclosed principal in a transaction. Before entering into any sales agreement or lease, licensees are also required to disclose that they are licensed real estate brokers or salespersons acting on their own account to any person with whom they are engaging in a transaction to acquire or dispose of their property (22 TAC, Section 535.144).

Use of signs

Brokers must also obtain written consent of the owner before placing a "for sale" or lease sign on the property [Section 15 (a)(6)(L) of TRELA]. This consent should be obtained in the listing agreement.

Standard of Practice 12-7 of the Code of Ethics provides that only REALTORS® who participated in a transaction as either the listing broker or cooperating broker may claim to have "sold" the property. Prior to closing, a cooperating broker may post a sold sign only with the consent of the listing broker. NAR's handbook on multiple listing policy provides that a multiple listing service may not adopt any rule that prohibits the posting of "for sale" signs on listed property. Any posting of signs after a closing is a matter of agreement between the new owner and the REALTORS® who participated in the transaction.

Regulation Z

Regulation Z, which was issued after Congress passed the Truth in Lending Act, generally covers only advertisements for residential property and does not govern loans primarily for commercial, investment or agriculture purposes. Regulation Z applies regularly to banks, mortgage companies and any other arranger of credit, but brokers who advertise credit terms are subject to Regulation Z as well.

There are three major disclosure requirements in advertising residential mortgage loans. First, if an advertisement sets forth information about loan terms, those terms must actually be available to a qualified borrower. Next, if an advertisement states a rate of finance charge (defined to include interest, points and loan fees), then the advertisement must use the words "annual percentage rate" (APR). The advertisement must state the APR, and, if the finance charge can increase over the terms of the loan, the ad must also disclose that fact.

Lastly, if an advertisement contains any of the following information, then additional disclosures are triggered: the amount or percentage of any down payment, the number of payments or term of the repayment period, the amount of any regular installment payment on the loan or the amount of any finance charges.

If any of these triggers appears in the advertisement, then without exception, all of the following information must be disclosed in the advertisement, including the amount of percentage of the down payment (e.g. $5,000 down or 10% down): the terms of repayment ($650 per month for 30 years), the annual percentage rate (the interest rate), and, if the rate may be increased at a later date, then that fact.

The mere mention of the APR alone will not trigger these additional disclosure requirements. If specific information is mentioned in the advertisement, such as $150,000 assumable note at 7.25% APR, then the disclosure requirements are triggered, and the advertisement must contain all of the above information.

The safest practice is for REALTOR® to mention only the APR in the advertisement and suggest that prospects call for further information.

Fair housing laws

Advertising by REALTORS® is also governed by guidelines issued by the U.S. Department of Housing and Urban Development (HUD) pursuant to Section 804 (c) of the Federal Fair Housing Act (the Act). Specifically, Section 804 (c) prohibits advertisements that state a preference, limitation or discrimination on the basis of race, color, religion, sex, handicap, familial status or national origin. The Act applies to publishers, as well as to the party placing the advertisement. Brokers should be extremely careful about loosely worded ads that may inadvertently imply a limitation or preference with respect to a protected class.

The use of words describing current or potential residents, the neighbors or the neighborhood in racial or ethnic terms will create liability under the Act. HUD has published a list of words and phrases that should never be used including, for example, "white private home," "Hispanic residence," "Oriental neighborhood," or "predominantly Afro-American schools."

Advertisements should not contain any explicit preferences or limitations concerning religion. For example, "good Christian home" is not permissible. However, the advertisement may describe amenities without stating a preference. For example, it is permissible to advertise "apartment complex with chapel" or "kosher meals available." If the legal name of the entity contains a religious reference, such as "Methodist Village Apartments," then a disclaimer should be included in the advertisement stating that the owner/ lessor does not discriminate.

Advertisements must contain no explicit preference for the gender of the renter. One exception is for shared living spaces. Accordingly, a female advertiser may advertise "female roommate wanted." Other common phrases permissible in advertising include "bachelor apartment" or "mother-in-law suite." These phrases are commonly used as physical descriptions of the available premises.

Advertisements must not discriminate or exclude handicapped persons. It would be a violation to advertise "no wheelchairs," "no mentally ill" or "no alcoholics." However, again, descriptions of properties, as well as of services and amenities, are permissible. Accordingly, "walk-in closet," "great view" or "jogging trails" are permissible and do not violate the Act. It is also permissible to describe conduct required of potential tenants. Advertising for only "non-smoking" or "sober" tenants does not violate the Act.

One of the trickier protected classes is the familial status or families with children. Except for narrow exceptions relating to housing solely for the elderly, advertisements may not contain limitations on the number or ages of children or express a preference for adults, couples or single persons. Again physical descriptions of the property, such as "two-bedroom apartment" or "large family room" are permissible.

HUD regulations also require diversity among the models in advertising photography.

Many times, brokers inadvertently use words or phrases that can be interpreted as expressing a limitation or preference. Regardless of intent, a broker may be liable and subject to substantial damages and fines if an advertisement is found to violate the fair housing laws.

Texas Deceptive Trade Practices

In years past, the Deceptive Trade Practices Act (DTPA) in Texas has been a fruitful source of litigation against brokers. In 1995, the Legislature amended the DTPA as a result of the efforts by TAR to level the playing field.

The DTPA is designed to protect consumers from fraudulent misrepresentation and concealment of material information relating to the offer of goods or services. The courts have interpreted the DTPA in a manner that creates liabilities for innocent misrepresentation or misstatement of fact, as well as for negligent or intentional acts. The Act makes brokers particularly vulnerable to claims if they rely upon information furnished to them by homeowners without independently verifying the accuracy of the information.

Misstating the square footage of a home is one of the most frequent grounds for claims against brokers. There is no uniform or standard method for calculating square footage. Many brokers rely on the county's central appraisal district; however, that is no guarantee of accuracy. Many homes have additions or converted garages, porches or patios that are not reflected in the appraisal district's data.

Additionally, an advertisement that describes a home as equipped with a "security system," for example, when the system is leased may be misleading. Similarly, advertising a home as having a "sprinkler system" when the system is actually manually operated may be misleading.

Simply put, accurately describing the characteristics and qualities of a property will greatly reduce the likelihood of claims against the broker. Brokers should confirm and verify these descriptions whenever possible from the homeowner.

Disclaimers and/or releases to minimize liability may be a good psychological deterrent, but probably are not enforceable under the DTPA.

Brokers and salespeople are subject to a plethora of rules, regulations and statutes regulating their advertising and marketing activities and materials. A serious effort must be made to keep current with the applicable laws since liabilities, penalties and sanctions can be substantial, including possible suspension or revocation of a license.

Jerome L. Prager, attorney at Prager and Benson, P.C. in Dallas, is legal counsel for the Greater Dallas and Irving-Las Colinas Associations of REALTORS® . He also serves on the Broker/ Lawyer Committee for the Texas Real Estate Commission.

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