“Creative” Marketing Can Lead to Trouble
There are times when creativity is encouraged and celebrated, and then there are moments when “creative language” in real estate can lead to trouble, potentially even a lawsuit.
While creative phrasing is often seen in property listings, some of the most exaggerated (and misleading) examples tend to appear when describing suites in a property. From “mother-in-law suite” to “mortgage helper” to “regulation suite” and similar terms which are often used to appeal to other agents and buyers seeking ways to buy a home and manage their mortgage.
Using exaggerated terms is not in itself fraudulent but using these terms could lead to allegations of fraud in a lawsuit asserting these terms were purposely used to mislead people. It is important to note that REIX does not cover fraud. More on this below.
Only Two Terms for Describing a Suite
When it comes to factual advertising, listings and disclosures, there are only two ways for an agent to describe a suite: legal or illegal. Make sure you determine what category the suite falls into and use that term only to avoid lawsuits.
“Regardless of whether you’re describing the property in advertising material, on a website, or in comments to a potential buyer, we strongly encourage our subscribers to ensure they include the term ‘legal’ or ‘illegal’ as their only descriptors,” says REIX CEO Lisa Sabo.
“REIX coverage could potentially be denied if it can be proven in a lawsuit that the words were intentionally used to deceive the buyer and the listing agent knowingly acted with that specific intent to sell a property,” she adds. Even without allegations of fraud, a subscriber may be subject to paying a deductible in the event a claim payment is necessary.
Terms to Not Use
There are many phrases used to describe suites that REIX recommends avoiding including:
- income potential
- extra bedrooms and bathrooms, perfect for multi-generational living
- suite potential
- easy to suite
- mother-in-law suite
- mortgage helper
- regulation
How to Avoid Issues?
State clearly and accurately in the description if the suite is illegal or legal.
You can list the features of the suite (updated floors, new appliances, etc.) once you state if the suite is illegal or legal. Once mentioning the status, to best protect yourself, do not use the terms listed above or similar phrases.
Case Study: Claims Focused on “mother-in-law suites” Can be Costly
In one claim filed with REIX, the selling agent used the term “mother-in-law suite” in their property listing expecting that the buyer would understand that the suite was an illegal one. After the sale closed, the buyer discovered the suite wasn’t legal, and in fact it was illegal. They sued the selling agent for misrepresenting the property. The agent was found liable by the Court, and their professional liability coverage was determined to be not in effect because they had knowingly misstated the facts.
Of the many claims that REIX has handled on this topic, most claimants are attempting to recover for two reasons; a loss in value because the property they’ve purchased is no longer an income-generating property, and they’re seeking to recover the income they would have generated if the suite had been legal.
The combination of these two factors can make for a potential six-figure settlement.
The Bottom Line
Catchy and creative terminology may seem harmless and attract interest for your client, but it could cost you your deductible or a lot more if it is deemed untrue or deceptive.
To stay safe, only use the correct terms: legal or illegal.