The Rules of Lotteries, Contests and Giveaways

“I’d like to do a lottery, contest or giveaway, is that allowed?” The PAR Legal Hotline gets this question a lot, and it’s answered with a layered response. Let’s get into it.  

Pennsylvania has specific rules regulating how real estate licensees (brokers, salespersons, associate brokers) can use lotteries, contests, giveaways, prizes or similar promotions in connection with marketing or selling real estate. These rules are intended to prevent deceptive practices and illegal lotteries and protect consumers. 

But before we get to that, let’s talk about a different law that’s often overlooked. 

Small Games of Chance – Illegal Gambling 

Before reviewing specific advertising and record-keeping rules, you need to figure out if what you’re planning to do might be considered as illegal gambling. 

The Pennsylvania Small Games of Chance Law heavily regulates activities that meet three basic criteria:  

1. A consumer gives up something of value;  
2. In exchange for the chance to win something of value;  
3. When the winner is selected by random chance.  

If that describes your proposed activity, then you’ve got a problem. (Only specific licensed eligible organizations are authorized to conduct small games of chance under the act, and a for-profit business doesn’t qualify.) In order to be legal, you’d first have to be sure that at least one of those criteria is missing. 

Assume your proposed giveaway is something like, “If you close a deal with me, I’ll enter you into a drawing to win a $500 gift card.” That’s probably not going to work. The consumer is giving up something of value (they’re paying you a fee for your services) to get a chance to win something of value (the gift card), and the prize will be selected randomly (by a drawing). To be legal, at least one of the elements would need to be eliminated. For example, giving every client a $500 gift card turns it from an illegal raffle into a closing gift/prize, because there’s no random drawing to award the gift card. 

The PAR Legal Hotline cannot review or approve any specific giveaway terms and conditions for legal compliance, so questions about compliance with this law should be directed to your broker and/or private attorney. 

Advertising & Promoting 

Assuming that whatever you’re offering passes muster under the Small Games of Chance Law, the next step is to look at the license law. The Real Estate Licensing and Registration Act states that it is a prohibited act for a licensee to solicit, sell, offer or promote real property by conducting lotteries or contests, or by offering prizes, if such activities are used to deceptively influence a buyer or prospective buyer. Aside from this broad prohibition, the State Real Estate Commission has created specific regulations to govern these sorts of activities. 

Section 306 of the commission’s rules and regulations lays out the framework for advertising lotteries, contests, prizes, certificates, gifts and lots.  The following must be included in your advertisement: 

1. Clear description of each prize, gift, certificate or lot 
2. Prerequisites or conditions a participant must meet to receive the prize 
3. Any limitations on the number of prizes, gifts or lots offered 
4. Fair market value of each prize, gift or lot. “Fair market value” means what a buyer would reasonably expect to pay in an open market. 
5. Odds of winning each prize or getting the gift 

There is even a bonus requirement for printed ads, which requires that the statement of odds must be “immediately adjacent” to the description of the prize and in the same size type. The overall goal is to ensure that consumers are fully aware of what they’re getting into and to eliminate bait and switch tactics, or other potentially deceptive approaches to this sort of advertising.  

Our hotline experience suggests that many agents who come up with the idea of a giveaway don’t spend enough time truly thinking about the terms and conditions in a meaningful (and compliant) manner. For example, agents might advertise something like, “List with me and get a $500 credit at closing.” But those words don’t clearly specify that the agent needs to be representing the seller at the time of closing to get paid, which would be a condition they’d need to include. Or maybe the agent intends to offer this only to the first five listings they take, but that’s not listed as a limitation on the ad.  

Again, the hotline can’t approve or edit any specific advertisement, so please direct detailed questions to your broker and/or personal or brokerage attorney. 

Recordkeeping 

Once a licensee decides to do a lottery, contest, giveaway, etc., they must maintain certain records, which include: 

1. The number and description of each prize or gift distributed or awarded
2. Names and addresses of each person who received a prize 
3. Names and addresses of each person who responded to the advertisement but did not receive a prize 

Why so many specifications? Most likely for SREC audit and compliance assurances. Deceptive conduct can be seen as a lack of disclosure, advertising something that is not available, or simply misleading descriptions.  

Takeaways 

There is a lot that goes into lotteries, contests or giveaways, and all of it is necessary to ensure the rules are obvious and in compliance. Given the layers of rules and level of required details, be sure to consult with your broker and/or counsel before launching any sort of contest, giveaway or lottery tied to the promotion of real estate.