Real estate revival prompts abuses in franchise ads

In the scramble by real estate franchise organizations to sign up new members , some cases of marketing abuse are coming to light. The Federal Trade Commission (FTC) has forced at least one major franchiser to change several elements of its advertising campaign.

The intensified competition in marketing memberships in real estate franchise groups is fanned by indications of a significant turnaround in the real estate market.

Optimistic projections by industry leaders are fueling the drive to gain a strategic position in the market so as to benefit from the increasing business potential.

''There are signs that the long recession is near an end and that an economic recovery and improved real estate market will take place during the first half of 1983,'' says Jack Carlson, executive vice-president of the National Association of Realtors.

The push to gain a strategic market position may impel some franchise organizations to cross the line that separates truthful from untruthful representation.

As a case in point, one major franchise recently agreed not to misrepresent its selectivity in choosing franchise-member firms, in accordance with a pending consent order issued by the FTC.

Better Homes and Gardens Real Estate Service has agreed not to state that ''out of 18,000 inquiries, only a few hundred - 1 of 72 - became members of the franchise.''

The number of inquiries actually received from prospective members is ''significantly smaller'' than the 18,000 claimed in the company's radio, TV, and magazine ads, according to an FTC report. And the ratio of applicants accepted to inquiries received is also smaller than ads claimed, the report asserts.

The FTC also said that the ads falsely claimed Better Homes and Gardens members lead their markets in sales and offer home buyers settling-in assistance and exclusive home-protection insurance.

''Not all realtors [franchise members] choose to offer optional services such as settling-in assistance,'' the FTC report says. ''In addition, other realtors offer home-protection insurance comparable to the plan which the franchise company advertised as exclusive.''

Further, not all Better Homes and Gardens agents are among the sales leaders in their communities, as stated in the ads, according to the FTC report. ''Company documents indicate that while many members are among the top three firms in their respective markets, a substantial number of members are not,'' say FTC staff analysts.

Still another finding was that, despite claims in ads, the company does not screen all members based on the quality of their sales training and ability to obtain financing.

The Better Homes and Gardens Real Estate Service franchise is owned and operated by the Meredith Corporation, publisher of Better Homes and Gardens magazine. As is the case with other franchises, this one sells independent real estate firms the right to use the franchise name and participate in advertising, promotion, and service programs.

When a national real estate franchise advertises, print ads and radio-TV spots are usually designed to achieve two objectives: to generate more business for their member firms and to attract more members.

Despite the FTC criticism, most real estate franchiser-advertising and service programs, including those of the Better Homes and Gardens service, are honest and ethical.

The FTC consent agreement with Better Homes and Gardens is now subject to public comment. The FTC will decide soon whether or not to make the order final.

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