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Dear Steve,
If I were to sell chances on my home for a raffle, would I encounter any legal problems? Are there any negative
repercussions you can see in this?
-- Ginette
Dear Ginette,
A raffle sounds like a fresh, creative way to sell a home in this stubborn buyer's market. But "sounds like" and
"is" are two different animals in the marketing world.
Ginette, you would almost certainly face a dizzying series of complexities, marketing expenses and
legal obstacles that would set your head reeling and make you feel as if you've taken on a full-time job.
First, the legalities. You would, in effect, be getting into the lottery game here. And most, if not
all, of the states will require that you have a license to do this. You would have to contact your state's gaming
or lottery commission. Gambling-law-us.com gives details for
each state.
In some states, the price you would have to charge for a raffle ticket would be illegally high.
Moreover, such raffles must be connected with a charity or nonprofit organization to be legal in most states, so you
would have to match up with the right organization.
This raises several questions: Does your state require this to be a registered charity? What would
the charity's minimum cut be? Is the charity well-connected in the community and with the media? Who pays for its
marketing expenses?
Then there's the time-consumption and marketing-expense questions. You might need up to four months
to pull this off properly because you'd probably have to market outside your immediate community to generate enough
interest.
Obviously, you would need an aggressive marketing strategy, and that will cost you some money. A Web
site with a counter indicating the numbers of tickets sold would really help legitimize the raffle as would your
capacity to process secure credit-card transactions. All this means you'll have even more expenses.
A clever and palatable story about why you're doing this would also help. Some home raffles require
entrants to write persuasive essays to win, although some states may consider this process too arbitrary and disallow
it. Others will make you prove that you are using an impartial judge to determine the winning entry. Anyway you look
at it, the essay approach is fraught with legal peril if you ask me.
In any case, you'll need a fail-safe
plan in the event you don't sell an adequate number
of raffle tickets to meet your minimum or "reserve"
price. For example, if you want to get at least
$200,000 for your home, you'd have to sell 2,000 tickets at $100 each, plus an additional $10 to $25 per ticket to cover marketing expenses.
You'd most likely have to keep all
that raffle money in escrow (a fee involved) and
maintain immaculate records should you have to
refund everyone's entry money. You'd likely have
to get an attorney to carefully iron out such
contingencies (read: even more money). The raffle
winner, of course, would be subject to significant
taxes on the winnings and probably have to mortgage
or sell the home to pay them, and is likely to
face a bump to a higher tax bracket.
Still want to raffle your house? Might I suggest you try to sell it by more conventional means -- assuming
you value your sanity?
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