C Tann-Starr's Outside Blog

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THINKING OUTSIDE OF THE BOX. . . . WHERE IS IT WRITTEN THAT A BUYER'S AGENT CANNOT GIVE A REBATE TO A SELLER??

 

My girlfriend Lenn was kind enough to make this available for a re-blog. Enjoy! :-)

 

AN INTERESTING POST BY PAULA SWAYNE got me to thinking. 

WHERE IS IT WRITTEN THAT A BUYER'S AGENT CANNOT GIVE A REBATE TO A SELLER??

The matter related to a Buyer's Agent who wanted to offer an Owner/Seller a $5,000 incentive when considering a contract that was presented. 

Some of the objections listed were:

  1. Fine, as long as it is on the HUD statement and so, transparent. (We all know this wouldn't happen!)
  2. While I am sure my seller could use the extra $5000, this is fraud and I will not recommend to my seller that they proceed with your offer.
  3. I am not willing to risk my license in order to sell a house...and believe me, it can happen.
  4. Speaking to the seller..."If you do this, and the lender finds out, you could be in serious financial jeopardy."

This got me thinking (often a dangerous activity) about many things including the matter of incentives, which are usually given from seller to buyer.  I also thought about the matter of commissions, which are always negotiable.  Pursuing some avenues of thought, consider the following:

1.  The commission paid to the listing and selling brokers/agents are always on the HUD 1. 

2.  How would an incentive given from a buyer's broker/agent be fraud?? 

3.  How does giving a rebate or incentive from a buyer's broker/agent endanger the listing agent's license.

4.  What interest does the buyer's lender have in an incentive or rebate from a Buyer's Broker/Agent to the Seller???  How could the seller be in financial jeopardy.

5.  Clearly, if a Buyer is short of cash to close and either agent offers cash to that buyer, the lender has an interest. 

WHAT'S THE DIFFERENCE BETWEEN A SELLER ASKING FOR A CASH PAYMENT/INCENTIVE AND A BUYER'S AGENT OFFERING SUCH AN INCENTIVE/CASH PAYMENT?

Could it be that the first, Seller demanding a cash payment could be considered extortion.  BUT WAIT!  Isn't that what agents do routinely when they demand that a Buyer's Agent/Broker reduce their commission to close????  Isn't that what lenders routinely do when approving Short Sale contracts?  What's the difference? 

WHAT ABOUT THE "AGENT BONUS"?  Sellers, Listing Brokers/Agents and new home builders have offered "Bonus" payments to Buyer's Agents/Brokers for as long as I can remember. 

WHAT ABOUT THE "CLOSING COST INCENTIVES"?  Sellers, Listing Brokers/Agents and new home builders have offered to pay "Closing Cost Incentives" and many subsidies to home buyers for as long as I can remember. 

HOW IS IT FRAUD TO REDUCE YOUR COMMISSION AND THEREBY INCREASING THE SELLER'S NET PROCEEDS?

BACK TO THE HUD-1.  Any commission paid to the listing broker/agent is disclosed on the HUD-1.  What difference does it make to the buyer's lender if the commission paid is $5,000 more or less?? 

SOURCE OF FUNDS TO CLOSE MEANS BUYER, NOT SELLER.  Seems to me that a lender has an interest in the home buyer's source of funds to close.  I can't think of what interest a buyer's lender would have in either the commission paid to a Buyer's Broker/Agent or in the NET PROCEEDS RECEIVED BY THE SELLER.

If there is something in a state's license law that precludes a Buyer's Broker/Agent negotiating a lower commission, I'd like to see it.

BUYER'S BROKERS/AGENTS HAVE GIVEN INCENTIVES TO SELLERS OF MANY TYPES.  Buyer's Agents have often provided incentives to Sellers.  Consider the value of some of the things we provide or do to help our buyers.Construction Workers

  • Reduce our commission so the seller can close.  If you've never been asked, just wait.
  • Pay for repairs to a property when the seller refuses or doesn't have the resources.
  • Pay for warranties for buyers. 
  • How often has a Broker/Agent advanced payment for termite treatment when the seller cannot pay until closing?? 

Rebate to home buyers.  In MD, a buyer rebate is disclosed on the HUD-1 if the money is used by the buyer to close. 

IS A CASH INCENTIVE FROM A BUYER'S BROKER/AGENT TO THE SELLER REFLECTED ON THE HUD-1??  Of course, just as a Buyers Broker's contribution to the Buyer is reflected on the HUD-1, as a Broker contribution to the Buyer. 

There are some states in which Brokers cannot rebate commissions.  I don't know what the law is in those states, but rebates are legal in MD and Va. 

Real estate agents and brokers often believe that the laws/COE section that states that "real estate commissions can only be paid broker to broker" means that a broker must pay real estate commission to a Broker and not directly to an Agent of the Broker. 

That has nothing to do with incentives, rebates, cash backs, etc. paid by Brokers/Agents to Buyers or Sellers. 

 

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Comment balloon 2 commentsC Tann-Starr • December 20 2009 11:15AM

Comments

All very interesting points C.  

Lenn has used rebates and they seem to work.  I see no harm with it and agree with your points.

Posted by Allison Stewart, St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904 (St.Cloud Homes ) almost 9 years ago

Lenn is brilliant. I love the way her mind works. A listing broker and I once shaved a half percent off of our commissions to make the seller happy because they were upset at not getting their price. Sometimes if we work together with an even steven happy attitude we can get a lot more done. I will always entertain reasonable requests done respectfully. I am not into nonsense. It's a recession and everyone needs every penny they can earn so concessions and compromise should always be considered because we do have discretion if we are all upfront, truthful and in agreement.

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) almost 9 years ago

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