Commission cashback or rebate

[Jay Yu]

http://www.dllr.state.md.us/license/mrec/mrecnews1.shtml

I am reading on the state(maryland) regulation for cash back. it says it is legal and also says it is not allowed. it is confusing as what to do, it also states that as long as it is disclosed in writing as required by code of ethics, it is legal and does’t even have to be recorded on the hud-1, seller or buyer can choose a cash payment as well.

 please clarify if you know or have done so.

Thank you

INCENTIVES AND REBATES

The Real Estate Commission and the Attorney General's Office receive inquiries from time to time about the payment of rebates to a party to a transaction or the use of incentives to induce a consumer or a licensee to deal with a particular real estate agent or broker. There are several provisions of the licensing law that address these issues.

Incentives. Section 17-322(b)(9) provides that a licensee may not offer a prize or conduct a contest in order to influence a party in the sale of real property. This provision has been interpreted by the Attorney General's Office to mean that if a licensee uses inducements to obtain a listing or a buyer/broker agreement, or to motivate a buyer to purchase certain property, those inducements must be offered to all consumers on the same basis. There cannot be a contest where a seller or buyer is offered a chance to receive a prize or a cash payment. If an offer of inducements is made, it must be available to all.

The law would allow the licensee to offer inducements related to price, that is, the offer could be for a rebate/payment as a percentage of price. In this way, the offer would be the same for all those whose purchase or listing price fell within a certain price range.

The Commission has also reviewed proposals of licensees who offer a drawing for a prize among attendees at an open house. As long as the only action a consumer has to take is to attend the open house, the Commission does not view this as a contest used to influence a party to purchase property.

There have also been questions about whether unlicensed individuals who refer consumers to a licensee may be compensated in some way or may participate in a drawing. The licensing law considers the act of referral to be the provision of real estate brokerage services, and thus an activity that requires a license if compensation in any form is involved. The Commission views the possibility of winning a prize as a form of compensation. Therefore, under Section 17-604(a), a drawing may not include an individual based on referrals he or she has made to the licensee.

Rebates/Cash Payments. Section 17-604 provides that a licensee may not pay compensation in any form for the provision of real estate brokerage services to an individual who is not licensed. A person who is simply a party to a real estate transaction is not providing real estate brokerage services within the definitions in Section 17-101, and therefore may receive monies from a licensee. If the monies are used to pay settlement charges, that should be reflected on the HUD-1 form.

The agreement to pay compensation to a buyer in the form of a rebate of commission, or to compensate the seller either through a cash payment or a reduction of the commission rate must be in writing as required by the Code of Ethics, COMAR 09.11.02.01H. The Real Estate Commission has also taken the position that financial payments by a licensee to a party should be disclosed to the other party to the transaction, even if they are not required to be recorded on the HUD-1 form.

Elizabeth H. Trimble

Assistant Attorney General

Counsel to the Commission

12/14/10