One of the most common misunderstandings in real estate, mortgage, and the settlement business is the topic of incentives, gifts, discounts, and freebies. Can you use incentives, gifts, discounts, or freebies to induce or improve the chance of a sale?
In recent years the Federal Government has been cracking down on one-stop shop incentives and kickbacks for real estate, mortgage, and settlement services providers. A typical violation involves a scenario where company A offers company B a gift, cash, discount, or other non-bonofide deal to refer business to company B but charges a higher price to Company C, D, E, F, etc.. Clearly this is a restraint on competition and takes away the integrity of a fair market competition.
Non-bona-fide means the discounts, freebies, incentives, or other financial benefits come with strings attached. A typical example includes a company A pays company B to receive a client lead whereby company B passes down a higher fee to said client. The Real Estate Settlement and Protection Act ( RESPA ) was passed in the 1970s to protect consumers from unscrupulous real estate, mortgage, and settlement service providers from colluding or creating schemes that overcharge consumers. Thus appears to be a lot of fragmented responses on the web regarding this issue both correct and incorrect. The obfuscation created by many half-experts can position what is a fantastic, permissible, and engenuis promotion into one ripe with uncertainty and suspicion.
So let’s hear it straight from the regulator’s mouth:
Real estate settlement act from consumer financial protection board.
In summation: Unless an individual is paying or receiving discounts or financial benefits for a referral there doesn’t appear to be a violation of Federal law. State laws; however, can place special limitations on gifts, discounts, freebies, cash and other inducements to parties in a transaction. A few states allow only licensed individuals to receive or give cash, benefits, or freebies.
A well informed real estate agent can help to set the expectation and turn what appears to be non-permissable into a great marketing idea.
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