Commercial real estate is a tough market for consumers. Anyone looking to put their property on the market can quickly find themselves bombarded with real estate agents looking to help them sell it. Licensed real estate agents need customers to work with. This includes both those looking to buy and sell property. One way in which a real estate agent might look to garner more clients is through various incentives like gifts, cash, prizes, or other types of valuable incentives. While this is great for prospective clients and the real estate agent garnering interest in their services, the legality of offering incentives must be examined under Alabama law.
There are both federal and state statutes that illustrate what a licensed real estate agent is and is not allowed to do regarding incentives that can be used in real estate transactions. State law prohibits the licensed real estate broker to give a rebate or receive a rebate in a transaction. Federal law prohibits “kickbacks.” The licensed real estate broker cannot receive unearned fees that are connected to a real estate transaction. These two laws may seem to contradict each other, but there are examples of “gifts” that might be permissible in a real estate transaction.
Any “incentive” that is being given during a real estate transaction can only be given to a party. Typically, this means that only a buyer, seller, lessee, or lessor may benefit from any incentive advertised. According to the Alabama Real Estate Commission (AREC), the following are incentives and gifts that are permissible during real estate transactions in Alabama:
- Owners of a property being paid cash when the property is listed for sale,
- Offering a cash incentive to a buyer who is interested in buying a home, so that the sale will proceed,
- Gifting a car to a customer as an incentive to buy a home,
- Offering one month of free rent to a lessee interested in renting an apartment, or
- An agreement for any repairs that need to be made on a home to paid for by someone other than the buyer in an effort to close the sale.
It is not enough for an incentive to fall within these permissible categories. The way in which a gift is given also carries a lot of weight in a transaction. Other laws cannot be violated in an attempt to offer up an incentive to a party of a real estate transaction. The following are the main requirements for incentives during a real estate transaction:
- Every party to the transaction must be informed about any incentive or gifts being given, and
- The incentive needs to be given in advance of, or at, the closing of the sale.
If a licensed real estate broker fails to disclose an incentive, misrepresents it, or otherwise fails to disclose the transaction to an interested party, this is considered a violation. A violation could result in voiding a contract for sale or even criminal charges in some instances.
While it is helpful to know what is permissible under the law, it can be equally as important to know what to look out for, what red flags to be aware of. The following incentives are not permissible in a real estate transaction:
- Referral fees paid to a licensed real estate broker by a title insurance company, mortgage company, or homeowners’ insurance. A paid vacation to the licensed broker is also considered a rebate.
- Referral fees paid to the licensed real estate broker by various contractors: pool installer, carpet installer, landscaper, etc.
- A license real estate agent paying a fee to another for referring a buyer or seller to them for business.
- Essentially, be wary of referral fees that are present in a transaction and make sure to find out if they are valid.
MSN’s real estate attorneys offer vast experience with real estate transactions, and we want to be sure that your closing goes off without a hitch. Buying a new piece of property is an exciting time. You should not have to worry about anything during this process, especially the validity of the closing agreement. Let us handle the legalities of closing and making sure that everything is executed to the letter of the law. Schedule a consultation with us today.