Paying consumers to use your service has always been a no no in the state of Texas. Referral fees are limited, gifts are limited, but rebating has always been on the edge of both. Personally for me, it angers me that I cannot pay more in referral fees, but it has always kept the playing field level here in Austin. When I first began in the business, a local mega producer had local apartment communities on salary- the on-site was paid a monthly automatic fee for a guarantee that he would receive any and all referrals. Now for a new guy, there was no way I could compete with that, it was unfair.
Paying consumers to use your service is no different as I see it, it is just a direct referral fee. Most of the time, the builder, or a lender wants to know nothing about what you’re rebating, why? Because it creates a gray area in some cases, is additional contributions that some loans bar, and various other issues.
With the sub-prime fiasco that had the market in a virtual panic a few months ago, it only drives my point home. If you want to do good by the consumer and be pro consumer, then roll back the final sales price for the buyer. Allowing a buyer cash back rewards for using your service is financed, they’re paying X interest rate on the cash. Why not do the right thing and create further equity for the consumer- thus, pro consumer. And you level the playing field between all…
So, my suggestion- it should be rolled off of the sales price. Then consumers can shop without being bribed into a lesser service. Then it really is a consumer driven solution, levels the playing field, and forces all to compete on negotiated commissions.
This is a quote from Buyside Realty’s website:
Although our customers like us a lot because WE PAY THEM to use our services…
That is just disgusting and just as bad as NAR passing laws barring rebates (NAR shouldn’t have to force you to be ethical). NAR did not say you couldn’t discount your fees, they simply said you can’t bribe a buyer– it isn’t in a buyers interest to finance cash back.
In my humble opinion the law absolutely levels the playing field for the discounters to compete fairly.
Read the (slanted) breakdown of the bill here
That one sentence is the bottom line, and I happen to agree with it. Sorry folks.
Nick Davis
May 26, 2007 at 12:54 pm
There is a very clear distinction between paying referral fees to professionals in a real estate transaction and issuing rebates to buyers as a mean of price competition. RESPA is very clear on this, so your first paragraph doesn’t even make sense.
Secondly, per the USDOJ, “Rebate” means a payment of monies or anything of value by, or on behalf of, a Licensee to a client or customer (or to a third party authorized by the client or customer to receive the payment) that is in connection with the provision of Real Estate Brokerage Services.
Although home sellers are permitted to offer inducements directly to the buyer, this does not mitigate the anticompetitive effects of the Rebate Ban. Such a discount is attached to a particular house (and not the broker’s services). Thus, it is not a factor when a buyer chooses the broker who should represent the buyer in finding and purchasing a home. Brokers should not be prohibited from competing to become the buyer’s agent by lowering their prices through rebates and inducements.
Rebates and inducements benefit home buyers and sellers. Under the traditional structure of a real estate contract, the seller and seller’s broker determine the amount of the commission, and how it is allocated between the seller’s and buyer’s broker. If the seller’s broker also finds the buyer, then that broker keeps the full commission. If, instead, different brokers represent the seller and buyer, the seller’s broker pays the commission of the buyer’s broker, and the size of that payment is not controlled by the buyer. Being able to offer rebates and inducements allows brokers to compete for the buyer’s business by reducing the compensation they receive for representing a buyer.
Nick Davis
May 26, 2007 at 12:58 pm
Regarding taking it off the sales price, a rebate from the buyer’s broker helps to offset moving expenses.
Nick Davis
May 26, 2007 at 1:13 pm
How can you assert what is in the buyer’s best interest? Maybe offsetting moving expenses is more advantageous. Many buyers move across the country (thousands of dollars) which the rebate can pay for. Other buyers will run out to purchase new furniture or appliances that would otherwise be put on a credit card (more debt).
Given your logic of a “level playing field“, then ALL concessions should be done away with — not just an arbitrary restriction on cash rebates.
I find it odd that the State Of Tennessee (comprised mostly of Republicans) use the Gov’t to restrict something they don’t like, yet republicans hate Gov’t intervention! Talk about a paradox!
B. R.
May 26, 2007 at 2:34 pm
My point was simple in my first paragraph- DB’s are not the only little guys in the business as they proclaim. Finally a fair rule was put into place that allowed me to compete- pretty simple.
I respect your opinion, so you can please respect mine.
I do not agree with all of your assertions that under the law as it is written that DB’s can’t help buyers. You can simply give away all of your buyer side commission by rolling it all off the sales price. At least then you are not PAYING THEM TO USE YOUR SERVICES, as they put it.
No offense, but I also do not agree that it is the buyers money, I am firmly on the sellers side in this argument. If you aren’t going to provide the services I am paying you to provide, which is bring me buyers “physically show them my home and fully represent them” then it was never your money to rebate in the first place. It is the sellers money and a seller oughta have a right to reduce your commission to zero when a buyer rolls up to the home alone without you.
At least by rolling it off the sales price, every one wins, everything is disclosed, and DBs can still take a huge bite out of market share. The complaint that you cannot compete because you cant give away cash to buyers is a load of crap. Simply put, the law is not preventing you from competing nor is it unfair.
To finish- If a buyer can make great financial decisions with their money; then the move across country was planned, they saved money for it. They’ve also gone ahead and paid for their washer and dryer in cash or have the cash ready once they’ve closed- because they’ve planned for it. If they haven’t, maybe they need someone helping them make a sound financial decision; acting in their best interest. Which is what Realtors do and why we are paid.
Janice Delmore
May 26, 2007 at 6:12 pm
BR, I just stumbled onto your site (searched genius realtor to find my next agent and you came up, too bad you’re not in Tampa!!!)!
So I gather from Nick that it’s okay for someone to let ME finance a rebate (and get a tax bill on it too) and fail to provide service and simply let me walk into a bad financial decision/situation?!? That’s not right! I want a Realtor to advise me even though this will be my second home to purchase. I WANT a Realtor’s expertise! I want someone who can do more than tell me how to get to a house I found online (I have Google Maps already), I want someone to advise me on ALL of my options- I would never ask for a discount on expertise!
Nick Davis
May 27, 2007 at 10:24 am
Disclaimer: Seek your own professional tax advise.
Nick Davis
June 2, 2007 at 5:56 pm
If you are not going to post my comments in their entirety, then remove all of them.
Regards,
Nick Davis
Barry Preusz
October 18, 2008 at 4:19 pm
Marketing gimmicks have been around for ages and have a negative impact. The big question is who gets hurt in the long run. Obviously cash rebates can have a negative impact upon the lender and on the real estate market. The lender is impacted by being the actual provider of the rebate. The real estate market is impacted by inflating the price of the property. Consumers are impacted by the new inflated cost for real estate. Too often marketing gimmicks like rebates do not contribute to our industry.
Barry Preusz