Commission Position On the Broker's Payment Or Rebating A Portion Of An Earned Commission!
(Revised Position 4/13/2010)
The License Law forbids a broker from paying a commission or valuable
Consideration for performing brokerage functions to any person who is not
licensed as a real estate broker. Thus, "referral fees" or "finder's fees" paid as the
result of performing brokerage activities are prohibited.
The question of whether or not a broker may make payments from his or her
earned commission to a buyer or a seller in a particular transaction will arise
because usually neither the buyer nor the seller is licensed.
In a listing contract, the broker is a principal party to the contract and the
consideration offered is the brokerage services. The broker may add to this
consideration the payment of money to the property owner in order to secure the
listing . This is not a violation of the License Law.
Also, in a particular real estate transaction, the broker may pay a portion of the
earned commission to the unlicensed seller, This is merely a reduction in the
amount of the earned commission and does not violate the License Law.
However, the listing contract and the seller's settlement statement should
accurately reflect the payment to the seller to ensure that the real estate broker is
in compliance with Commission Rules E-5 and F-2 and § 12-61-803(4), C.R.S .
Payment to the unlicensed purchaser is often referred to as "rebating" and the
intention to pay money to the purchaser is sometimes advertised and promoted
as a sales inducement. The payment to the purchaser in itself is not a violation of
the License Law because the broker is licensed to negotiate and the purchaser
may negotiate on their own account. However, a broker representing the seller in
a transaction should take care to insure that such payments do not conflict with
fiduciary duties. For example, the "rebate" of a portion of a commission to a
purchaser to be used by the purchaser as a down payment could distort the
purchaser's financial qualifications and ultimately harm the seller. Additionally, a
purchaser who does not receive a promised rebate of a partial commission may
try to hold the seller liable for the wrongdoing of the broker on the theory of
respondent superior.
Pursuant to Commission Rule E-5(b), the closing statement or statements must
show an itemization of all adjustments, money, or things of value received or paid
showing to whom each item is credited and/or to whom each item is debited and
the dates of the adjustments shall be shown if not the same as the closing.
Accordingly, a rebate to a buyer is a thing of value and must be accurately
disclosed in the closing statement. As the payment of a rebate to a buyer may
impact the buyer's ability to obtain a loan from a lending institution, the buyer's
proposed receipt of a rebate should be adequately and timely disclosed to the
lender.
Real estate brokers who draft contract documents which omit the terms of the
actual sale, including the exchange of things of value , or fail to ensure the
accuracy of the closing statements may be subject to disciplinary action.
Pursuant to §12-61-113(9), C.R.S., the Division of Real Estate is required to refer
and transmit such information to criminal justice or law enforcement agencies fo r
investigation and prosecution when it becomes aware of facts or circumstances
that fall within the jurisdiction of a criminal justice or law enforcement agency.
The Division of Real Estate regularly refers cases to the appropriate criminal
justice and law enforcement agencies when it appears that lenders have not
been fully notified , or the contract documents have omitted, the receipt of a thing
of value by a buyer.
Gratuitous gifts to a purchase r subsequent to closing and not promised or offered
as an inducement to buy would also be allowed (i.e., a door knocker or dinner).
Such gifts would not require disclosure re and consent inasmuch as fiduciary duties
would not be involved.
This is just FYI only!
Thanks
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