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Mr. Smith goes to the Real Estate Commission... To Rebate or not to Rebate?

By
Real Estate Agent with IEC Realty

This is the letter I sent over to the Attorney General's office after realizing that arguing with the investigator with the real estate commission was not going to get me anywhere: 

Honorable Attorney General Colberg

State of Alaska

CC: Bennett Matelson, United States Dept of Justice

Mr. Attorney General Colberg,

The purpose of this letter along with the attached documentation, is for your review in regards to the certified letter from the Alaska Real Estate Commission stating that I am to "Cease and Desist" from further use of the Cash Rewards rebate program. I am requesting the removal of the cease and desist order, and a written statement to that effect, interpreting the statute in terms of its original intent, and in compliance with anti-trust laws. The statute they cite is as follows:

AS 08.88.401 Prohibited conduct

(d) A person licensed under this chapter may not knowingly pay any part of a fee, commission, or other compensation received by the licensee in buying, selling, exchanging, leasing, auctioning, or renting real estate to

(1) a person who is not licensed under this chapter, except as provided in (e) of this section
(e) The prohibition of (d)(1) of this section does not prohibit

(1) payments by a licensee to a person licensed to perform real estate activities in another jurisdiction if the other person has assisted the licensee in the performance of an act for which a license is required by this chapter; or

(2) payments from a real estate licensee to a principal as part of the resolution of a dispute regarding the terms of a transaction or regarding the property transferred.
(g) A person who violates this section or AS 08.88.161 is guilty of a class A misdemeanor.

In the REC correspondence to me, the REC has interpreted the above to mean that: "Purchase incentives are specifically prohibited" "Anything that is conveyed of monetary value" to an unlicensed party is illegal. (i.e. that which is purchased by the licensee with fees, commissions, or other compensation justly earned in the course of a transaction and then given to the consumer or principle of the transaction.)

This interpretation would make (d) to mean that the giving of a gift basket, gift card, or any other closing gift, is equivalent to paying an unlicensed party! This was not the intent of the law. This statute has been interpreted to mean that the Licensee's principle is not to receive benefits from the licensee after closing.

This issue is bigger than Cash Rewards, the specific rebate program used is not the issue.

I have been licensed in the State of Alaska since 1984 and was present during the time when HB33 was introduced. This portion of the Bill was clarified and strengthened in 1998 to strictly prohibit a licensee from entering into a "marketing kickback" scheme with a marketing company that promised kickbacks to unlicensed persons. i.e. Cosco and unlicensed referral companies (See the Sponsors of the bill summary below). These Kickback schemes were not to a principle in transactions. The Cash Rewards incentive I am offering is a gift from me to my client. My agreement is with the buyer or a seller directly related to my transaction. The commission earned is directly related to the service and benefits I provide either to the buyer or seller of the transaction (principle). I am providing a certificate, similar to a closing gift. The principle to the transaction is not getting compensated for anything related to the requirements of AS 08.88. i.e. I am not paying them for referrals, negotiating, etc. The client is merely taking advantage of some of the benefits and services we offer.   I believe the original intention of the bill was good, I do not believe the current so call "interpretation" of the bill is good for several reasons:

 

1.   The interpretation is not in writing and is subjective to the interpreter. This puts the interpreter on the spot and the Licensee has to guess every time they want to run a promotion. The State of Washington has a statute in place which is almost identical in many respects to AS 08.88.401, and is not in violation of anti-trust laws. Their interpretation is as follows:

According to long-standing interpretation, it does not violate Washington State's laws governing the licensing of real estate brokers and real estate salespersons to rebate all or a portion of a real estate commission to an unlicensed principal (buyer, seller, lessor, lessee) in the transaction in which the commission is generated.  It would violate licensing law to share a commission or pay a referral fee to an unlicensed party who is not a principal in the transaction where the commission is generated.  Accordingly, a licensee could advertise: "buy or sell through me and I will give you _________".  A licensee should not advertise: "refer somebody to me who buys or sells and I will pay you ________ for the referral".  A one-time unexpected thank you gift would not be a violation of licensing law.  A promotion, in which unlicensed participants, with the expectation of compensation are encouraged to procure prospects for real estate transactions, would be a violation.

A rebate of all or a portion of a commission by a dual agent would require the written agreement by both the buyer (or lessee) and the seller (or lessor).  A rebate of all or part of the commission to the buyer by the company representing the buyer, or to the seller by the company representing the seller, would not require written consent of both buyer and seller.  A rebate to a buyer should be disclosed in documentation provided to any lender in the transaction providing financing to the buyer.  A rebate to a seller in a short sale must also be disclosed to the seller's lender.

Since transaction disbursements are usually handled by a closing agent, brokers are encouraged to seek advice from their accountant or tax attorney before offering or agreeing to disbursements after or outside of closing.  A commission rebate disbursement outside of closing, by itself, would not violate licensing law.  Accountants or tax attorneys might advise that a disbursement outside of closing could be considered to be a non-deductible gift, leaving the broker with tax liability for the full commission while netting only a portion of the commission.  I believe that it's also likely that a Form 1099, not reflecting the rebate, would be generated.

Washington Law:

           
           
RCW 18.85.330

            Sharing commissions.

 

(1) Except under subsection (4) of this section, it shall be unlawful for any licensed broker to pay any part of his or her commission or other compensation to any person who is not a licensed real estate broker in any state of the United States or its possessions or any province of the Dominion of Canada or any foreign jurisdiction with a real estate regulatory program.

     (2) Except under subsection (4) of this section, it shall be unlawful for any licensed broker to pay any part of his or her commission or other compensation to a real estate salesperson not licensed to do business for such broker.

     (3) Except under subsection (4) of this section, it shall be unlawful for any licensed salesperson to pay any part of his or her commission or other compensation to any person, whether licensed or not, except through his or her broker.

     (4) A commission may be shared with a manufactured housing retailer, licensed under chapter 46.70 RCW, on the sale of personal property manufactured housing sold in conjunction with the sale or lease of land.

2.   REC interpretation is in clear violation of Sherman Anti-Trust laws, and is a form of price-fixing, Washington interpretation is not. It is illegal to prohibit free competition in such a way. This has been demonstrated in United States of America Vs. Kentucky Real Estate Commission http://www.usdoj.gov/atr/cases/krec.htm which is also attached.  The attached document explains this much more clearly than I could, so please review. The agents involved in passing the original law would be in violation of the conspiracy if they used the same interpretations used currently. The Licensees on the REC board will be in violation of Anti Trust conspiracy if they talk about and encourage this interpretation.

3.   This interpretation is in direct contradiction to the stated mission of the Alaska Real Estate Commission: "The mission of the Alaska Real Estate Commission is to protect the public interest..."

4.    By prohibiting rebates and limiting competition through the current interpretation of AS 08.88.401, the Real Estate Commission is harming the public, by forcing consumers to pay higher prices for fewer services, than would otherwise be attainable in an open and competitive market. As a result, Alaskan consumers could unnecessarily be paying hundreds of thousands of dollars a year due to artificial price controls. This is exactly the purpose of anti-trust and price fixing laws. The real estate commission and State of Alaska are currently harming the public, those who they exist to protect. The Department of Justice highlights some of the advantages to consumers of rebates at: http://www.usdoj.gov/atr/public/real_estate/rebates.htm

5.    Also attached are letters from Law offices of Incorvaia regarding California law, FTC and RESPA

I, Don Zimmerman at IEC Realty would like it noted that I am in complete opposition to any and every form of anti-trust violation or price fixing, and that we believe that any limitation of rebates, inducements, incentives, gifts, etc. from a licensee to his/her principle is a violation of federal law. I will not cooperate in any way with such illegal and conspiratorial activities.

See below for additional research

Please find attached:

Sherman Anti-Trust Law 1 pp.
United States of America vs. Kentucky Real Estate Commission 14 pp.
Washington Statute and its Interpretation 3 pp.

Sincerely,

Don Zimmerman
IEC Realty

Stephen Graham
Inactive - Atlanta, GA

Great information about home buyer rebates; they are very beneficial to home buyers. Perhaps the home buyer doesn't need full service and is willing to incur some of the legwork. In that case, a buyer's rebate might be appropriate and it is merely a price reduction of buyer-agency services; there should not be any laws to preclude home buyer rebates. I give rebates to adjust the cost of my services. While there is no direct cost to pay for a buyer's agent, the buyer bears some of the burden for real estate commissions through the price of the house.

In addition to the rebate, a buyer should seek out a good buyer's agent who is focused on saving the buyer money through strong negotiations throughout the entire transaction.

 

Jun 05, 2008 04:44 AM
Mike Mayer
Mike Mayer, Broker/Owner - i List For Less Realty, LLC - Lafayette, LA

What was the outcome, Don? Any success with having the law changed?

Apr 03, 2011 11:10 PM
Anonymous
Hilary Lockhart

I would love the outcome as well, as we have this problem in Alaska.

Oct 04, 2016 10:32 AM
#3