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Cash back and gifts!!

By
Mortgage and Lending with Olympic Northwest Mortgage

Are you giving something to your clients after your transaction is complete? I'm wondering how many of you are doing this? There are some of you that are giving cash back on real estate deals to buyers which is illegal and I don't think anyone will admit it but, how many of you have been running into clients that expect a return in someway?

This has been brought to my attention a few times about real estate agents feeling that in order to get a customer to agree to let them be their agent that they must give them a 1% kick back on a purchase...I won't give out any names but, what are your thoughts on this topic? As for the loan side I was asked this for the first time by a new client who asked if I would be willing to give them some cash in return for them letting me work on their loan because another loan officer offered them 2,000 dollars after closing and there real estate agent who recommended them to this person also was going to give them a cut of there commission on a purchase....

I asked them what made them choose to come to me..they said that there friend told them that they should come to me because I gave them great service on there loan...I then asked them if that was important to them. They said yes...I told them I do not give out any money but , will not short them on the level of service I provide..I then stated if someone is willing to give you money to do your loan do you think they will work as hard for you to provide you with the best rates and lowest fee's..Most likely they are going to charge you more to do your loan and not help you when you need it...I take great pride in my work and I know most of you other ActiveRainers due too...And as for the agent do you think that this agent is going to work as hard for you if they are not going make a full commission? They then had many questions including if I new a good agent who would find them a great home and work for a good deal for them.

What are your thoughts?

How many of you run into this or see this happening?

Are we not doing enough too earn our commission?

I'll appreciate your input....

Comments(34)

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Stephen Luckett
ExecuHome Realty-LuckNet Real Estate Group - Dundalk Sparrows Point, MD

It is illegal in MD to give any monetary award, reward or gift to any unlicensed person. People have this idea that we do nothing, sit back, and rake in the big bucks-so it is easy for them to ask. My answer to them is best explained in another Blog today

The Power of NO by Jeff Dowler

Note Lenn Harley comment on the blog!

Feb 20, 2007 01:35 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Coldwell Banker Realty

Good timing on this topic.  One of our Buyer Specialists received a call yesterday from a prospect asking if he would "match" the $1,000 contribution towards closing costs that another agent trying to secure the Buyers business was offering.  The Buyer is a VA Buyer - don't know if VA loans preclude that or not - but the Buyer had the impression they would be getting the $1,000 regardless.  Our response - NO - any other questions?  Oh by the way, check with your lender to see if this is legal.

Feb 20, 2007 01:37 AM
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate

In California, giving kickbacks is a RSPA violation.  NO  NO  NO

I usually send a moving kit (boxes to my clients) during escrow when we release contingencies to help them with packing and leave an orchid for them at closing in their kitchen to brighten up their day.

Irina :-)

Pasadena, cA

Feb 20, 2007 02:00 AM
Virginia Halter
RE/MAX Signature Properties - Harrisburg, NC
ABR, CDPE, CRS, GREEN, SFR, SRES

In NC we do have agents who rebate commission to the buyers.  I, personally, am not one of them.  I work very hard to earn my commission.  I get frustrated occasionally when the public gets up-in-arms over Realtor compensation but, thankfully, my buyers see for themselves how i earn the commission I am paid.  I have, very rarely, had a negative comment regarding my compensation.

As for how legal it is, it is my understanding that Realtors can do exactly what they want with the commission that goes to their side as long as it is on the HUD. There can't be a check sliding across the table after close or a huge pile of cash waiting at the door.  It's sad but it is legal if the paperwork is completed so everyone is aware.

 

Feb 20, 2007 02:02 AM
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

George, sorry but you are wrong. 

I won't debate here whether rebating is good or bad, but you better understand that it is LEGAL and saying that it isn't might land you in trouble (ala price fixing/ DOJ). I blogged about Rebates here: Realtor Rebates. Free Money or Expensive Savings?

Only a handful of states do not allow rebates: Alabama, Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, New York, Oklahoma, Oregon and Wyoming.

Washington state is not on that list. Here is an example of the DOJ working to change that short list: 

 

So please retract your: "giving cash back on real estate deals to buyers which is illegal " statement and replace it with an opinion on whether you like it or not.

 

Thanks for starting the debate 

Frank Borges LL0SA- Virginia Broker/ Owner FranklyRealty.com

Blog.FranklyRealty.com Featured in BusinessWeek, CNBC, WSJ etc.

                      

 

 

Feb 20, 2007 02:23 AM
Debbie White
Southeast Alaska Real Estate - Juneau, AK
I Sell Alaska!

As a Realtor in a state that does not allow this practice (Alaska) I applaude your effort and meaning, but must agree there are states that have not taken steps to ban this practice.  It certainly makes it easier to say no when you can quote statute! 

The question now is, can we get this undone?  Certainly those industries profiting from this have a lobby group, but does it trump our own?  NAR is considered one of the strongest they say, so perhaps your RPAC donations could be put to use.  That's how we stopped it but fortunately it didn't get a real chance to start.

Feb 20, 2007 02:36 AM
Teri Isner
Keller Williams Realty at the Lakes - Orlando, FL
GRI, CRS, CIPS
Just went to an Attorney course here and this came up they all said they wouldn't do it something about Rico laws or Ricco law...scared the begibees out of me even if you are party to the transaction do you then need to 1099 the money rebated as income would your broker be liable if the taxes weren't paid...it opens a whole can of worms
Feb 20, 2007 02:52 AM
Kelley Eling
Fathom Realty Group - Sonoma, CA
Realtor Extraordinaire

Giving cash back only tells the client that the person giving the cash feels that they are being overpaid.  And those particular individuals probably are.  I cannot imagine them giving their utmost to the client.  Would your doctor give you a rebate?  Your attorney?  Your mechanic? Your hairdresser?

When I represent buyers, I usually give them a very nice key chain that I feel fits their personality.  When I represent sellers, they get the proceeds that are the fruits of my (and often their) labor.

These practices make our industry seem slimy.  And slimy tactics they are.  We have an agent in our neck of the woods that arrives at listing appointments with a check made out to the sellers in the amount of $10K.  Why on Earth would anyone sign with this agent?  And yet they do.

Feb 20, 2007 03:19 AM
Kaye Thomas
Real Estate West - Manhattan Beach, CA
e-PRO, Manhattan Beach CA

As noted by Mark Flanders giving cash back after COE without lender approval  is considered defrauding the lender.. which is why Zip Realty and Redfin make sure they note clients will receive credit for closing costs or toward the down payment. ( which I'm not sure is accepted by lenders in CA from a non related party).

 I've been giving gift certificates to Home Depot or to a very nice restaurant and have offered to babysit for the evening.. I used to give watercolors done by a local artist of our cities but her work got too expensive... I try to be creative and give something that relates to that client.   One client saw me doing some needlework and wanted something similar.. Last year I made a baby blanket..  It's not so much what you give as the fact that you thank them for their business and let them know you appreciate them. 

Feb 20, 2007 04:12 AM
AZ Mortgage Broker: Michael George
Arizona Wholesale Mortgage Inc. - Phoenix, AZ
AZ Mortgage Rates

I wouldn't give "cash back", but if I decided to lower my commission- take off the loan origination fee "at closing" for example...

The borrower still comes in with a couple thousand less than he was supposed to, so it's "cash" in the bank for him or her, and I didn't violate any laws. 

What would be the difference to the buyer came into COE with $5000 and you gave him a kickback of $1000 post-COE, or you just lowered your commission at title so that he only has to come in with $4000?!?  Am I missing something here?

If people are actually giving literal cash after a transaction (or even cash debit cards)...well, that just sounds kind of gangster-ish.  I wouldn't even like dealing with a Realtor or lender that did post-COE kickbacks.  Not professional, in my humble opinion.

Feb 20, 2007 04:33 AM
George Hanson
Olympic Northwest Mortgage - Bremerton, WA

First of all I would like to thank everyone for their feed back...I see that there is some debate on my topic and would like to clarify what I was referring too...1.As for cash back,I was referring too after the transaction is complete the buyers agent would give thier client 1% of the purchase price back to the buyer when he or she gets paid for the deal...with nothing being disclosed to the other parties...I should had make it more clear in my original statement....2.As for the loan side I was asked to due the same,(give some cash back after closing which would not be a broker credit and nothing would be disclosed about it in the final Hud..) I meant these actions to be considered illegal...

As for gifts after closing I personally feel there is nothing wrong with giving your signature gifts(door knockers,house related items,flowers,books).I personally give out a gift card for dinner or lunch or a night out at the movies along with a Binder that our office provides which organizies all the loan documents and helpful information like how to increase the value of your home..But not because I feel I need to but, because it is my way of saying thank you and congratulations..

Also agents that who feel they need to lower there commission when listing a home well thats a great topic also or Loan officers charging more or less...What are your services worth? Are you earning your commission?I take great pride in the work that I do and feel that I'm am worth every penny that I earn and I feel that most of my clients do too.If I felt that I needed to give up some of my commission to obtain someones business than I'm only short changing myself worth...Everyone wants the best deal but in my experience most people care about the service that is provided rather than save a buck or two...Because in the end they will always remember your service and their experience when wanting to do another transaction and easily forget the cash you gave if your efforts were not up to par....

Feb 20, 2007 05:05 AM
George Hanson
Olympic Northwest Mortgage - Bremerton, WA
Lowering fee's to help in closing a loan or whats in the best interest of the client is always ok as long as it's documented in the loan. Were here too help,and if that means not making as much on a loan then so be it...If I told my client that I can due there loan at 6.0 and the rates get bad it's my lost..If they were expecting that it's my job to deliver,on the otherhand if they new it was not locked and it's possible it might change than things might need to change if they agreed.
Feb 20, 2007 05:19 AM
New Tampa Property Management
Rent New Tampa, Inc. - Tampa, FL
Hmmm... I have been seeing a lot of these "kick backs" being offered by condo conversions - concessions paid outside of closing - and personally believed this was Mortgage Fraud... might have to start up a topic on that one considering how much attention was paid to this...
Feb 20, 2007 06:16 AM
Tim Maitski
Atlanta Communities Real Estate Brokerage - Atlanta, GA
Truth, Excellence and a Good Deal

The reason most of the rebaters exist is that the buyer's agent fee is wrapped up with the listing agent's commission.  Therefore, the buyer has no other way to negotiate that fee down even though the buyer ends up paying for that commission in the form of a higher purchase price. 

It's a nice set up for buyer's agents because they can just say that they can't change their commission because it has already been set by the seller.  From the buyer's point of view, that really stinks.  It makes the buyer pay for full service even if they don't want it. 

Feb 20, 2007 08:04 AM
Christopher Karalis
Orange County Capital Mortgage - Laguna Niguel, CA

The Act prohibits kickbacks between lenders and third-party settlement service agents in the real estate settlement process (Section 8 of RESPA), requires lenders to provide a good faith estimate for all the approximate costs of a particular loan and finally a HUD-1 (for purchase real estate loans) or a HUD-1A (for refinances of real estate loans) at the closing of the real estate loan. The final HUD-1 or HUD-1A allows the borrower to know specifically the costs of the loan and to whom the fees are being allotted.

 

SO if its disclosed is it OK????????????????????

Feb 20, 2007 10:45 AM
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
Great post. I have heard of this. It's horrible. I totally agree that you don't work as hard when you know that you are discounting. Besides, you have to short them somewhere to save the money or you will end up losing on the deal. I don't think some people care about the laws and are just desperate to make money. 
Feb 20, 2007 11:56 AM
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

You make it difficult to answer the question, as you appear to think that sellers can pay 2% for a listing fee, but buyers must pay as much as 5% if the seller or builder offers that.  You seem to have already decided that buyers cannot talk about a fair price for your services.  If a builder offers a 5% SOC and the buyer wants you to make the same as you would make on any other home he chooses, why is that a "rebate".  Seems fair to charge the same and not 2% more.

Is there any flexibility?  If you sell a million dollar townhome in Bellevue and the builder is offering a $50,000 buyer agent fee, are you saying there is no discussion of that fee with your client, the buyer?

Feb 20, 2007 12:48 PM
Brian Brass
Brian Brass - Guaranteed Rate - Troy, MI
There are a number of Real Estate Brokerages who base their business model on the Buyer's rebate.
Feb 20, 2007 03:15 PM
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Hey George,

Thanks for the clarification. It seems however that 75% of your responders missed the point of your blog. It isn't a debate on whether rebating is good or bad (I have long blogs about that), but instead about the OFF THE BOOKS cash back after closing. 

 

Yes that is 100% fraud and should be reported. After they are in Jail, please post a follow up on Active rain.

 

Frank  

Feb 20, 2007 05:00 PM
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Also, for those that say Rebating is "unethical", that is the stupidest thing I have ever heard and it is borderline RICO. Rebating is no different than discounting. Is it "unethical" to charge a lower commission on a listing?Give me a break. Of course not. To each his own regardless of it being on the buy side or listing side. 

You might incorrectly assume that I am a discounter from my above comments. You'd be wrong. However I can respect those that do it. It is a different business model and if they can do it and not go insane (to make the same money you have to have more clients and manage them with the same 24 hours a day that everyone else has ), the more power to them.

So you non discounters and non rebaters, you better refine your pitch. If all you can say is "that guy is unethical", you will start to lose business quickly! Instead you better talk about what you do better and how your client will be better off with you. 

 

Frank         

Feb 20, 2007 05:07 PM