Realtor group says no to consumer rebates
Bills would allow cash incentives for buyers, sellers in New Jersey
By Glenn Roberts Jr., Wednesday, April 16, 2008.Bookmarking Sites
The New Jersey Association of Realtors is opposing legislation that would allow real estate brokers and agents to provide cash rebates or other gifts to buyers and sellers.
Members of the state's Real Estate Commission, a regulatory agency that enforces licensing law in the state, has considered the legislation but hasn't yet announced a position.
Assembly Bill 373 and Senate Bill 139, introduced by state Assemblyman Patrick J. Diegnan Jr., D-South Plainfield, N.J.; and state Sen. Nicholas P. Scutari, D-Linden, N.J.; seek to amend a provision in the state's real estate law that generally prohibits payment of a "rebate, profit, compensation or commission" to any person who is not a real estate licensee.
While officials at the U.S. Department of Justice's Antitrust Division have taken action to oppose bans on rebates in several states, New Jersey Association of Realtors officials contend that the offer of rebates can actually be harmful to consumers.
Jarrod Grasso, executive vice president for the state's Realtor trade group, said, "This bill obviously raised some red flags for us. We feel this is a detriment to consumers. We don't want to see consumers negatively impacted by the legislation."
All real estate commissions are negotiable, Grasso said, and consumers in the state "already have great flexibility in determining how much they want to pay for services."
He referred to real estate rebates as a "gimmick," and said that rebates could distract consumers from paying more attention to the quality of service.
If the legislation is passed, the association worries that "the consumer won't be out there looking for a Realtor who provides the best service -- they will be out there looking for the biggest discount or give-back," according to Grasso.
U.S. Department of Justice officials were not immediately available for comment.
Grasso said that Justice Department officials reportedly had communicated support for an earlier, identical version of the proposed legislation during a New Jersey Real Estate Commission hearing.
The association is interested to see whether the commission will take a position on the legislation, he said.
Officials at the New Jersey Real Estate Commission were not immediately available for comment today.
Joseph W. Hottendorf, executive vice president for the Liberty Board of Realtors, a local Realtor trade group in Secaucus, N.J., said his board has taken a position in opposition to the legislation and that rebates would "take away from the professionalism in our profession."
"It's so difficult to get the consumers to pay attention to us on the issues they must understand and address, such as home inspections and making sure they get the right kind of mortgage," he said, while rebates may attract consumers to ignore other issues while focusing on a type of reward, he said.
"The buyer is going to pay so much attention to the prize, the gift, the check," he said. "This is just another regulation that will not help the consumer. Where do you think they get the money from? They're going to get it from sellers."
New Jersey is one of 11 states that restrict real estate licensees from offering rebates to consumers. Earlier this month, the Justice Department announced that its investigation prompted Montana's Board of Realty Regulation to lift restrictions banning real estate licensees from soliciting business through the offer of "gifts, rebates or promotional items."
And the Illinois Legislature has rejected proposed legislation that would have restricted the offer of rebates in that state.
Some brokerage companies, such as Iggys House, Redfin and ZipRealty, offer to rebate a portion of the commission they receive for services in a home-sale transaction to buyers.
Typically, the listing broker in a sale transaction performs services for a total commission that is a percentage of the home's selling price, and this commission typically ranges from 5 percent to 7 percent.
The listing broker offers a portion of this commission to the broker representing the buyer -- generally about half of the total commission, though this can vary widely.
The legislation proposed in New Jersey provides that real estate licensees may rebate a portion of the commission that they receive to the buyer or seller, as long as the rebate is contracted in advance and the licensee complies with any state and federal requirements related to the disclosure of the rebate payment.
Also, the proposed legislation states that the rebate can be in the form of cash or "other thing of value, including, but not limited to, a gift certificate," and may be given at or after the closing.
Derek Eisenberg, a real estate broker for Continental Real Estate Group Inc. in New Jersey who offers flat-fee real estate services, said he hopes to see the rebate legislation pass, though he has some concerns about the use of real estate rebates.
He said he would support rebates that are factored into the final sale price of the home and do not put cash in a buyer's pocket, for example. The latter, he said, can function as down-payment assistance and borders on trickery and bank fraud.
"Why not just lower the price? I would support the commission being lowered by the amount of the rebate and the seller just selling the house for less."
While a restructuring of the commission system could bring more clarity to the issue of agent compensation, Eisenberg said he believes the rebate bill has a better chance of passing than an overhaul of the real estate compensation system.
The existing law that generally prevents rebates to unlicensed persons, he said, "is an anti-consumer law and I think rebates should be allowed."
Grasso of the New Jersey Realtor group said he is unaware of whether a committee hearing has been scheduled yet for the rebate legislation, and he said he wouldn't speculate on the bill's chance of success.
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Submitted by chris eliopoulos on April 16, 2008 - 1:30pm.
Hey
Lets work for FREE,why not.
Are these people in NJ dreaming or what?
Why in the world a r. e. pro wants to give back his hard earned money?
Did you see any attorneys,doctors,plumbers,politicians etc.doing that?
I think is time for every one to leave real estate along.They can go and regulate some other fields like the justice system,securities,health that are still criminally unregulated and are causing a great harm to the consumers and society in their current operating form.
Submitted by Daniel Rothamel, The Real Estate Zebra on April 16, 2008 - 1:39pm.
The argument over rebates exists only because of the screwed up way that agent compensation is handled. I still haven't heard a decent argument as to why the buyer doesn't pay his agent separate from the seller paying his agent. If we could get that issue under control, then rebates wouldn't even be necessary, you would simply be negotiating whatever compensation was agreeable to the parties. Is that SO hard?
Submitted by Daniel Rothamel, The Real Estate Zebra on April 16, 2008 - 1:40pm.
correction to my last comment, I meant to say "broker compensation." Agent compensation is whole different issue, entirely. :-)
Submitted by Derek Eisenberg on April 16, 2008 - 2:29pm.
Chris,
You can negotiate with an attorney, doctor, or plumber but if you are a buyer, the commission for your buyer's agent is set by the seller.
That goes against the spirit of all commissions are negotiable. They are negotiable for Sellers but not for Buyers. Rebates give Buyers the same freedom to negotiate that Sellers have.
The problem is that it amounts to bank fraud when a seller is required to put a certain amount into the purchase (a down payment based on a loan to value ratio) and they don't really put that amount down because of rebates. The same goes with seller paid concessions. All this trickery amounts to bank fraud.
Sure it closes more sales but then we have a lending crisis like we have now and the whole market suffers. If an LTV is 80% conventional and 97% FHA then the buyer should be paying 20% or 3% respectively towards the net purchase price after all the rebates, concessions etc. Instead we had people buying for no money down and now we have a mess.
So rebates are good but so is truthful reporting.
Derek
http://www.mls2u.com
Submitted by jerry silverman on April 16, 2008 - 2:37pm.
Come on people. Real Estate is not brain surgery. Yes people should understand the key issues when purchasing a home but I do not understand how a rebate will prevent an agent from doing his job. If your concern is that agents who are not as qualified will win business then make it tougher to get a license. Lawyers and doctors (and even plumbers) have much tougher barriers of entry to get licensed in their respective fields than real estate agents. We get payed - in some cases - thousands of dollars per hour for the work we do and in these tough times when people have less money and banks are tightening their lending procedures most buyers can use the help. Buyers are forced to pay for half the commission due to the fact that the sellers figure it into the price they are willing to accept. Since the buyer cannot negotiate the amount that is payed to the selling agent, allowing the buyer to negotiate a rebate makes total sense.
Submitted by Brian Columbus on April 16, 2008 - 2:41pm.
And the debate continues...
Rebates, closing gifts and other incentives are just another tool in the modern real estate marketer's box. If you believe that competition is good or that the quality of a real estate professional's services are the primary driver of fees, there's no reason to fear these marketing tactics. Taking these options off the table hurts both realty professionals and consumers by diminishing competitive marketing practices.
Brian Columbus
HomePerks.com
Submitted by Denise Canell on April 16, 2008 - 6:33pm.
I'm not suprised that a "flat fee" agent agrees with real estate rebates. He already gives away the store on this listing side. Of course, he doesn't service the seller the way a traditional agent would....but he has the buyer's agent to pick up the slack. Buyers don't, and should not be able to, negotiate commission, because they are not paying the commission. The previous post said that the commission on a sale can't be negotiated by a buyer, because the accepted offer was predicated on the seller paying the commission. Well, that might be true sometimes...but I have seen buyer's agent ask for a reduction in commission in order to put a deal together...so it happens.
As for the comment about being able to negotiate with Lawyers and Doctors....maybe a Lawyer....not a doctor. You think if you need your gall bladder removed, the doctor will neogitiate?
As for Brian's comment......thousands of dollars and hour? You need to factor in all the work done during the day....and that includes time wasted on clients that never end up buying or selling. While the market is tough right now...it was not a Realtor that put someone in an adjustable ARM that the seller can no longer afford. So why should we take a cut in commission. The tougher the market, the harder the agent has to work to put (and keep) a deal together.
Submitted by Janice Ingham on April 16, 2008 - 8:15pm.
Somebody mentioned the low barriers to entry which needs to be emphasized in the context of this ongoing agent compensation debate. Those barriers must be improved before agents can rank (in the eye of the general public) among other professionals and thus be treated with a similar level of respect. I don't question the market rates of compensation when I do business with other service professionals. It doesn't occur to me to negotiate with my dentist, doctor or CPA. Whether he/she is willing to (or legally able to)is beside the point. Do I really want to nickel and dime my dentist or CPA; I would guess that's not in my best interest. Not to mention the average annual income of a Realtor is not stellar (80/20 rule). I am a big advocate for consumer protection with regard to real estate laws and agency disclosures but I have always found it astonishing that I can handle somebody's biggest asset with 60 hours of instruction but I would need 1800 clock hours to cut my client's hair.
Submitted by Corey Scholtka on April 16, 2008 - 10:58pm.
A "rebate" implies that there is a 'set price' or a 'standard' commission of some sort. I thought there is no set price on real estate services, no anti-trust or marketplace "norm" and all the brokers set commissions on their own without influence by other competitors? Good thing these are the same guys are keeping an eye on all this dreadful legislation! (Kind of like Catholic priests policing for pedophiles).
Submitted by Patrick Rabelo on April 17, 2008 - 1:27am.
If compensation is the issue,then, why not allow Real Estate Professionals to charge by the hour like Doctors, Lawyers, and other professionals?
Consumers would have the freedom to select a Realtor solely on price and one would not have to worry about commissions being set by Listing Agency or rebates.
As for Realtors, an hourly rate comparable to a Doctor or Attorney sounds very attractive especially in a market where Buyers tend to expend a great deal of time looking at several homes before making a decision. Most Attorneys charge around $300.00 per hour preparing agreements, counseling clients, or speaking on the phone. Moreover, Attorneys do not make house calls and require their clients to meet them at their offices at times convenient for them. This sounds very appealing!
Submitted by Damien Hall on April 17, 2008 - 8:02am.
Rebates should be allowed in the marketplace. Like Brian said, the name of the game is competition. If one is a good Realtor then offering a rebate to earn more business won't hurt. It will only hurt the Realtors that do not want to deliver exceptional service to their clients. Besides, offering rebates to non-licensees won't have a significant impact on the industry as a whole.
As far as buyer's not being allowed to receive a rebate, I don't agree with that. They should be allowed as well. Personally, I don't think it should matter that part of a buyer's down payment come from a rebate. Banks are only worried about putting too much of their own skin in the game. Lenders should be fine as long as they don't extend themselves by having high LTVs on their books. The reason they got into trouble was because of the 100% LTV products. When the market turned they had too much risk on their balance sheet.
Submitted by Derek Eisenberg on April 18, 2008 - 5:51am.
To the April 16, 2008 - 6:33pm writer, we offer full service as an option to our flat fee clients and wish everyone would take it. We make a lot more when they do. So your premise that it does not surprise you that a flat fee agent would support rebates is just wrong.
What I support is the right to negotiate commission on the buy side but I don't support trickery. I don't support rebates and concessions that offset downpayment requirements and defraud lenders because this perpetuates the banking problems that we have in the economy now.
Rebates are not my ultimate goal; they are just a doorway. What I really want to see is for buyer's agents to compete for buyer business. If a buyer's agent is willing to take less than the offered co-broke, the seller should drop the price by the reduced amount that he/she does not have to pay in commission.
As for Doctors, they negotiate with your insurer but in cosmetic surgery which is elective, they negotiate all the time.
To the April 17, 2008 - 1:27am writer, what leads you to believe that Realtors cannot work hourly. Nobody has to let them do it.
Derek Eisenberg
http://www.mls2u.com
Submitted by Patrick Rabelo on April 18, 2008 - 7:13am.
To the April 18, 2008 - 5:51am writer. There isn't anything that leads me to believe that Realtors cannot work hourly. The reality is that being paid hourly is not a customary practice and maybe it is something that the profession should look into.
As for rebates, the Real Estate Settlement Procedures Act was enacted with the purpose of eliminating kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.
As an example, aren't rebates of an agent's commision reducing the costs of settlement services to the buyer and, therefore, reducing the net costs of settlement services?
If one agrees with the concepts of RESPA, then, there is no need for a seller to reduce their listing price because of the rebate. If anything, rebating a portion of an agent's commission will help increase profit to the seller and reduce the settlement costs for the Buyer. It seems like a win/win situation because sellers can benefit from a slightly higher price and buyers benefit because of the rebate they receive from their respective agent's commission. The agents may not be too excited about giving back commissions, though.
Ultimately, rebates can be a good or bad thing depending on what guidelines are in place to enforce compliance.
Submitted by Jeff Meisner on April 18, 2008 - 6:53pm.
Every industry has something to offer its customers. Buy 1 get 1 free! 50% off today only. Why not real-estate? Why not offer performance guarantees to consumers that add value to them and make your self accountable for your quality. Why not offer a rebate on your services if you don’t perform as promised. Brokers are not accountable for the quality of service they provide and the consumers must live with contractual fees agreed on up front; however the services or quality is not part of that agreement. I see this as a big win for consumers and a problem for the establishment or statuesque. I hope it happens but I don’t have much faith that it ever will.
Submitted by Joe Cline on April 21, 2008 - 11:04pm.
I think the main problem the real estate industry has with rebates and limited or half a$$ed services is that the agents on the other end of the deal, who take the profession seriously and follow the NAR Code of Ethics and standards of practice are punished by other agents using these methods of business. For instance, if I'm a full service agent providing a service for my client and the sad excuse for an agent on the other end of the deal is providing a $395 flat fee listing, well guess who does the work of getting the deal to closing? The other agent already pocketed his $395 and could care less.
We full service NAR folks are REQUIRED to act in the best interest of our clients at all times. That means that if doing the work of the other agent makes the deal work out well for our clients, then we are required to do that. If we could do something to fix that issue I'd be all for some limited service flat fee agent giving all his commission to his client, but it shouldn't cost me on my end of the business.
Joe
Brian A. Bailey Homes | Loan Programs Available to Buyers in Austin Texas
Submitted by Phillip Jones on April 25, 2008 - 7:30am.
There are a few items to point out in this "discussion" on buyer rebates (bribes)...
First, it's a free market and buyer rebates are here to stay, like it or not, regulation or not, buyer rebates are here forever.
Second, how is my time/work worth $18,000 on a $600k house while it's only worth $9,000 on a $300k house? Is the time I spend with the higher priced buyer more valuable? Is the paperwork that I complete better or different for the 600k house? Will I give the 300k buyer 1/2 the service and care 1/2 as much about their deal?
No.
So I win the lottery if I land a buyer that is fortunate enough to be able to afford a 600k and they use me as their agent. I'm not saying that this is wrong, but it does seem a little out of balance.
Finally with regard to rebates, I use them when needed to gain a competitive advantage. I look at it like insurance. If I've invested time into a buyer and then get that uneasy feeling that they may be looking with someone else because I didn't answer my phone at 8:30am on a Sunday morning I'll offer a rebate (amount varies depending on deal size) because I would rather keep the customer and earn 2% than lose them and earn 0% - I think that makes sense, but I'm biased.
At the end of the day, regardless of how much I earn (based on the purchase price of someone elses home) I still need to provide excellent service to keep my customer happy and get referrals..