The U.S. Justice Department is investigating a complaint about a contentious Kentucky law that bans free gifts given by real estate agents to consumers.

The Kentucky Real Estate Commission had already begun a process to revise the law before receiving notice from the Justice Department last month about the investigation, said Shelly Saffran, director of administration for the commission. The Justice Department plans to request documents relating to the existing law, Saffran also said.

Kentucky is one of a few states that have laws severely restricting the ability of real estate agents to offer inducements or rebates to consumers as a business incentive.

“We’re pretty strict compared to the rest of the country,” Saffran said. But some real estate professionals would like it to stay that way. Under the current law, she said, it is technically a violation for a Realtor to take a consumer out to lunch and pay for it.

The commission, she said, has tried to be lenient in enforcing the law. “As we received complaints we would send out warning letters,” she said. But the complaints kept pouring in and the commission felt a change was needed, she added. “It was being violated on a daily basis so (we felt) we had to make it less strict.”

In some cases, the commission has issued penalties for violations of the law. For example, the commission last year cited a manager of a real estate brokerage office with “failing to adequately supervise his affiliate licensees . . . causing them to offer, unintentionally, an illegal inducement to the general public.” The commission fined the manager $500, and the manager agreed to complete additional hours of continuing education.

If the Justice Department finds that the original law violates antitrust laws, the law revision may become moot, she said — “basically if we’re found in violation then this process really wouldn’t matter — the law would have to come off the books,” she said.

“The problem with the inducement law is that oftentimes the inducement has already happened” when the commission learns of the violation, Saffran said. “It is very hard to use ‘preventative medicine.’ “

About 125 people attended a public hearing in Jan. 21 relating to a possible softening of the anti-inducement law, and Saffran said industry professionals appear to be very divided about the existing law.

A winter 2004 edition of a Kentucky Real Estate Commission newsletter featured the results of a survey relating to the anti-inducement law. The commission reported a total of 1,126 responses opposing law changes that would allow agents and brokers to offer inducements to prospective clients, with 254 responses in favor of such changes.

Also, the commission reported 1,139 respondents opposed any changes in law relating to rebates offered by agents and brokers to clients, while 241 respondents favored changes to law to allow such rebates. And 1,122 respondents said they want to keep the law intact relating to inducements and rebates, while 262 respondents said they favor a change in the law.

An informational quiz that appeared in the same newsletter cited many examples of violations under the current anti-inducement law. It is illegal, for example, for licensed agents to offer a free fast-food sandwich coupon that includes their name; to offer free pictures with Santa for the purpose of collecting potential clients’ names and phone numbers; and to offer a rebate if a client’s home is not sold within a specified period of time.

The existing law provides that it is improper for licensed real estate agents to offer “either through advertising, direct contact or by others, to the general public, any prize, money, free gift, rebate or any other thing of value as an inducement.”

The proposed law change would allow agents to “advertise or distribute goods or services offered by others,” and would allow agents to “distribute marketing materials bearing the name or logo of the licensee or licensee’s broker or company” on a number of items, such as “matchbooks, magnets, pens, calculators, umbrellas, or calendars having a cost of not more than $10 per item.”

The proposed law change would also allow agents to “pay for refreshments or the costs of meals consumed by clients, customers or prospective clients or customers,” would allow agents to “present any gift that does not exceed a cost of $100 at or after closing to the participants in that closing.”

And the law change would allow agents to offer free prizes and gifts at various events “so long as such advertising is done only at the specified event and the cost of the prize or free gift does not exceed $500 per event per branch office.”

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What’s your opinion? Send your Letter to the Editor to glenn@inman.com; (510) 658-9252, ext. 137..

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