The Kentucky Real Estate Commission has tossed out former restrictions on real estate rebates to settle a lawsuit brought by the U.S. Department of Justice.

The Kentucky Real Estate Commission has tossed out former restrictions on real estate rebates to settle a lawsuit brought by the U.S. Department of Justice. The federal agency had charged that the state’s rebate ban could result in higher prices for real estate services and could limit competition among real estate brokers.

Formerly, all forms of real estate inducements and rebates paid by real estate professionals to consumers were not allowed in Kentucky. The state passed an emergency regulation Wednesday, effective immediately, that reverses the ban on rebates and inducements and requires that real estate professionals provide written notice about rebates and inducements to their clients or customers, said Norman Brown, executive director for the Kentucky Real Estate Commission.

The settlement agreement between the commission and Justice Department will be considered by the U.S. District Court for the Western District of Kentucky after a 60-day public comment period.

The Justice Department and Federal Trade Commission also have investigated other possible anticompetitive real estate practices across the country, sending letters to lawmakers, governors and regulators in a handful of states that were considering new laws restricting some forms of limited-service real estate practices. In several states, lawmakers have gone against the federal agencies’ urging and passed the laws.

Brown, who noted that there are other states that have rebate restrictions similar to the former restrictions in Kentucky, said the commission had been working to amend rebate restrictions but those changes did not go far enough to satisfy the Justice Department. “We had made a couple attempts to change the rebate and inducement law, but evidently the Justice Department didn’t want to wait for those things to be completed. Brown said, “We were going to allow some rebates up to a certain amount but they wanted no (restrictions) at all.”

One proposal that was earlier under consideration by the commission would have allowed real estate agents and brokers to pay for meals and drinks consumed by clients, customers or prospective clients or customers, for example, and provided that agents and brokers could offer prizes or free gifts at fairs, trade shows and other community events, as long as the value does not exceed $500 per event per branch office. Also, the proposal would have allowed the distribution of free marketing materials such as matchbooks, magnets and calendars, as long as those items have a cost of no more than $10 per item.

The commission had earlier conducted surveys of real estate professionals about possible changes to state rebate law, and an estimated 81 percent of 1,384 participants in the survey said they were “in favor of keeping Kentucky law the same, which prohibits the offering of inducements or rebates.”

The commission is in the business of protecting consumers, Brown said, and the new rebate policy should ensure that companies and individuals offering rebates and other inducements to consumers will follow-through on their promises.

Pat Lashinsky, vice president of marketing for ZipRealty, a real estate company that offers rebates to home buyers, said, “We’re very happy to see that the settlement came down in a way that we think is in the best interest of consumers. It’s great to see that there is a nice precedent saying that this is the right way to be able to do business. Consumers should have choices — they should have competitive choices.”

He added that consumers should benefit from the settlement. ZipRealty does not have operations in Kentucky.

According to the provisions of the tentative settlement in Kentucky, the Kentucky Real Estate Commission cannot establish or maintain any policy to “regulate or maintain the level of commissions, discounts, rebates, inducements or the licensee price,” and cannot interfere with any licensees’ advertisement of price, discounts, rebates or inducements. The settlement also provides for notification of real estate professionals in the state about the lifting of the rebate ban.

Lee Harris, general counsel for the commission, said that any disciplinary actions taken or pending against real estate professionals relating to the offer of rebates are nullified by the settlement agreement, and she said she isn’t aware of any current investigations relating to possible rebate violations.

Dot Miller, president of the Kentucky Association of Realtors, a state trade group with about 11,000 members, said it’s good to have resolution on the rebate issue. “We’re relieved that it’s over because our members were in limbo as to what was going to happen and as to what they could and couldn’t do.” She said the association didn’t have an official position on the state rebate restrictions. “We had members on both sides. Some wanted (the ban) eliminated, some wanted it to remain the same and some wanted it in the middle.”

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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