Tennessee Gov. Phil Bredesen has signed legislation opposed by the U.S. Justice Department that bans real estate licensees in the state from paying cash rebates to consumers. The legislation became effective when the governor signed the bill on Wednesday.

Language in the new law provides, “A real estate licensee shall not give or pay cash rebates, cash gifts or cash prizes in conjunction with any real estate transaction. As part of the Tennessee real estate commission’s general rulemaking authority the commission may regulate the practices of real estate licensees in regard to gifts, prizes or rebates that are not otherwise prohibited by law.”

The state Legislature had passed the Realtor-backed legislation, Senate Bill 1160, a few weeks after the state’s real estate regulatory agency moved to repeal a statewide ban on cash rebates. And that repeal was in response to a federal investigation, the Justice Department reported. Similar investigations and legal actions by the Justice Department moved other states to reverse their rules on restricting real estate rebates to consumers.

Agency investigations led the West Virginia Real Estate Commission and South Dakota Real Estate Commission to allow real estate rebates, and in July 2005 the Justice Department reached settlement with the Kentucky Real Estate Commission when that state agency agreed to allow licensees to offer rebates and other inducements.

John R. Read, a litigation chief for the Justice Department, said in a letter to the Tennessee Legislature last month that SB 1160 “overrides the commission’s decision and eliminates the pro-consumer benefits of the commission’s efforts.”

Reed argued that cash rebates to real estate buyers can put cash back into the pockets of consumers who may not otherwise realize savings in a transaction.

J.A. Bucy, director of government affairs for the Tennessee Association of Realtors, told Inman News last month that the legislation “simply affirms Tennessee’s longstanding practice of prohibiting cash rebates in real estate transactions” while continuing to allow other gifts and prizes that are not in the form of cash payments.

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