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Blowing the Lid off of Realtor Commission Rebates and Discounts!

I have been a contributing real estate professional here on Trulia for awhile and I have been surprised to find various Realtors advertising commission discounts and rebates as an incitement to get new business. I openly admit that I'm not an attorney and I'm certainly not a part of the enforcement arm of the Texas Real Estate Commission, but I have found some of the advertising to be very questionable in my opinion. That opinion has been formed by the classes required by the State of Texas to become a licensed real estate salesperson and my own experience as a licensed Texas Realtor.

To begin with, here is EXACT verbiage (copy / paste) from the National Association of Realtors Code of Ethics / Standards of Practice that pertains to Realtor commission rebates and discounts.
Standard of Practice 12-3
    The offering of premiums, prizes, merchandise discounts or other inducements to list, sell, purchase, or lease is not, in itself, unethical even if receipt of the benefit is contingent on listing, selling, purchasing, or leasing through the REALTOR® making the offer. However, REALTORS® must exercise care and candor in any such advertising or other public or private representations so that any party interested in receiving or otherwise benefiting from the REALTOR®’s offer will have clear, thorough, advance understanding of all the terms and conditions of the offer. The offering of any inducements to do business is subject to the limitations and restrictions of state law and the ethical obligations established by any applicable Standard of Practice. (Amended 1/95) 

Please take a close look at the highlighted part of Standard of Practice 12-3 and pay close attention to the BOLD print area. A Realtor is required to make sure any advertising gives a clear, thorough and advance understanding of ALL the terms and conditions of the offer. This doesn't say that a customer should have to conduct additional research and make phone calls or go to other websites to determine what the conditions or restrictions of the offer are. It says the ADVERTISEMENT has to provide a clear, through and advance understanding of ALL the terms and conditions of the offer. Really pretty clear instructions if you ask me!! 

All Realtor commissions are negotiable. At least that's what the law says. It doesn't mean that all Realtors have to be willing to negotiate, but it means that a "standard industry wide commission structure" does not exist. Each broker has the latitude to negotiate the commission. Again, THERE IS NOT A STANDARD INDUSTRY WIDE COMMISSION and a Realtor or Broker should never tell you there is. If a Realtor tells you that everyone charges 3% but I'll only charge you X%, then that would be a completely false statement.

When you see a Realtor offer X% rebate or $commission discount and doesn't bother to advertise any further information about how one would qualify for the rebate/discount, one should proceed with great caution. Do you really think the Realtor would give you a 2% rebate, if the entire commission earned is only 2% to begin with? Doubtful since that would mean the Realtor would be working for free!!!

 Do you think the Realtor would give a 2% rebate on a HUD Good Neighbor Next Door purchase? It's doubtful because the BUYER is the one that pays the Realtor's commission to begin with! So if that was the case, the Realtor would have to pay the BUYER to purchase the home? Do you think there are Realtors out there that want to not only work for free, but pay you 2% to buy a HUD home? OF COURSE NOT!

 Do you think a Realtor is going to be willing to show you 20, 30 or 40 homes over the course of months, for only a 1% commission on a $100,000 home? Maybe, but possibly doubtful! I have seen many listings that only offer a 2.5% Buyer Agent commission, so in that case, do you think a Realtor is going to spend weeks or months helping you purchase a $100,000 home, all for one-half of one percent commission. Again, DOUBTFUL!

This BLOG certainly isn't meant to imply that legal commission rebates don't exist, because they do! But a buyer or a seller should have a clear, through and advance understanding of the rebate or commission discount after reading the advertisement. If that clear, through and advance understanding isn't in the advertisement, my recommendation would be to be very suspicious and proceed with extreme caution.

Again, when it comes to advertising, the Code of Ethics are very clear. The advertising needs to speak for itself and should provide a clear, through and advance understanding of the offer. If you feel that you have to do further research, make phone calls and/or go to a website to find out further information, do you think that Realtor is following the Code of Ethics? You be the judge!

Here is a link to the NAR Code of Ethics for everyone to read.


So now let's talk about legal advertisements for commission discounts and rebates. It's no secret that many Realtors refuse to discuss commissions in public. Some Realtors feel that serious discussions about financial aspects of a real estate transaction should be conducted behind closed doors, face to face. That way all questions can be answered and an intelligent discussion can be conducted. Are you the reader the type of person that could be swayed by a Realtor saying that she/ he would give a $XXXX rebate when you're talking about a real estate purchase involving $100,000, $200,000, $300,000, $1M? If you needed heart surgery, would you look for a doctor that gives a rebate, or would you be more concerned about the service that you were about to receive? How about an attorney? Do you want a rebate, or does it make better sense to find an attorney that would do the best job of representing you in the legal system? Keeping that in mind, does it make sense to let something as small as $500 sway you to choose a specific Realtor? I find that laughable! I have read that some Realtors in other states give significant closing gifts like flat screen televisions just as an expression of gratitude and appreciation of their business. I only point this out to show how little something like a $500 rebate, discount or closing gift is when you're talking about a transaction as significant as a real estate purchase.

*Disclaimer: Texas limits a closing gift to something not more than $50 in value.

So with all of that said, if you find a Realtor that is willing to negotiate a commission and you really like and trust that Realtor, then you may have just found the perfect match for you.

For those of you who still haven't decided on a Realtor, be very careful and make sure the Realtor is following the Code of Ethics. It doesn't take long to read the Code of Ethics and it's certain to give you an inside look into exactly how Realtors are supposed to be conducting business.

Joe Stone - Realtor ®
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By Becky Buck,  Sat Aug 24 2013, 21:29
Well written, thanks very much for sharing your informed viewpoint and the link. I'm sure others will appreciate your insight on this subject as well. Regarding incentives, of course this is between agents and their brokers who give guidance. But, If there's a question then I suggest to contact NAR or the State Real Estate Board for clarification, as they are very knowledgeable and very happy to help clear up any misconceptions. Like you, I have seen some very creative incentives. The methods may not be my cup of tea but as long as it is ethical then I think it's great that agents are stimulating business and helping to get this market moving along. I don't think offering incentives makes them any less or more of an agent, not that you were saying that at all. Again, thank you for taking the time to address this subject so thoroughly.

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