by Lorie Garland
Vice president
Legal Services
The Ohio Association of REALTORS Legal Assistance Hotline often receives qs from REALTORS regarding the legality of offering inducements, referral fees or gifts. These issues are not only regulated by Ohio’s licensing laws but may also involve federal regulations, such as RESPA or provisions of NAR’s Code of Ethics. OAR is currently developing a White Paper to assist REALTORS in addressing these issues. The following are some of the questions REALTORS have asked regarding offering inducements. Look for an in depth review of inducements, referral fees and gifts in OAR’s upcoming White Paper available this summer under the Legal Section of OAR’s website: www.ohiorealtors.org.
Q: Can I offer buyers a coupon for a free carpet cleaning or some other type of incentive if they purchase a home through my brokerage? Does the same law apply to inducements offered to sellers?
A: Inducements such as these can be offered to either the buyer or seller if the item being given is recited in the purchase contract. Be careful when advertising such inducements to make sure that any restrictions or qualifications on participation are clearly stated.
Q: Can I offer an incentive to sellers to list with my brokerage if I disclose it in the listing agreement and/or the purchase contract?
A: Certainly anything that is part of the terms of the listing should be included in the listing agreement. However, the duty to disclose the inducement in the purchase agreement is only triggered if the party to whom it is offered has to enter into a purchase agreement to receive the item of value. It does not apply to inducements to list a property.
Thus, if the seller will receive the incentive for merely listing their property with your brokerage, then it does not need to be included in the purchase contract. On the other hand, if the seller will only receive the incentive if he actually enters into purchase agreement, then it must be disclosed in the purchase contract.
Q: Are inducements that are given to attend an open house regulated under Ohio license laws?
A: No. Although these “giveaways” may be inducements, they are not prohibited and do not have to be disclosed in the purchase contract. Again, this is because the license law only covers inducements that are given to a buyer or seller to induce them to enter into a purchase contract. It does not cover inducements that are given to entice someone to attend an open house. Thus, items that are given for this purpose are not illegal and are not required to be recited in the purchase contract.
Q: I want to have a promotion whereby all of my company’s listings are open for a special evening tour. Buyers who attend will have their name placed in a drawing for a “free” trip to Hilton Head. Is this legal?
A: As stated above, inducements to attend open houses are not regulated by Ohio license law. However, if in order to qualify for the free trip the purchase of a home is required, then the inducement statute would be triggered and disclosure would be required. Further, under the NAR Code of Ethics, REALTORS need to be careful when using the term “free”. Standard of Practice 12-1 requires that all terms regarding such a promotion must be clearly disclosed.
Q: Can I offer to rebate part of my commission to a buyer/seller for using my services? Would that be splitting a commission with an unlicensed person?
A: Offering to pay part of your commission to a buyer or seller in a transaction is considered an inducement that must be disclosed in the purchase contract. It would not be considered the illegal payment of a commission to an unlicensed person because the buyer or seller is not being paid for performing activity that requires a real estate license.
Q: Is it an inducement if I reduce my commission to get the seller to accept an offer?
A: Yes. When you agree to reduce your commission you are giving the seller something of value. If this is done to get the seller to enter into a contract, then it must be disclosed in the contract to comply with Ohio’s license law.
Q: Do I have to indicate in the purchase agreement the amount by which I am reducing my commission?
A: According to the Ohio Division of Real Estate and Professional Licensing, it is not necessary to specify the amount of the reduction in the purchase agreement, but you must disclose the fact that the commission has been reduced. However, to avoid disputes, you should have some written agreement with the seller specifying the amount of the reduction.
Q: What if I agree to lower my commission at the time I am taking the listing?
A: The disclosure of a commission reduction only has to be made if it is done to induce the seller to accept an offer to purchase. If the reduction is negotiated at the time of listing, or at any other time outside of the negotiations on a purchase contract, no disclosure is necessary because the reduction was not made to induce the seller to accept an offer.
Q: As a result of an inspection that was done on a property that is “in contract”, the buyer has asked for certain concessions by the seller. The buyer and seller are $500 apart. The other REALTOR and I have agreed to split this cost to get the deal to close. Does this have to be disclosed as an inducement?
A: Ohio’s inducement law technically only covers things of value that are offered to induce the parties to enter into a contract. In this case the parties have already entered into a contract. The parties are instead being offered this payment by the REALTORS to get them to perform the terms of the contract and close. Thus, technically Ohio’s inducement statute would not apply. However, it is still recommended that this agreement be reduced to writing in an addendum to the contract and be submitted to the lender and the title company. This will assure that full disclosure of the terms of the agreement is made.
Q: The seller of a property I have listed wants to offer a cash bonus to a buyer’s agent as an incentive. Does that have to be disclosed in the purchase agreement as an inducement?
A: No. Ohio’s inducement statute only applies to inducements that a licensee offers a party to a purchase contract. Because this bonus is being offered to the buyer’s agent, Ohio’s inducement law does not apply and disclosure in the contract is not required. However, a buyer’s agent who is receiving a bonus from a seller should disclose this fact to the buyer. Including it in the purchase agreement, while not required by the license law, would be one way of documenting such disclosure.