Those Attractive Giveaways

James L. Goldsmith, Esquire

It's a sign of the times. You've probably noticed the number of giveaways offered by builders, developers, listing agents and sellers of resale property. While incentives can be found in any market, we're seeing far more in today's market.

Incentives offered by sellers or listing agents to buyers present few legal issues. Cash incentives to a buyer that are not found on the HUD-1 Settlement Sheet may create tax liabilities as the gift may be treated as income (as was discussed in an article previously published in The Pennsylvania REALTOR®).

When any inducement is advertised (which, after all, is the point of offering an inducement), the advertisement must comply with regulations of the State Real Estate Commission. Regulation 35.306 requires that the advertisement indicate the fair market value of the inducement and other facts that are designed to prevent bait-and-switch tactics. Imagine being lured to the home by the promise of a free sewing machine only to be given a battery-operated "buttoneer"!

In this market we're also seeing inducements directed to selling agents that do not include any gift to the buyer. Selling agents are enticed to sell property for, in addition to the commission, cruises, tropical vacations, cash incentives and the like. Endeavoring to settle one of these listings brings its own set of legal issues that a prudent agent must consider.

Introducing a buyer to a property that, if sold, will earn a buyer's agent the incentive is a conflict of interest. That is not to say that the agent has sold his/her client down the river. Rather, the conflict means that the agent's interest in earning the inducement, however great or slight, may be at odds with the agent's obligation to identify properties that will most likely satisfy the buyer's objectives. It is possible to get your client into the best property and at the same time earn a bonus but the fact that a prize has been offered, along with its value, must be disclosed to the buyer.

Found within our Real Estate Licensing and Registration Act (RELRA) is a list of duties owed by all licensees. One of these duties is to provide the client or customer with notice of a conflict of interest when it arises. When the agent first suggests to her buyer that he consider a property that will earn the agent an added incentive, notice should be given to the buyer. The notice is relatively simple:

"I am suggesting that you consider a property located at _____. I want you to be aware that the seller has offered to pay the agent who sells the property a three-day vacation valued at $_____. While I would not endeavor to put you in a home that is not right for you, I wanted you to be aware of what is offered as it represents a potential conflict of interest. It is my intent to find you a property that is right for you and not one based on what it will bring me."

The language of the notice is not specified by statute; the above is exemplary of what should be stated. Putting it in writing is suggested.

Another concern presented by the offer of inducement involves the "payment" of the incentive directly to the salesperson or associate broker. RELRA prohibits an associate broker or salesperson from accepting a commission or valuable consideration from anyone other than the employing broker. May a salesperson accept the gift that is not first offered to the broker? Unless and until we have a definitive ruling we won't know the answer. The better practice may be to request that the seller or listing broker offering the incentive make it payable to the listing broker who is free to assign it in its entirety to the selling salesperson. In most cases, the broker is satisfied with his/her split of the commission and is willing to pass incentives in their entirety to the involved salesperson. This, of course, is a matter for resolution between the broker and the salesperson seeking the incentive.