Check Legality of Incentive

Seminar offer must abide by law and be advertised ethically.

June 1, 2001

Q. Our Maryland company is planning a homebuyers seminar. As an incentive to get buyers, we want to offer the first 20 prospects who buy through our company a one-year home warranty.

Does this violate any real estate rules or laws? Do we need permission from the state real estate commission or any other law enforcement entity, such as the state attorney general?

A. Your questions involve two standards--legal and ethical. Several states, in their license laws, prohibit the offering of any inducement contingent on listing, selling, or purchasing real estate.

In Maryland licensees are prohibited by law from offering any prize to a prospective homebuyer in an effort to influence the homebuyer to use their services. However, if the warranty were to be offered to all homebuyers, it wouldn’t be considered a chance prize, so it would be legal.

Then there’s the ethical issue. NAR Standard of Practice 12-3 states “care and candor” must be exercised in advertising an offer so that parties to whom the advertising is directed will have a clear, advance understanding of all terms and conditions. In states where this is allowed, the ethical principle is to fully disclose what the consumers must do to get what they’ve been offered.

Q. I’m an Arizona listing broker. One of my salespeople showed my listing to prospective buyers, who decided they wanted the house. When my sales associate asked whether they’d like to write an offer, one of the buyers said, “My father, a broker, will write up the offer.”

The father wrote an offer and presented it to my office. The seller rejected the offer, and my associate gave a counteroffer, which the buyers accepted.

After the close of escrow, the father demanded a buyer’s rep commission. The father is not a member of an MLS or real estate association, but he’s a licensed Arizona real estate broker.

At no time during the sale of the house did the father request or suggest, either in writing or verbally, that he was entitled to a real estate commission. The father says he’s owed the commission based on the MLS residential data sheet, which states “Co-Broke-Buyer-Br X%.”

A. Apparently the father thought the MLS data sheet made an offer of compensation to him. There’s an ethics issue and a contractual issue.

Regarding the ethics issue, Article 3 of the NAR Code cautions that a cooperating broker may not assume that cooperation includes an offer of compensation. Standard of Practice 3-1 states cooperating brokers must ascertain the terms of compensation, if any, before agreeing to cooperate.

Contractually, listing brokers make offers of compensation to cooperating brokers who are the procuring cause of the resulting sale. A common way to make those offers in residential transactions is through the MLS. Such offers are applicable only to participants of that MLS.

Before you can determine whether there’s a procuring cause basis for the father’s claim, the father must show that an offer of compensation had been made to him. Since he’s not a member of the MLS, he’d have to show that an offer had been made to him directly. On the basis of what you say, he’d have difficulty proving the existence ofa contract between you and him. Check with an attorney for information about Arizona contract law.

Bruce Aydt

Attorney Bruce Aydt, ABR, CRB, SRS, is a national real estate educator, a Missouri real estate broker, and past chair of the National Association of REALTORS® Professional Standards Committee.

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