A kickback is when someone is paid for an undisclosed service. This payment is a common strategy to incentivize real estate agents for business or to sweeten a buyer into purchasing a property.
These under the table payments raise the question: Can real estate agents give or receive kickbacks?
Can Real Estate Agents Give or Receive Kickbacks?
You might have found yourself wondering how much do real estate agents make. The answer to this thought is dependent on an agents rate of sale.
A real estate agent’s salary could change depending on how many houses they sell in a year.
However, there’s another – illegal – factor in a real estate agent’s salary. They’re called kickbacks.
Everyone loves gifts. One way people show appreciation for others is through personal presents. Who wouldn’t find themselves grinning by the surprise of a generous gift?
You won’t be happy when you lose your CA real estate license.
In some situations, receiving gifts could result in you losing your license or having it suspended.
There’s strict laws surrounding the exchange of money and gifts in real estate.
If you’re an agent, who is giving or receiving kickbacks, you need to learn the laws surrounding it before you receive the gift of getting your license revoked.
Kickbacks: How Illegal Are They?
Kickbacks are illicit payments made for handling an appointment or transaction.
When applied to the real estate industry, kickbacks are commonly seen during the transaction process. Service companies (e.g. escrow companies, title companies, and termite companies) will often incentivize real estate agents to use their services in exchange for generous gifts.
These vary from front row seats to your favorite baseball team or a sudden suitcase full of cash on your doorstep.
Whatever the gift may be, when a business is providing it to the real estate agent, it’s their attempt to retain them as a client.
In this form, kickbacks are considered illegal.
If caught accepting presents from service companies, the agent could encounter some major legal trouble.
RESPA: An Incentive to Stop the Incentives
In 1974, the Real Estate Settlement Procedures Act (RESPA) was created to stop kickbacks between service companies and real estate agents.
This regulation made kickbacks illegal.
This is because real estate agents were not putting the best interest of their clients ahead of their financial gains. The regulation was necessary to create a fair transaction with the client.
As of today, kickbacks exist in alternative, legal, forms.
Gift giving shows clients and friends your appreciation for their business. Now regulated, this gift giving process has a few new names.
Finders Fees or Referral Fees
Finders Fees or Referral Fees are small payments made to an individual for arranging an appointment or service.
You’ll see this most often through referrals. As a way to compensate you and your new client’s mutual referral, you can give a gift valued up to $500.
This includes small presents such as a bottle of wine or gift card.
Sending your clients presents is an excellent way to maintain your relationship. Doing so is perfectly legal. However, it’s easy to cross the line when gifting – that’s why there are strict regulations to ensure you don’t.
Closing Cost Credit
Closing Cost Credit is a monetary credit given to the buyer to help finance a purchase.
When a buyer might be strapped for cash, and you’re close to sealing the deal, you can offer a closing cost credit to help finish the transaction.
This credit helps the buyer purchase the home.
Sometimes a buyer will want to purchase an appliance that’s missing from the property or start on a construction project. The closing cost credit can help finance those purchases as a way to sway their purchase.
For example, if a client intends on buying the home IF there is a refrigerator in the kitchen, you can use the closing cost credit to help the client purchase a refrigerator.
Navigating the laws of kickbacks can be stressful. Especially when the stakes could result in you losing your license.
Know the types of presents you can or can’t give, so your career isn’t at risk.
Every week, we release in-depth videos to help viewers become successful real estate agents on our CA Realty Training YouTube Channel. We also have videos of our free introduction to real estate videos available to watch.