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INCENTIVES TO BUYER’S AGENTS

by | Aug 8, 2022 | Commissions, Referral Fees and RESPA

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

Some sellers are offering cash or other incentives to a buyer’s agent who brings a successful buyer to their property.  An incentive other than cash is known as an “in-kind” incentive, which can be a trip, a gift, or any item of value.   In one instance, a listing agent offered her ex-husband’s jaguar as a bonus.  There are a number of factors that both Seller’s Brokers and Buyer’s Brokers need to think of when offering or receiving such an incentive.

SELLER’S BROKER:

  1. Make the terms of the offer clear. Make sure that your offer is for a buyer’s broker who brings a buyer who CLOSES on the sale.  The incentive will be paid at the time of the closing.
  1. The offer should be made to the successful BROKER, not the successful AGENT. California law and the Code of Ethics require that ALL compensation, even an incentive such as this, be paid to the broker, not to a salesperson.  Your broker then can pay you depending on your arrangement with your broker.
  1. Have an expiration date on the offer. Seller may be willing to pay the incentive for a quick sale, but may not be willing to pay the incentive if a buyer is not procured for several months or if the sale price is less than the listing price.  Set a deadline for contract ratification, or a contract close of escrow.  Either will work, but your seller should decide the terms of the expiration of the incentive offer.
  1. MLS considerations: MLSs will not allow a “conditional offer of compensation, such as “Seller will give a week’s stay at Seller’s Aspen condo to Buyer’s Broker who brings a full price offer that closes.”  An offer of an incentive that requires (is conditioned upon) closing at a certain price or within a certain period of time is also considered to be a conditional offer of compensation.  However, such an offer of an incentive can be made apart from MLS, but not through MLS.

BUYER’S BROKER

  1. Disclose the additional incentive to your buyer. Your buyer should be aware that you will be receiving additional compensation on this particular property.  Disclose in writing the full terms of the offered incentive.
  2. Make clear to your buyer that you are not recommending this property in any way because of the additional offered compensation. To do so could subject you to an allegation that you put your own interests ahead of your buyer’s interests; possibly resulting in a breach of fiduciary duty to your buyer and a violation of the Code of Ethics.
  3. Be aware that the incentive is paid to the broker, not the agent. The broker will have to work out the payment to the agent.  If the incentive is cash, it may be subject to the company commission split.  If the incentive is other than cash, the broker and agent will have to work out a mutually agreeable solution.  Consider bonuses such as trips, cars or the bonuses and how that bonus will be distributed or allocated.

This Weekly Practice Tip is an Attorney-Client Privileged communication and for the exclusive use of clients of Broker Risk Management.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.