life's highway - Mississippi Association of REALTORS

LEGAL EASE
BY RON FARRIS, ROBINSON, BIGGS, INGRAM, SOLOP & FARRIS, PLLC
Effective marketing: avoiding inducements
Successful
®
REALTORS know that the real estate market
becomes more competitive each year and that distinguishing
one’s self from the rest is a key marketing
goal. When done correctly, aggressive marketing can be
effective without breaching legal or ethical rules. A few
get carried away, however, and what may seem like new
and innovative methods of marketing may, in fact, constitute
prohibited forms of inducement that can cost a
licensee their reputation, cause them to incur serious
fines or other discipline, or cost them their license.
Avoiding a charge of inducement is simple if one understands
certain principles and sticks to them carefully.
Understanding inducements
Inducement in this scenario is the offering by a
licensee of any rebate, profit or commission to a nonlicensee,
the offering of which constitutes a violation
of local, state or federal laws, rules or regulations.
Recurrent problem areas for licensees center on
offers of “free” services or gifts. As to “free” services,
the clear implication of recent informal statements by regulatory
authorities is that the payment of any portion of a licensee’s
fee or commission is a prohibited inducement and subjects the
licensee to discipline and sanctions, including possible loss of their license
pursuant to Mississippi license law. The offering of gifts specifically to
induce non-clients to use a particular broker’s services is likewise suspect
according to recent rulings of the Mississippi Real Estate Commission and
Mississippi courts.
Rules and laws on inducements
The offering of inducements is prohibited by Mississippi Real Estate
Commission Rule IV. A (5) which states: “No licensee shall pay any part of
a fee, commission or other compensation received by such licensee in buying,
selling, exchanging, leasing, auctioning or renting any real estate
except to another licensee through the licensee’s responsible broker. No
licensee shall knowingly pay a commission or other compensation to a
licensed person knowing that licensee will in turn pay a portion or all of
that which is received to a person who does not hold a real estate license.”
In addition, Mississippi law prohibits practices that amount to inducements
in Miss. Code Ann., § 73-35-21 (j), where the Mississippi Real Estate
Commission is given authority to revoke or suspend a license where the
licensee is deemed to be guilty of “[p]aying any rebate, profit or commission
to any person other than a real estate broker or salesperson licensed
under [license law].”
The federal Real Estate Settlement Procedures Act (“RESPA”) contains
similar restrictions when the transaction includes financing
backed through a government loan program (See 12 U.S.C.
§ 2607(a)).
Simply stated
In non-lawyer terms, licensees are prohibited
from using any portion of their fee from a sale to
pay for services related to that sale other than
those performed by them as a licensee or performed
by another licensee pursuant to a recognized
professional relationship, such as a cooperating
broker or a sales associate. This means that
a licensee cannot offer to list a property and provide
a “free” home inspection or provide a “free”
home warranty or “free” moving services if the licensee
or their broker cannot perform those services themselves
without paying a non-licensee to perform the work or such
services cannot be performed by another licensee properly
associated with the sale.
Acceptible practices
Acceptable practices include the offering of a service over and above the
normal scope of services performed by a licensee that can be performed by
the licensee associated with the transaction without sharing of the licensees’
fees with non-licensees. An example would be the offering of access to a “free”
moving truck when the broker involved actually owns the moving truck. In
such instances, the licensee could properly loan the truck to a client, and the
licensee or other licensees might assist with the move; however, it is a prohibited
practice for the licensee to have their non-licensee employees assist with
the move or to pay non-licensees to perform the moving services. The inducement
is still prohibited when the licensee offering “free” moving services splits
off a portion of their fee at closing to pay non-licensees for any work or service
done, even if it is shown as a separate payment on the closing statement.
The test is whether any part of the licensee’s fee goes to a non-licensee; any
instance where it does – no matter how the transfer is structured – is a prohibited
practice.
A licensee may have a client who agrees to pay certain costs in order to
enhance the listing of their property, including costs of a home inspection, an
appraisal, surveys, loan costs, home warranties or the like. When advertising
the listing, the licensee cannot state or imply that these services are “free” to
one who contracts to purchase or lease the listed property. Rather, the licensee
would have to disclose clearly in each instance of advertising where such
services were offered that those additional services will be paid by the seller.
(continued on page 6)
5 / MISSISSIPPI REAL ESTATE LEADER / Fall 2007