Compensation Issues: How to Handle Them
Recently the Commission created an Incentive
Disclosure Advisory Committee charged with determining whether changes in
Commission rules are needed to reasonably assure that real estate purchasers
and sellers are properly informed of any compensation received by or offered to
their real estate agents from another party to the transaction.
In addition to concerns about disclosure of
compensation to agents, Commission staff regularly receive
inquiries about a variety of other scenarios. Here are a few do’s
and don’ts related to compensation issues:
If you are acting as a buyer agent in a
transaction:
• DON’T negotiate with the seller or builder
to increase the amount of agency compensation being offered without the knowledge
and consent of your buyer client. As a
buyer agent, it is your duty to represent your buyer client to the best of your
ability. This means getting your client the property they want at the lowest
cost to them.
• DON’T take a larger commission with the
understanding that you will “kick back” or “rebate” a portion of the commission
to the buyer after closing. ALL
COMMISSION REBATES TO BUYERS MUST BE DISCLOSED TO THE LENDER IN THE TRANSACTION
AND MUST BE SHOWN ON THE CLOSING STATEMENT.
If the lender won’t allow it on the closing statement, the rebate CANNOT
be made outside the closing.
• DO disclose to your buyers that any
commission rebate you have agreed to is SUBJECT TO LENDER APPROVAL and MUST be
shown on the closing statement. Again, if the lender will not allow the rebate
to be shown on the closing statement, it CANNOT be paid to the buyer. Lenders
often permit certain percentages of the purchase price to be offered as
incentives to buyers. Once they have met the defined percentage, a buyer is not
permitted to receive further incentives in the transaction under the loan as
approved. Buyers should be alerted up
front that they will only receive such a rebate if the lender allows it.
Because it will affect the lender’s calculation of loan-to-value ratio for
buyers’ loans, the lender may not permit the buyer to receive the rebate.
Regardless of who
you represent:
• DON’T allow a charitable group, church or
school to advertise that you will donate a portion of each commission you
receive to that group as an incentive for buyers or sellers to work with you.
You may not pay incentives to unlicensed persons or firms, including charities,
to help you obtain business. You MAY advertise that you regularly contribute to
a church or charity or other organization.
• DO disclose to your clients that you will
receive a referral fee if you are referring clients to another agent and you
have or will ask to be paid a fee.
Referral fees must be agreed to by the agents involved in advance of the
referral.
• DON’T advertise your commission in such a
way as to indicate there is any industry standard. Commissions are always negotiable between the
firm and its clients.
• DON’T pay rebates, incentives, or referral
fees to unlicensed persons or entities who are not buyers or sellers in the
transaction.
• DO pay agents licensed in another state BUT
NOT IN NORTH CAROLINA referral fees or real estate commissions after verifying
licensure ONLY if the out-of-state licensee did not enter
Licensees with questions about these issues
are encouraged to contact the Commission’s Legal Staff for clarification.