Commission Rebates

Commission Rebates

Although signed into New Jersey law over a year and a half ago, until recently, I’ve had very few inquiries about rebates of real estate commissions. As you likely know, the Act permits licensed real estate brokers to provide a purchaser of residential real property a rebate from the commission the broker receives. Its enactment was a significant departure from prior New Jersey law.

The statute imposes several restrictions on who may provide and receive a rebate, conditions concerning the providing of a rebate, limitations on the nature of the rebate that may be paid and requirements on the advertisement of rebates. The provisions were summarized by President Robert Pimienta in his bulletin of February 2010.

Who may provide / receive a rebate and conditions concerning the providing of a rebate
• Only a real estate broker may provide the rebate. A broker-salesperson or salesperson may not provide a rebate.
• A rebate may only be provided to a purchaser of residential real property. A rebate may not be provided to a seller or to a lessor or lessee.
• The broker and the purchaser must contract for a rebate at the onset of the brokerage relationship in a written document, an electronic document or a buyer agency agreement. The document or agreement must specify the terms of any rebate to be credited or paid by the broker to the purchaser. The broker must provide the document or agreement to the purchaser at the outset of the brokerage relationship.
• The broker must comply with any State or Federal requirements regarding the disclosure of the payment of the rebate.
• The broker must recommend to the purchaser that the purchaser contact a tax professional concerning the tax implications of receiving the rebate.
• The broker must disclose the payment of the rebate to all parties involved in the transaction, including any mortgage lender.

The nature of the rebate that may be paid
• The rebate must be
- In the form of a credit to the purchaser and reducing the amount of the commission payable to the broker paying the rebate or a check paid by the closing agent made at the time of closing; and
- Calculated after the purchaser negotiates the rebates commission rate with the broker paying the rebate.
• The rebate must not be
- Paid to an unlicensed person for any act that requires licensure;
- Contingent upon the use of other services or products being offered by a broker or an affiliate of a broker; and
- Based on the use of a lottery, contest or game.

Advertisements of rebates
• Advertisements regarding permitted rebates must include:
- A disclosure concerning the purchaser’s obligation to pay any applicable taxes for receipt of the rebate; and
- A notice that the purchaser should contact a tax professional concerning the tax implications of receiving the rebate.
• In all such advertisements, the required disclosure and notice must be conspicuously displayed in the advertisement and the size of the text shall be equal to or larger than the size of the text used for the advertisement.

Mr. Pimienta reminded licensees contemplating offering rebates to purchasers that other Commission rules that guide their conduct, continue to apply. For example, advertisements regarding rebates must also comply with N.J.A.C. 11:5-6.2(r) which provides that no advertisement shall contain false, misleading or deceptive claims or misrepresentations. Moreover, when acting as an agent for a client, licensees operate as fiduciaries who must protect and promote the interests of their client. See N.J.A.C. 11:5-6.4(a). Licensees are prohibited from making any false promise or any substantial misrepresentation. See N.J.S.A. 45:15-17(a).

A Shamless Plug

There’s this story about a big storm that comes and throws thousands of starfish onto the beach. The next day, they’re broiling in the sun, and a guy starts throwing them back into the ocean. Another guy comes along and says, “There’s thousands of them – how are you going to make any difference?” And the first guy picks up another starfish, throws it in, and says, “It made a difference to that one.” Here at McDowell Riga Posternock, P.C. we’d sincerely appreciate the opportunity to “make a difference” to you, your family, your friends, your colleagues and your customers. Please call me at 856-642-6445, or email me directly at danp@mrpattorneys.com.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.