Can Real Estate Agents Give or Receive Kickbacks?
Real estate agent kickbacks are an under the table exchange of cash or goods to incentivize real estate agents to send business to services. It's important to distinguish real estate agent kickbacks from finders fees or referral fees. One of these is illegal.
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.
Real Estate Agent 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.