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Realtor Rebates: Is Cash To Clients Fair Game?

In a tough housing market, where sellers are bleeding cash out every window as they try to unload their homes, and realtors are fighting within their own ballooned ranks to eke out a commission--the issue of realtor rebates is getting, well--more confused than ever. Realtor rebates are cash incentives to buyers or sellers that help realtors to get the sale, but some argue they can mislead buyers, skewing the true value of the real estate transaction and could raise the possibility of fraud.

On the other hand, consumer groups claim a ban on the rebates would help the realtors rather than protect buyers and is just plain anti-competitive.

Tennessee Gov. Phil Bredesen
AP
Tennessee Gov. Phil Bredesen

The U.S. Justice Department's real estate commission opposes a ban on rebates, but nowa bill prohibiting licensed real estate agents from giving cash rebates to clienthas been signed into law by Tennessee Gov. Phil Bredesen just weeks after the state real estate commission responded to a u.s. justice department investigation by repealing the ban on cash rebates. Tennessee joins about a dozen other states with a similar ban.

An article in the Tennessean.com says: According to justice department litigation chief John Read, the law "overrides the commission's decision and eliminates the pro-consumer benefits of the commission's efforts."

Alright, so where do we stand here? Consumer kickbacks or Realtor regulation? I'm not sure I agree that a ban on kickbacks really hurts the consumer, because there are umpteen ways to get to a price on a house, if the seller and the buyer really want to make a deal...the rebates are just one of them. If the real estate agents think these kickbacks work, then have at 'em...it's their money to lose.

Interesting though that the Tennessean.com notes: "the Tennessee Association of Realtors feared cash incentives might introduce more "under-the-table" activity such as fees paid to third parties for client referrals or altering a buyer's financial profile with an incentive-enhanced down payment." There's also a tax reporting issue. Ok, so ripe for cheating, but if the brokers and agents were the ones offering these rebates, then they should be the ones to decide whether or not to use them.

What do you think? Let me know...

Questions? Comments? RealtyCheck@cnbc.com

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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