The New Jersey Association of Realtors is opposing legislation that would allow real estate brokers and agents to provide cash rebates or other gifts to buyers and sellers.
Members of the state’s Real Estate Commission, a regulatory agency that enforces licensing law in the state, has considered the legislation but hasn’t yet announced a position.
Assembly Bill 373 and Senate Bill 139, introduced by state Assemblyman Patrick J. Diegnan Jr., D-South Plainfield, N.J.; and state Sen. Nicholas P. Scutari, D-Linden, N.J.; seek to amend a provision in the state’s real estate law that generally prohibits payment of a "rebate, profit, compensation or commission" to any person who is not a real estate licensee.
While officials at the U.S. Department of Justice’s Antitrust Division have taken action to oppose bans on rebates in several states, New Jersey Association of Realtors officials contend that the offer of rebates can actually be harmful to consumers.
Jarrod Grasso, executive vice president for the state’s Realtor trade group, said, "This bill obviously raised some red flags for us. We feel this is a detriment to consumers. We don’t want to see consumers negatively impacted by the legislation."
All real estate commissions are negotiable, Grasso said, and consumers in the state "already have great flexibility in determining how much they want to pay for services."
He referred to real estate rebates as a "gimmick," and said that rebates could distract consumers from paying more attention to the quality of service.
If the legislation is passed, the association worries that "the consumer won’t be out there looking for a Realtor who provides the best service — they will be out there looking for the biggest discount or give-back," according to Grasso.
U.S. Department of Justice officials were not immediately available for comment.
Grasso said that Justice Department officials reportedly had communicated support for an earlier, identical version of the proposed legislation during a New Jersey Real Estate Commission hearing.
The association is interested to see whether the commission will take a position on the legislation, he said.
Officials at the New Jersey Real Estate Commission were not immediately available for comment today.
Joseph W. Hottendorf, executive vice president for the Liberty Board of Realtors, a local Realtor trade group in Secaucus, N.J., said his board has taken a position in opposition to the legislation and that rebates would "take away from the professionalism in our profession."
"It’s so difficult to get the consumers to pay attention to us on the issues they must understand and address, such as home inspections and making sure they get the right kind of mortgage," he said, while rebates may attract consumers to ignore other issues while focusing on a type of reward, he said.
"The buyer is going to pay so much attention to the prize, the gift, the check," he said. "This is just another regulation that will not help the consumer. Where do you think they get the money from? They’re going to get it from sellers."
New Jersey is one of 11 states that restrict real estate licensees from offering rebates to consumers. Earlier this month, the Justice Department announced that its investigation prompted Montana’s Board of Realty Regulation to lift restrictions banning real estate licensees from soliciting business through the offer of "gifts, rebates or promotional items."
And the Illinois Legislature has rejected proposed legislation that would have restricted the offer of rebates in that state.
Some brokerage companies, such as Iggys House, Redfin and ZipRealty, offer to rebate a portion of the commission they receive for services in a home-sale transaction to buyers.
Typically, the listing broker in a sale transaction performs services for a total commission that is a percentage of the home’s selling price, and this commission typically ranges from 5 percent to 7 percent.
The listing broker offers a portion of this commission to the broker representing the buyer — generally about half of the total commission, though this can vary widely.
The legislation proposed in New Jersey provides that real estate licensees may rebate a portion of the commission that they receive to the buyer or seller, as long as the rebate is contracted in advance and the licensee complies with any state and federal requirements related to the disclosure of the rebate payment.
Also, the proposed legislation states that the rebate can be in the form of cash or "other thing of value, including, but not limited to, a gift certificate," and may be given at or after the closing.
Derek Eisenberg, a real estate broker for Continental Real Estate Group Inc. in New Jersey who offers flat-fee real estate services, said he hopes to see the rebate legislation pass, though he has some concerns about the use of real estate rebates.
He said he would support rebates that are factored into the final sale price of the home and do not put cash in a buyer’s pocket, for example. The latter, he said, can function as down-payment assistance and borders on trickery and bank fraud.
"Why not just lower the price? I would support the commission being lowered by the amount of the rebate and the seller just selling the house for less."
While a restructuring of the commission system could bring more clarity to the issue of agent compensation, Eisenberg said he believes the rebate bill has a better chance of passing than an overhaul of the real estate compensation system.
The existing law that generally prevents rebates to unlicensed persons, he said, "is an anti-consumer law and I think rebates should be allowed."
Grasso of the New Jersey Realtor group said he is unaware of whether a committee hearing has been scheduled yet for the rebate legislation, and he said he wouldn’t speculate on the bill’s chance of success.
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