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MAR Notes from the Legal Hotline - September 2016

MAR Legal Staff, 9/1/2016

Michael McDonagh, MAR General Counsel
Ashley Stolba, MAR Associate Counsel
Justin Davidson, MAR Legislative & Regulatory Counsel


September 2016

Q:        I would like to start a new marketing program where I offer a rebate to either my buyer or seller client, is this legal?  Is it ethical?

A:        It is both legal and ethical; however, the REALTOR® Code of Ethics and the Massachusetts Board of Registration for Brokers and Salespersons place clear requirements and limitations on the use of offering gifts or incentives.

From a legal standpoint, REALTORS® cannot share in their commissions, fees or other valuable consideration with others who are not licensed and are performing brokering activities. REALTORS® may, however, offer gifts to the buyer or seller in a specified real estate transaction.  An example of providing a gift within a real estate transaction is either the payment of closing costs or a cash rebate at closing to the buyer or seller.  The gift or incentive, however, must be paid to someone within the transaction; it cannot be paid to an outside entity such as a charity on behalf of the person within the transaction. 

Ethically speaking, Article 12 of the National Association of REALTORS ® Code of Ethics states that the offering of prizes or merchandise discounts is not unethical even if it requires a person to list or purchase a home through a REALTOR®. This Article does require that all advertisements clearly state what the customer must do in order to receive the gift (e.g. Must he/she buy a home that is one of the REALTORS’ ® listings? Must he/she purchase a home when you are acting as a co-broker on another firm’s listing?).

MAR advises all REALTORS® who provide gifts or incentives to consult an accountant or tax attorney regarding potential tax consequences resulting from this practice. Furthermore, the rebate should be disclosed on the Closing Disclosure.

Q. I have an exclusive right-to-sell agreement with my seller who is going through a divorce. Her husband, who is also a co-owner of the property does not want to sell the property and refuses to sign the listing agreement. What should I do?

A.     All owners should agree, at least verbally, to the terms of the listing agreement. Technically, the statute of frauds does not apply to contracts for brokerage services and therefore listing agreements may be entered into verbally. It is recommended, however, that these agreements be made in writing, in fact, most Multiple Listing Services require it. Where the listing agreement is reduced to writing, the best practice is to have all owners sign.  That is true whether it is a tenancy in common, joint tenancy with right of survivorship or tenancy by the entirety (i.e. husband and wife own).  Without agreement from the owner (as proven via a signed agreement), an owner could claim that the broker lacked authority to sell and could claim that the non-signing owner does not have to pay the broker's fee.  If the broker believes that the person who signed had authority to sell and, as a result, did not obtain agreement from one or more other owners, the broker should be able to collect the full broker's fee from the individual who signed, even if another person who was not known to the broker to also have an ownership interest did not sign the listing.

If the broker is aware that all owners have not agreed to list the property, there is little the broker can do, but encourage them to reach agreement.  If the deadlock occurs in a divorce situation, the attorney for one of the spouses can ask the Probate Court for an order that allows one spouse to list the property with a broker.  Court approval of an offer will generally be required, since that will give the other spouse an opportunity to object.