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Rebating your commission to a buyer or seller: legal or illegal?

By Peg Ritenour

A  common question received on the Ohio Association of REALTORS’ Legal Assistance Hotline involves whether it is legal for a REALTOR to rebate part of his/her commission to a buyer or seller. Most REALTORS think doing so is splitting a commission with an unlicensed person and is prohibited under Ohio license law. But actually this can – and is – being done every day to put deals together. Some REALTORS are even advertising that they will rebate part of their commission to buyers to attract new clients. So how can you do this legally?

Although it is a license law violation to pay or split a commission with someone who isn’t licensed, that prohibition only applies if you are compensating the person for performing acts that require a real estate license. Certainly a party to a real estate transaction doesn’t need a license to buy or sell their own real estate. Thus, when you are rebating part of your commission to a buyer or seller you can legally pay them part of your commission, because the buyer or seller isn’t doing something that requires them to have a real estate license,

While this true, there is another important license law provision that does come into play, however. It is the inducement law. Under Ohio’s inducement law, any time you offer a buyer or seller anything of value to entice them to enter into a contract for the sale of real estate it has to be disclosed in the purchase contract. Thus if you are offering to pay part of your commission to a buyer, and you are doing this to get the buyer to enter into a purchase contract, it is considered an inducement. The same thing is true if a listing agent agrees to reduce the commission the seller owes to get the seller to accept an offer to purchase. Under Ohio law such inducements are permissible but you have to disclose it in the purchase contract.

OAR has two resources for you if you want to learn more about Ohio’s law on inducements. The first is OAR’s White Paper on Referrals, Inducements and Gifts. The second is a short video we posted on the OAR Buzz a few months ago.

Tags: legal