What is bribery and does it exist in residential real estate? You be the judge.
What Does it Mean to be Guilty of Bribery:
As taken out of context from a criminal commercial bribery statute, we were able to come up with the following general explanation as to what typically constitutes bribery: "Whoever corruptly offers, gives, or agrees to give directly or indirectly, any benefit, consideration, compensation, or reward to any agent or fiduciary of a person with the intent to influence the person's performance of duties as an agent is guilty of commercial bribery." The same is true for those who receive a bribe.
In real estate, buyer agents represent their clients in a fiduciary capacity. Fiduciaries, according to the above statutory reference are not supposed to be accepting compensation from people who intend to pay that compensation to influence their advice. That means that when seller agents offer extra compensation or bonuses to buyer agents, that there may be a violation of the bribery statute.
These "Bonuses" Belong to the Buyer
Insist that your agent disclose all buyer broker bonuses being offered and the commission payout being offered on all properties that you see. Make sure that your contract states that any such additional compensation will be rebated to you.
When a builder secretly offers buyer agents an extra Five Thousand Dollars ($5,000.00) in exchange for persuading buyers to purchase their new houses, would this constitute a bribe? We think so. How about a FREE LEXUS?
If intentionally interfering with a fiduciary relationship by offering secret "bonuses" for self-serving and self-dealing purposes does not fit within the definition of "corruptly," then what does? In our eyes, it's no different than having a defendant pay $25,000 to the plaintiff's attorney to convince his client to settle a lawsuit.
Listing Broker Bribes
What about when a seller's listing broker offers buyer agents a secret extra $25,000 (That's TWENTY-FIVE THOUSAND DOLLARS) if they convince their buyers to purchase a particular house? And just to prove that these really are secret fees, here's how a real $25,000 bonus appeared in the MLS (and how they typically do appear). Please note that the "Agent Remarks" section is invisible to the public. (This MLS "Remarks" is verified as accurate and was made available to us by an anonymous source):
The above "bonus" is an example of the routine bonuses that plague the MLS system. Do you think secret money being offered to buyer agents is intended to influence the agents' advice and guidance in selecting a house? Why else would it be offered?
Home Warranty Bribes
What about when Home Warranty Companies secretly pay Realtors a fee in exchange for selling home warranties to their clients? This very issue came up recently when HUD requested public comments on this practice. CAARE may have been the ONLY consumer group to address this topic (see our blog news item and our letter here).
The National Association of Realtors Wants These Secret Payments
The National Association of Realtors (NAR) and multitudes of Realtors argued to HUD to allow home warranty companies to pay Realtors these hidden fees. They actually argued that if these fees weren't paid that Realtors might stop recommending warranties to their clients! They continued this "line of reasoning" by stating that this would cause the price of home warranties to go up because home warranty companies would then be forced to hire a sales force and do their own marketing.
We found it incredulous that these Realtors, holding themselves out as fiduciaries to their clients, could pitch such "logic." These people are fiduciaries - trustees of their clients' real estate matters. Their clients often justifiably and legally rely upon them for their advice. And they are here arguing that it is ok for a third party to pay them secret fees so as to self admittedly influence the advice that they provide to their clients? Are they representing their clients, the home warranty companies or themselves when they provide this home warranty advice to their clients?
Interestingly enough, one local Realtor Association actually stated that it violates the licensing statutes to accept these fees (unfortunately, few Realtors are aware of this). The cited statute can be found here, "Department of Commerce Regulations." Here is the relevant language contained in this document:
"A licensee shall not accept, give or charge any undisclosed commission or realize any direct or indirect compensation that is paid to or for the benefit of the licensee on an expenditure made for a principle. An example of this would be commissions received on homeowner warranty packages. Such a commission must be disclosed. (emphasis added)" We would go a step further and state that such a fee must be payable to the client.
If you were a consumer and found out that your Realtor was being offered $5,000 per transaction (for up to five transactions) from a particular builder, how would you feel? How about a secret $25,000 or a Lexus? And who does that money really belong to, the Realtor or the buyer? Here's a typical advertisement from a national builder sent out to Realtors and one from a local builder: