Can real estate brokers give gifts to buyers and sellers?
By: Joseph Autilio, Executive Director of the Massachusetts Board of Registration of Real Estate Brokers & Salespersons
Questions continue to be raised concerning the matter of gifts to buyers and sellers of real property. More specifically these questions typically seek information on whether real estate brokers may give gifts to buyers and sellers. The short answer to this question is yes. This answer is directly related to the parties to whom the gifts are provided, namely buyers and sellers of real property. The matter of gifts to buyers and sellers is almost identical to the issue of inducements even where they are not intended to attract listings or buyer clients.
About fifteen years ago, the Board had in place a regulation prohibiting real estate agents from offering monetary inducements or rebates to anyone. The regulation was based upon a statutory provision that still exists today in the relevant licensing law governing real estate agents in the Commonwealth. The specific statutory provision can be found in General Laws of Massachusetts Chapter 112, Section 87AAA(e). This provision provides in relevant part that the Board may suspend, revoke or refuse to renew any license when it has found that a licensee who performs or attempts to perform any act authorized by such license has:
“(e) paid commissions or fees to or divided the same with any person, who, being required to be licensed as a broker or salesmen in this or any other state, is not so licensed…” (emphasis supplied)
What is critical is that the payment or sharing of fees or commissions must be with someone who is required to be licensed as a real estate agent by virtue of what they are doing, namely brokering as defined in General Laws of Massachusetts Chapter 112, Section 87PP.
Virtually everyone who performs the work of a real estate agent has to be licensed as such and, therefore, sharing fees or commissions would be a violation of the licensing law unless they were, in fact, licensed as a real estate agent. However, General Laws of Massachusetts Chapter 112, Section 87QQ notes a number of exemptions from the licensing law and the requirement for licensure. One such exemption applies to:
“…any person, while acting for himself, who seeks to acquire, lease or rent real estate for his own use or investment…”
Moreover, the provision of the licensing law where the activities of brokering are defined, introduces these activities by describing a broker and brokering as:
…any person who for another person and for a fee, commission or other valuable consideration or with the intention or in the expectation or upon the promise of receiving or collecting a fee, commission or other valuable consideration, does any of the following:” (emphasis supplied) See: General Laws of Massachusetts Chapter 112, Section 87PP
These provisions make clear that the buyer and seller in a real estate transaction, commonly known as the principals, are not subject to the licensing law. In other words they do not need to have a real estate license though what they may be doing would normally require such a license. When buyers and sellers buy and sell real estate they act for themselves, whereas a broker is someone who acts for someone else, namely the buyer or the seller.
Consequently, since the buyer and seller need not be licensed to buy and sell real estate, brokers are free to provide gifts or inducements to them and that is why the Board repealed the blanket prohibition that was in its regulation more than fifteen years ago.
Therefore, simply put, real estate brokers cannot share in their commissions, fees or other valuable consideration with others who are not licensed and are performing brokering activities. Brokers, however, may share (including providing gifts) with the buyer or seller in a real estate transaction because they do not need to be licensed in the first place by virtue of the licensing law itself. Clearly then the statutory prohibition against sharing fees, commissions or other valuable consideration, while very broad, does not apply to buyers or sellers in a real estate transaction.
(Editor’s Note: The Massachusetts Association of REALTORS® legal department advises all REALTORS® who provide gifts or incentives to consult an accountant or tax attorney regarding potential tax consequences resulting from this practice. Furthermore, members are advised to disclose all gifts or incentives to all parties of the transaction before the closing.)
Joseph Autilio is executive director of the Board of Registration of Real Estate Brokers & Salespersons. The Board office in Boston can be reached at 617-727-2373.