Incentives and Inducements
Real estate professionals work to separate themselves from the crowd and attract new clients. Sometimes this means offering incentives to attract new clients or inducements to complete a sale.
Consumers should know what types of incentives or inducements are allowed, and what they can expect.
Incentives and Inducements
An “incentive” is anything a brokerage advertises, communicates or offers to the public to attract business. This includes travel miles, gifts, contests, gift certificates, games of chance or anything else of value.
An “inducement” is anything a brokerage offers or gives to a person who is, or could be, a party to a real estate or mortgage transaction, meant to assist, persuade or cause that person to enter into a particular real estate or mortgage transaction. Inducement examples include when a real estate brokerage offers to pay a buyer’s legal fees to induce them to proceed with the purchase of a particular property or when a mortgage brokerage offers to pay for an appraisal to induce a borrower to enter into a mortgage deal.
In other words, a brokerage uses incentives to attract consumers to the brokerage, and they use inducements to get a specific consumer to enter into a specific transaction or deal.
Incentives must be brokerage-wide
Any incentive must be offered by the brokerage, not the individual person. Brokerage incentives must be available to all clients or potential clients of the brokerage, regardless of which professional from the brokerage that they’re working with
That means if you see one real estate professional offering an incentive – and you want to work with a different professional from the same brokerage – it should be available to you. If it isn’t, talk to the broker.
Inducements must have broker approval
To offer an inducement, a real estate professional must:
- receive written approval from their broker
- give you the details of the inducement in writing
Changes to commission are NOT inducements
Commission rates are subject to negotiation, and subject to the terms of a written agreement between brokerage and a client. A commission rate is a contractual matter and can be renegotiated at any time between the parties. An inducement is something a real estate professional offers or gives that is outside the bounds of a written service agreement. A commission reduction or a renegotiated commission is not an inducement.
Acceptable, Brokerage-Wide Incentives
- ABC Realty has a large newspaper advertisement stating any seller who lists their property with the brokerage within the next 60 days will be in a draw for a trip for two to Hawaii.
- Kick Real Estate sends out a flyer to a community stating that for each home bought or sold through the brokerage over the next four months, the brokerage will donate $500 towards equipment for a children’s playground at the community center.
Unacceptable, Individual Incentives
- “Let me sell your house and I will give you free use of my moving van”
- “If you hire me to find your next home, you’ll receive a $500 gift certificate for ABC Depot”
- “If you hire me to find you a new mortgage, I will donate $200 to XYZ Charity”
While these incentives may be allowed if they are actually offered by the brokerage to all clients or potential clients, the advertisements themselves could be a problem because they make it sound as if the individual real estate professional is offering them.
- An associate offers to pay moving costs, legal fees, or buy an appliance for one of the parties in order to persuade them to agree to the offer.
- A mortgage associate chooses to discount the interest rate of a mortgage for a current client in order to induce the borrower to complete a mortgage transaction.
- A property manager offers free advertising to a property owner as an inducement to sign a management contract.