Can a Rebate Be Paid to a Non-Licensed Party in the Transaction?

The rules can be confusing.  Disclosure is the key.
 
Georgia Law and Federal Law. You can’t share commission with an unlicensed party.
According to both Georgia law and federal statute, a licensed real estate agent cannot share a commission with an unlicensed person.
 
RESPA (Real Estate Settlement and Procedures Act), the federal law, governs the majority of residential real estate transactions (those that close with an institutional loan). Under RESPA, both the licensed agent and the unlicensed recipient would be guilty of a violation of federal law if a licensed person shares a commission with an unlicensed person.
 
Georgia License Law is consistent with the federal law.  It is a violation of the Unfair Trade Practices and the GAR Rules to pay a commission or compensation to any person for performing the services of a real estate licensee who has not first secured the appropriate license under this chapter or is not cooperating as a nonresident who is licensed in such nonresident's state or foreign country of residence. O.C.G.A. Section 43-40-25(b)(17), GAR Rule 520-1-.06.
 
Disclosure is required to your principal when you are paying a referring agent.
GAR Rule 520-1-.10 (6)(e) operates when an agent receives a referral and then pays a fee to the referring broker.  Disclosure is required no later than a closing for a purchase or a lease, but it can also be disclosed on a brokerage agreement, purchase or lease agreement. This would apply to Broker to Broker referrals and companies like Opcity, 55+ and others.
Consequences for violations can be severe, ranging from a reprimand to a fine to revocation of a license.
 
Exceptions to the “No Rebate” Rule
For state and federal policy reasons, there are exceptions to the “no rebate” to an unlicensed person rule. Both Georgia and the Justice Department see value in allowing certain rebates. GAR allows rebates under the theory that the rebate is effectively being paid by both parties, the broker is giving back to the principal and is just “netting out.”  The Justice Department allows a rebate under the theory that it is important to competition and lower prices for consumers.
 
To avoid a violation of the laws, the rebate must be clearly shown on the Settlement Statement.  It must be totally transparent to all parties and to the lender.
 
Most often, we see rebates as a trade-off for a service. (Agent pays for a tree to be removed, carpet to be cleaned, etc.)  A rebate can also be a straight discount, without any trade-off of service, so long as it is disclosed. As a marketing strategy, some brokerages offer a rebate with all normal services or lesser services included. There are those who criticize this business model, but as long as it is fully disclosed on the Settlement Statement, it is legal.   It is up to agents and their broker to decide whether a rebate is appropriate.
 
Instructions to Closing Attorney
 
GAR F255, Instructions to Closing Attorney, is the appropriate vehicle for disclosure rebates at Section 4. “The Seller’s Broker, the Buyer’s Broker and their respective affiliated licensees hereby direct the closing attorney to disclose on the settlement statement for the above-referenced transaction the following referral fees and rebates they have or will be paid or have received or will receive in said transaction.”
 
When Disclosure of a gift, product, service or a thing of value to an unlicensed party is NOT required.
GAR Rule 520-1-.10 (6), Disclosure of Commissions, Fees, Rebates, or Other Valuable Consideration, clarifies when disclosure is not required.  “No disclosure is required for gifts, products, services, or other things of value given to a principal by a licensee provided that they are not contingent upon the purchase, sale, lease or exchange of real estate for that transaction.  That is, there is no quid pro quo.  (You can use my condo anytime, whether we do a deal or not.)
 
Note:  The Selling and the Listing Agents can rebate only to their own principal.  That is, a Buyer’s agent can rebate only to the Buyer and a Seller’s agent can rebate only to the Seller.  So, if 2 agents decide to each contribute to a cost, the division of costs must follow this rule.