Is offering cash back at closing legal?

Question

Hi everyone, I am a real estate agent in Southern California and have been interested in getting involved in wholesaling properties. My question is would it be legal to offer sellers cash back once the deal goes through? To be more specific, there would be no commissions involved in these deals so I would pay the seller money out of my own pocket and advertise this as an incentive.I have searched for this topic online and have had some mixed answers and wanted to see if someone might be able to provide a more clear and definitive answer. I wanted clarity before I went any further with this idea.

Russell Brazil · Answer

All exchanged money needs to be on the Closing Disclosure/ALTA/HUD.  Exchanging funds related to the transaction outside of that would be illegal if a government backed loan is involved.  If no government backed loan is involved, then it would depend on state statutes, but in most cases the answer will remain the same.

Nick C. · Answer

I don't see how this would incentivize sellers - if you offer them 100k or 95k with 5k cash back, what's the difference to them?

Irene Nash · Answer

In WA state at least, if an agent pays someone something as a result of a closing (i.e., when the 'something', whether it's money or a gift, is tied to the fact that the sale closed), the recipient needs to have a real estate license because it qualifies as a referral fee.

The advice I've gotten when I want to thank a client for referring another client to me (a box of chocolates is what I usually do, sounds simple but it goes over well) is to make sure I send it when I get the referral, not after the new client's deal has closed, so that it's clearly a thank you for the referral and not connected to the closing.

Probably in your state code of legislation for real estate agents this is addressed somewhere.

Wayne Brooks · Answer

How would “cash back” be different than a higher price?   Agents wanting to be wholesalers always gives me pause.....2 opposing agendas.

Is offering cash back at closing legal?

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