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MAR Legal Hotline Notes - December 2017

Friday, December 1, 2017   (0 Comments)
Posted by: Karen DeDonato
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Notes from MAR Legal Hotline

I know security deposits for rentals need to be held in an interest-bearing account, but what about deposits on a purchase?

 There is no obligation for an escrow agent to hold deposit funds for a purchase in an interest-bearing account; there is also nothing that prohibits an escrow agent from doing so. If you do decide to hold escrow funds in an interest-bearing account, keep in mind that the interest belongs to the person (or people) who the funds belong to. Some Realtors® acting as escrow agents have asked whether it is permissible for interest earned to be paid to them if they receive permission from all parties to the transaction. On its face, this appears permissible, but you may in fact run afoul of the rules prohibiting the comingling of escrow funds and operating funds. Article 8 of the Realtor® Code of Ethics states: “REALTORS® shall keep in a special account in an appropriate financial institution, separated from their own funds, monies coming into their possession in trust for other persons, such as escrows, trust funds, clients’ monies, and other like items.” If you do decide to hold monies in an interest-bearing escrow account, you must ensure that the interest earned is properly accounted for either and the consummation or termination of the transaction. The difficulties that may arise with the use of an interest-bearing account, coupled with interest rates below 1% annually, it may be wise to steer clear of interest-bearing escrow accounts.

Am I able to offer a rebate to my clients?

The offering of rebates to clients at the close of a transaction has become more and more common as a marketing strategy in an extremely competitive market. Although it is both legal and ethical for you to do so, the REALTOR® Code of Ethics and the Massachusetts Board of Registration for Brokers and Salespersons place clear requirements and limitations on the use of offering gifts or incentives.

REALTORS® are prohibited from sharing their commissions, fees or other valuable consideration with an unlicensed individual. A REALTOR® may, however, offer gifts to their clients as part of a specific real estate transaction. For example, a REALTOR® may pay their client’s closing costs or provide their client with a cash rebate at closing. This sort of payment must only be made to a party to the transaction.

REALTOR® Code of Ethics permits the offering of prizes or merchandise discounts even if receipt of the prize or discount is conditioned upon listing or buying a home through a specific REALTOR®. Any offer of a prize or discount must clearly state the conditions that must be satisfied in order to qualify.

Any rebate made to a client muse be included on the Closing Disclosure.

The Massachusetts Association of Realtors advises all REALTORS® who provide an incentive of this type to their clients to first consult with a tax attorney or accountant to discuss the potential tax ramifications of this practice.

For more information regarding these topics authorized callers should contact the MAR legal hotline at 800-370-5342 or e-mail at legalhotline@marealtor.com.

Source: Massachusetts Association of REALTORS® Legal Staff
Michael McDonagh, MAR General Counsel
Justin Davidson, MAR Legislative & Regulatory Counsel

Catherine Taylor, Staff Attorney


The Northeast Association of REALTORS®
6 Lyberty Way, Suite 204
Westford, MA 01886

Phone: 978-577-6138
Fax: 978-577-6156