Brokerage terminates agent who founded rebate network

March 9, 2006

Long & Foster cites concerns about rebate business model

By Glenn Roberts Jr.
Inman News

Ron Patterson, a Long & Foster Realtor who launched a rebate referral network, received notice Wednesday that the brokerage company had terminated its association with him, he told Inman News.

Patterson's Realty Legacy business model, which was featured in a March 7 Inman News article, offers rebates to consumers outside of the settlement process. Through a contract agreement with agents in the Realty Legacy network, home sellers can receive a rebate of at least 1.5 percent of the selling price of their homes, and buyers receive a rebate on any amount above 1.5 percent of the sales price that their agent receives for participating in a transaction, according to a Web site description.

Paul DiCicco, vice president and regional manager of Northern Virginia operations for Long & Foster, said in a statement, "It is against company policy for me to discuss the grounds for terminating association with any of our agents."

Patterson, a former lawyer who has spent the past 25 years working in the real estate industry, said he had formerly pitched the business model to Long & Foster but the brokerage company did not take an interest in the concept.

Patterson said he was driven to launch Realty Legacy to offer some relief to consumers, as home prices and real estate commissions have risen dramatically in recent years. He said consumers are faced with "outrageous costs" associated with real estate transactions. But some brokers do not allow their agents to offer discounts without prior approval and they set specific limits on commissions offered by affiliated agents, which is why Patterson said he decided to set up a network for agents to discreetly offer rebates to consumers.

DiCicco said the company does have concerns about Realty Legacy's offer of rebates outside of the settlement process. The Real Estate Settlement Procedures Act, a federal law that contains provisions for financial reporting in real estate transactions, "is very clear," DiCicco said. "Any dealings of the transaction need to be disclosed on the HUD-1." The HUD-1 is a financial reporting form that is associated with the closing, or settlement, of a real estate transaction. "That's our biggest concern. Any financial dealings would have to be on the HUD-1 and would have to be disclosed."

DiCicco added, "The other issue we have – we feel that the company is conducting real estate business and to the best of our knowledge they do not have a real estate license at this juncture."

Patterson said the Realty Legacy business model provides that agents pay rebates to clients "with agent funds which did not come from that settlement. Plainly at the end of the tax year the agent will deduct these rebates as a business expense, obligating the recipients to report their receipt. How they are reported or acknowledged should be determined by the recipients' tax advisor."

A buyer or seller who participates in the Realty Legacy program could also ask a participating agent to include the rebate information on the HUD-1 form, though he said this is "not required."

A spokesman for the U.S. Department of Housing and Urban Development told Inman News in a 2004 article about rebate disclosure that all charges paid outside of settlement should be included on the HUD-1 form and marked "P.O.C." to note that the funds are paid outside of closing. "Any fee paid, either by the buyer or by the broker (regardless of whether it's paid outside of closing) must be disclosed on the HUD-1," HUD spokesman Brian Sullivan told Inman News.

Patterson said he consulted with lawyers in creating the Realty Legacy. Also, Patterson said he has not yet filed to establish Realty Legacy as a real estate broker, though this is "not needed." He also said he is "not a bit surprised" at his termination by Long & Foster. He said he has had "an enormous amount of e-mails and calls" related to Realty Legacy, and the comments have generally been positive.

Copyright 2006 Innam News

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