'Affinity' cash back draws fire

Nation's Housing

March 15, 1998|By Kenneth R. Harney

SHOULD HOMEBUYERS and home sellers be allowed to receive sizable cash rebates -- or frequent-flier miles -- when they choose their realty agent as part of a larger "affinity" group?

Put another way: If your employer, church, bank, credit-card company or retail store offers cash rebates from realty commissions whenever you buy or sell a home, should you be allowed by state law to take that cash?

That may sound like an easy question, but it's turning into one of the hottest controversies in the American housing market. Legislatures and real estate regulators are looking at ways to ban or discourage "affinity marketing" programs that rebate portions of home realty commissions to group members.

Affinity programs typically are sponsored by associations or firms with large membership bases, such as the Navy Federal Credit Union, Amway Corp., the USAA insurance and financial services companies, Wells Fargo Bank, American Airlines, First USA credit cards and Costco-Price Club retail stores.

In the USAA program, the company's 3 million member-customers are eligible to get a cash "bonus" ranging from $200 to $1,000 when they buy or sell a house. The bonus is actually a commission rebate from participating real estate brokers who've agreed to discount their fees in exchange for USAA's referral of prime, pre-qualified clients ready to buy or sell.

In the Costco-Price Club program, dues-paying members of the huge discount retailer can qualify for even larger benefits by buying their home and financing it with participating realty brokers and mortgage lenders. A Costco member who sells a $225,000 home, purchases a replacement and gets a new mortgage through the program can receive discounts of $6,000 or more off Realtors' and lenders' regular fees.

The Costco program only began operating late in 1997, but USAA's has been available to members since 1993. During that period, according to the firm, nearly 33,000 customers have received $14 million in cash bonuses in the course of buying and selling $4.7 billion in homes. Besides cash, the program also offers free relocation counseling, help with insurance, financing and other move-related services.

Attractive though it may sound, the USAA program is against the law in New Jersey, Kansas, Louisiana, Mississippi, Oklahoma, Idaho and Oregon, where real estate statutes or regulatory rulings prohibit realty agents from sharing commissions with anyone but fellow licensed realty agents. In Kentucky, bonuses can be paid only to home sellers, never homebuyers. In Maryland, Delaware, West Virginia, Iowa and Alaska, efforts have been under way to adopt legislation or regulations that would effectively limit or ban commission rebates to consumers.

A bill introduced in the Maryland legislature this session would make it illegal for realty agents or brokers to "make any payments or provide a reduced rate of commission to a buyer or seller referred" through any kind of affinity marketing arrangement.

The national trade group representing state real estate commissioners, the Association of Real Estate License Law Officials, has created a task force to make recommendations on how states should handle affinity marketing rebates.

Gerry Pearce, senior vice president of affinity services for Cendant Mobility, a large relocation firm that sponsors and helps run programs like USAA's and Amway's, says that rather than banning discounts to homebuyers, states "ought to allow consumers the right to make a free choice" about saving money through group-purchasing arrangements.

Pub Date: 3/15/98

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