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Affinity Group Incentives Drawing Fire


WASHINGTON — Should home buyers and 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 in a growing number of states 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 Price-Costco retail stores.

In the USAA program, for instance, the company's 3 million member-customers are eligible to get cash "bonuses" ranging from $200 to $1,000 when they buy or sell a house. There is no charge to the USAA member to participate.

The bonus is actually a commission rebate from participating real estate brokers who have agreed to discount their regular fees in exchange for USAA's referral of prime prequalified clients ready to buy or sell.

In the Price-Costco program, dues-paying members of the huge discount retailer can qualify for even larger benefits by buying their homes and financing them 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 offers free relocation counseling and 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, not buyers.

In a number of other states, including West Virginia, Maryland, Alaska, Iowa and Delaware, efforts have been underway to adopt legislation or regulations that would effectively limit or ban commission rebates to consumers.

A bill introduced in the Maryland Legislature 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 Assn. of Real Estate License Law Officials, has created a task force to make recommendations on how states should handle affinity marketing rebates. The task force has scheduled a meeting on the issue for mid-April in St. Louis.

The chairman of the group, Brian Pray, is a real estate broker and state real estate commissioner from Oxford, Miss., who is strongly critical of affinity group discounts.

Pray believes that if affinity programs were allowed to spread unchecked, they would cut the profits of nonparticipating brokers, forcing them to lay off agents, raise commission rates and go out of business.

Pray says he is also "concerned that the consumer does not understand that there are inherent conflicts of interest" in some affinity programs, requiring participating real estate agents to refer consumers only to mortgage financing sources tied into the program.

Proponents of affinity group marketing charge that state real estate regulatory agencies, effectively controlled by the real estate brokerage industry in many states, are the ones with the real conflict of interest when it comes to cutting agents' commissions through 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, "It's a classic case of the fox guarding the henhouse."

Rather than banning discounts to home buyers, says Pearce, states "ought to allow consumers the right to make a free choice" about saving money through group purchasing arrangements.

The head of the country's largest consumer organization, Stephen Brobeck, executive director of the Consumer Federation of America, agrees.

"We are very concerned," Brobeck said, "about any state-imposed restrictions on home buyers' or sellers' ability to receive lower-priced real estate services."

Distributed by the Washington Post Writers Group

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