In real estate, many licensees choose to give closing gifts as a thoughtful gesture to wrap up a client’s home sale or purchase. It’s one of the many ways that real estate professionals try to build customer loyalty and long-lasting relationships. However, it’s important to understand the risks associated with giving gifts to clients. Your gift could be unlawful due to a Real Estate Settlement Procedures Act (RESPA) contravention or deemed as inappropriate or offensive by the client. In either case, it’s so important to consider what closing gift you choose to avoid a claim being made against you.
Consider the Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law governing real estate transactions involving residential properties that are owner-occupied with a federally related mortgage loan. The purpose of RESPA is to protect consumers against inflated prices due to unnecessary kickbacks and referral fees. The key element of RESPA legislation is that there can be no financial benefit to a non-licensee (think referral fees and finder’s fees). Non-cash items, such as basketball game tickets, if given in exchange for referrals or future business will also be considered a kickback in violation of RESPA.
That’s not to say client gifts should never be given. You just cannot give a gift with strings attached.
RESPA non-compliant gifts include any products for which you will receive a kickback or a commission. So it’s a no on:
- Preferred providers
- Endorsements of other services or products
- Affiliate business arrangements
Giving a closing gift on a promise for future business and referrals can create legal issues. Ensure, if you’re giving gifts to clients, that they are given with no obligation or expectation. To be RESPA compliant and to avoid legal complications, your gifts must be given as a genuine thank you gift without any strings attached.
Gifts That Could Take an Unexpected Turn
Cleaning services, professional organizing services, gardeners — these are all valuable services to a homeowner. However, think twice about gifting a service to your clients. This may be construed as a recommendation, similar to a ‘preferred providers list’, if you don’t use the appropriate disclaimers to state that it is not.
Also, when you’re gifting the services of companies outside of your own real estate business, you cannot control what happens next. Things could go very wrong. Imagine if you give your client a free cleaning service voucher and the cleaning company steals something from the home or accidentally damages an expensive artwork.
Offensive and Inappropriate Gifts to Avoid
There are other risks of gift-giving aside from RESPA non-compliance, and one of these is inadvertently giving an offensive or inappropriate gift. Consider that the lens you look at the world through may not be the way others see it. What you may think is a harmless thank you gift might actually be offensive to the recipient.
Avoid anything with political connotations or anything likely to be controversial. Consider your client’s culture, religion, preferences, and beliefs. In many cases, licensees may not know their clients all that well — especially if they are a first-time client. Be wary, if this is the case. For example, gifting alcoholic drinks to clients you don’t know well could be offensive or inappropriate if they are sober and non-drinkers. Opt for a ‘safe gift’ — something that is less likely to offend.
How to Choose a ‘Safe’ Gift
Even though there are risks that come with gift-giving, there are plenty of gift options available that are on the safe side. Try these:
Card
Anyone will appreciate a handwritten card to say thank you or congratulations. Sometimes it’s the simple things in life that mean the most.
Flowers
Flowers are a great, simple option that can brighten a client’s day and home. Just avoid any flowers that are overly fragrant or likely to cause allergies.
Indoor Plants
Who doesn’t love a bit of greenery in their home? You can’t really go wrong with gifting a house plant. Just make sure you avoid anything toxic to pets or people.
Home Gadgets
Small home gadget gifts are a great idea. Here are some safe ideas:
- KeySmart – an innovative key storage idea so it’s easier to store and find keys
- A power bank that fits in nicely with the home decor so your client can charge their phones and devices
- A portable speaker so they can listen to their favorite tunes anywhere in the house
Gift Basket
A gift basket with a mix of local produce or small gifts from the local area will provide a warm welcome to the neighborhood. Just make sure any food inside the basket complies with Federal requirements for ingredient labelling to ensure no one will eat something they are allergic to.
Gift Cards
Gift cards are also a safe option. But go with generic options, such as a department store gift card, homewares shop, hardware store or furniture outlet, such as Ikea.
How to Protect Yourself Against a Gift-related Lawsuit
The best way to give a perfect (and legal) gift to your clients is to first remember it has to be a gift with no strings attached. Never give a gift and ask a client to send business your way. Never offer gifts in response to referrals.
Keep a ‘gift register’ with any information about gifts that you distribute. Note what it was, who it was for, how much it was worth, and when you gave it to your client.
Make sure you have Errors & Omissions Insurance to protect you and your real estate business. CRES real estate E&O + ClaimPrevent® offers excellent protection specifically designed for real estate. You’ll even have access to qualified attorneys to help you prevent claims and costly lawsuits with expert advice available to you.
Contact the team at CRES at 800-880-2747 for a confidential discussion today.
