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Coupon-Based Rebate Scheme Held Illegal

Read the full decision: New Jersey Real Estate Commission v. Tonge and Just New Homes, Inc.

A New Jersey Court has affirmed the license revocation and fining of a real estate company for implementing a coupon-based marketing scheme found to be in violation of a now-defunct state law prohibiting rebates.

In New Jersey Real Estate Commission v. Tonge, the defendant real estate company (“Brokerage”) appealed determinations by the New Jersey Real Estate Commission (“Commission”) and an Administrative Law Judge that Brokerage had violated a state law prohibiting the payment of commission rebates to non-licensees.  Under the marketing scheme at issue, Brokerage advertised via its website a 1% cash-back bonus to prospective buyers seeking to build a new home.  The advertisement instructed buyers to print out the displayed “coupon,” present it to seller-builders at a home-build site, and instruct the seller-builders that Brokerage was the buyer’s real estate representative, thus purportedly entitling Brokerage to a commission on the sale.  Brokerage would then request that the seller-builder reduce Brokerage’s commission by 1% and apply the credit to the buyer’s closing costs.  Brokerage representatives did not accompany prospective buyers to build sites, nor did Brokerage have any prior listing agreement or other contractual arrangement with any builder-sellers.

At the time Brokerage was engaging in these activities, New Jersey law held that the payment of any “rebate, profit, compensation or commission to any unlicensed person” was illegal (subsequently, the state repealed this law).  Brokerage argued that because the coupon advertisement only “offered” a rebate, and the actual payment of the rebate was made directly to the buyer by the builder-seller, Brokerage had not violated the law.  In affirming the Commission and Administrative Law Judge’s rejection of this argument, the appellate court found that Brokerage’s “clever yet transparent attempt to circumvent [the law] was simply unavailing,”  and that using the builder-sellers as “middlemen” did not negate the fact that the Brokerage was paying a portion of its sales commission to the buyer.

The court also found Brokerage in violation of state law prohibiting real estate licensees from engaging in “any conduct with demonstrates unworthiness, incompetency, bad faith or dishonesty.” Brokerage admitted in court that a number of builder-sellers had a policy of refusing commissions unless a broker was physically present at the construction site.  Brokerage also acknowledged that certain builder-sellers in the area refused outright to pay a commission to Brokerage “under any circumstances.”  Despite these facts, Brokerage failed to mention anywhere in its cash-back advertisement that in some situations the rebate would not be available to buyers.

In sum, the court found that Brokerage had “demonstrated incompetency, bad faith, dishonesty and unworthiness for licensure,” and upheld the Commission’s $123,500 fine and five year revocation of Brokerage’s license.

New Jersey Real Estate Commission v. Tonge and Just New Homes, Inc., No. A-1648-10T1, 2013 WL 5808466 (N.J. Super. A.D. Oct. 30, 2013). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].