What are Inducements and Incentives in the Real Estate Market? How do we simplify the two and make them easier to understand for the growing Real Estate Agents? Well, here’s how.

To start with the concept, the Real Estate Market is no different than the ordinary marketplace. It includes buying and selling; customers, dealers, and manufacturers; It is just like a regular product on sale, unlike the fact that the product valuation is far more superior and inconsistent than the regular consumer goods in the market.

A sale can include incentives, offers and other motivational inducements that helps sellers persuade buyers to make a sale. Real Estate Agents can also offer some appropriate incentive techniques to gain a customer and increase their sale volume. Although, there are some malpractices that are prohibited by the law enforcement bodies which should be kept in mind. But, rebate offerings within the permit can be practiced without any hesitation.

Inducements and Incentives serve the purpose of rebates offered by the sellers to the buyers in the Real Estate Markets. They fall in the same category, but there is still a major difference in the core of the concepts. Some industry professionals confuse “incentives” and “inducements”. As a real estate agent, you should know what Real Estate Inducement and Real Estate Incentive is and the difference between the two.  We will also look at some of the sample questions on the same to understand the concepts better. Let’s dive in.

Real Estate Incentive

An incentive is anything that is advertised or offered by the brokerage for attracting new business. So, this could be a brokerage is looking for new business from previous clients or they could be looking for new clients or new listings.

Some examples of incentives are gifts itself. It could be a physical gift. It could be a gift card to Home Depot, Lowes, or anything like that. It could also be a Visa gift card. Or a chance to win something, like entering a draw, or winning a vacation, etc.

Key Points to Remember:

1. Incentives must be brokerage wide, that means incentives can only be offered by the brokerage, not by the individual real estate agents within that brokerage.
2. Real estate professionals cannot offer their own incentives to attract business to them personally, they must be offered through the brokerage and all real estate professionals belonging to that brokerage must offer the incentive to their clients or potential clients.
3. It is not a one-off thing offered by individual real estate professionals. The main reason behind this rule is that members of the public should receive the same information regarding the incentives that are being offered by the brokerage regardless of who they choose to work with so that everything is being communicated the same to everyone.

So, let us look at some examples of appropriate incentives.

Example 1

New Home Realty advertises that “Any seller who lists their property with New Home Realty within the next 90 days will be entered into a draw to win a trip for two to Hawaii.” 

In this case, it is a brokerage that is offering the incentive and they’re offering a draw for a vacation. Thus, it is a completely appropriate incentive.

Example 2

XYZ Realty advertises that “Anyone who lists their property for sale with XYZ Realty within the next 60 days will receive a $500 Home Depot gift certificate.”  

In this example, it is a gift certificate. It is offered through the brokerage, so a completely appropriate example of incentive.

Now let us look at some examples that are not appropriate.

Example 1

John Smith, who’s a real estate professional advertises, “Hire me to sell your house and you will receive a $500 gift card for Home Depot.”  So in this case, it’s the same incentive, however, it is offered by an individual real estate agent as opposed to the brokerage, so that’s why this is not an appropriate incentive.

Example 2

Susan Jones advertises, “Let me help you find your next home and I will pay your home inspection fees.”  In this case, paying the home inspection fees could be used as an incentive, however, it is not being offered through the brokerage, it is offered by Susan Jones who is an individual real estate agent, so that’s why this is not an appropriate incentive.

Real Estate Inducement 

An inducement is anything a brokerage offers a person who is, or could be, a party to a real estate transaction meant to persuade that person to enter a particular real estate transaction. Essentially, inducement is offered to help someone close a deal. So, you are getting somebody to close the deal.

A real estate transaction could be anything related to commercial or residential real estate. It could be a purchase contract. It could be a sale; it could be a lease or a tenancy agreement. Any of these where the brokerage is offering something to sign the agreement or close the deal is an inducement.

Key Points to Remember:

1. Inducements must have broker approval.
2. To offer an inducement, a real estate professional must receive written approval from their broker, and they must give these details of the inducement in writing.

Let us look at some examples of appropriate inducements. 

Example 1:

Home Sense Realty offers to pay for new appliances if the client accepts the seller’s offer and buys the property.  

So, this is an example where somebody wants to buy the property, so they are basically signing the deal and as part of that, they will get new appliances from the brokerage. So, inducements are always offered by the brokerage and paid by the brokerage.

Example 2:

ABC Realty offers to pay a buyer’s legal fees if they purchase a particular property.  

So, in this case, Inducements are being offered by the brokerage. They are paying their legal fees and as a result, this is an appropriate inducement example.

Now let us look at some examples where the inducement is not appropriate. 

Example 1:

A property manager offers free advertising to a property owner as an inducement to sign a management contract. 

In this case, because this is being offered by a property manager, not on behalf of the brokerage, that is why this is not an appropriate example of an inducement.

Example 2:

A real estate professional offers to pay moving costs for the seller client if they agree to the buyer’s offer and sign the contract. 

Here, the inducement is being offered to sign the contract and close the deal. However, it is being offered by an individual real estate agent, not through a brokerage and therefore, it is not an appropriate inducement.

To summarize, incentives are used to attract new customers to the brokerage, or new business to the brokerage, whereas inducements are used to get a specific consumer to sign a deal. Incentives attract new businesses, whereas inducements can close a deal.

SAMPLE QUESTIONS

Example 1:

What is the difference between and inducement and an incentive?

A. the purpose of inducements is to bring business into the brokerage whereas incentives are used to motivate clients to move forward with a deal.

B. the purpose of incentives is to bring business into the brokerage whereas inducements are used to motivate clients to move forward with a deal.

C. incentives are used by brokerages to generate business for the associates whereas inducements are used by associates to get their clients to sign the deal.

D. inducements are used by brokerages to generate business for the associates whereas the incentives are used by associates to get their clients to sign the deal.

The correct answer is B. The purpose of incentives is to bring business into the brokerage where inducements are used to motivate clients to move forward with a deal.

Example 2:

Which of the following is an example of an incentive?

A. A brokerage advertises that all new listings will be entered into a draw for a new patio swing set.

B. A real estate professional offers to pay for moving boxes for anyone who lists a property for sale with him in the next 30 days.

C. Associate Winny Chan offers to pay his seller client’s appraisal fees if they accept the buyer’s offer and sign the deal.

D. All the above.

The correct answer is A. It must be offered through a brokerage, so if a brokerage advertises that all new listings will be entered into a draw for a new patio swing set, that is the correct answer.

Example 3:

The statement: Anything a brokerage offers or gives to a person who is, or could be, a party to a real estate or mortgage transaction, meant to assist, persuade or cause that person to enter into a particular real estate or mortgage transaction describes which of the following?

A. an inducement

B. an incentive

C. a referral

D. enticement.

The correct answer is A, it is an inducement.

Example 4:

Which of the following is an example of an inducement?

A. XYZ Realty offers the use of their company moving van to anyone who lists a property for sale with them in the next 30 days.

B. Associate Debra Smith tells her seller clients that her brokerage would pay for legal fees if they accept the buyer’s offer and sign the deal.

C. ABC Home Realty offers a $1000 Best Buy card to help with the purchase of new appliances if the buyers accept the seller’s offer and close the deal.

D. Or associate Jane Kelley offers a $500 Visa gift card to anyone who buys their next home through her in the next 30 days.

The correct answer here is B and C. Option B states that Associate Debra Smith is offering the inducement on behalf of the brokerage, which is correct. And in Option C, ABC Home Realty is a brokerage that is offering the inducements. Thus, both of those answers are correct.

Example 5:

Which of the following statements describe the details of an incentive?

A. An incentive must be offered by all real estate professionals registered with the brokerage.

B. An incentive must be available to all members of the public to attract business to the brokerage.

C. The incentive is provided by the brokerage and paid for by the brokerage.

D. All the above.

In this case, all these options are correct.

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