Understand the letter of the law when it comes to teaming with allied businesses.
Gavel inside labyrinth maze

The Real Estate Settlement Procedures Act is a federal law designed to protect consumers in the settlement of real estate transactions. Before you get involved in any business-building partnership with allied professionals, be sure you know what is and isn’t allowed under RESPA.

  1. RESPA generally prohibits kickbacks and offering a thing of value in exchange for the referral of business to a settlement service provider. The law applies equally to all settlement service providers, which goes beyond title insurance, loan origination, and real estate brokerage to include property surveys, credit reports or appraisals, pest and fungus inspections, home warranty companies, and more. Furthermore, a “thing of value” need not be expensive to lead to a RESPA violation. Anything provided in exchange for a referral of business can violate the law.
  2. The law doesn’t prohibit real estate brokers from setting up marketing service agreements, or MSAs, with other settlement service providers, but such agreements should be reviewed to ensure that any payment is for marketing services, not referrals, and that the payments made for these services represent fair value for the services provided.
  3. A referral is an action directed to a person to influence the person’s selection of a settlement service provider, whereas marketing is directed to a wider audience. Handing someone a brochure is a referral; displaying a brochure in the office lobby is marketing. A referral arrangement need not be written or oral to violate RESPA; a violation can be established by a practice, pattern, or course of conduct.
  4. RESPA regulations provide an exception for normal promotional and educational activities that are not conditioned on the referral of business and don’t defray expenses that the real estate professional would otherwise incur.

Learn more at nar.realtor/respa.

Advertisement