What is your RESPA-onsibility?
The Real Estate Settlement Procedures Act, commonly referred to as RESPA was enacted to curb unethical practices and consumer abuse in real estate settlement charges. The focus of this law is tied to settlement service providers and interactions involving the exchange of something of value. Violations of the Act can subject individuals and entities to criminal fines and discipline.Investigations of violations are as simple as following the money, so when partnering and referring it is important to do it within the confines of the law.
So, what is a settlement service provider? Closing attorneys, title companies, real estate brokers and mortgage brokers are all considered settlement service providers.
What constitutes “something of value”? More than you might think – It can be money, discounts, catering, advertising, tips, lease payments and even a like on social media.
Does this mean you can’t refer? Of course not! You can refer as long as it’s free, and you’re doing it because you think that person will do a great job!
The National Association of REALTORS (NAR) has a great list of Do’s and Don’ts for real estate professionals and they include:
DO ensure that each co-marketing party pays its proper share of the advertisement.
DO ensure that the agreed upon marketing is actually performed and that any payment made in connection with such services is the fair market value for the services performed.
DO include the word “Advertisement” in a prominent location on each party’s information included on the co-marketing materials.
DO document procedures to calculate co-marketing charges and/or create a standardized rate sheet for the fair market value of such marketing.
DO consider maintaining written agreements of the co-marketing arrangement to demonstrate compliance with RESPA Section 8 as well as federal and state laws and regulations.
DO ensure that the advertisements are distributed to the general public, such as publicly-facing, broadly-reaching websites, and cannot be viewed as “targeting” specific consumers.
DO NOT enter into the arrangement with a co-marketing party without getting the necessary corporate authorization for such arrangement for yourself or for your co-marketing party.
DO NOT directly or indirectly defray expenses that would otherwise be incurred by anyone in a position to refer settlement services or business to you, by use of a co-marketing arrangement.
DO NOT exchange any “thing of value” with anyone for a referral, no matter how small the “thing of value” is. RESPA does NOT have an exception for minimal “kickback” amounts and even a small amount (i.e., $5 coffee gift card) is considered a “thing of value” under the law.
DO NOT require or allow your co-marketing party to endorse you, exclusively or otherwise, or vice versa, e.g.:
DO NOT enter into co-marketing arrangements before considering the implications of any other concurrent relationship with the co-marketing party (e.g., lead sales, desk rentals, etc.).
DO NOT direct any of the co-marketing efforts to specific consumers with whom either co-marketing party has a relationship or over whom either party has the ability to influence the selection of a settlement service provider (as compared to marketing of general distribution).
DO NOT evaluate or adjust the compensation paid under an arrangement based on “capture rate,” which is the percentage of referrals that convert to actual clients or customers.
DO NOT allow one party to act as a “gatekeeper” when dealing with a third-party marketing company. Both parties should have a separate agreement with third-party marketing firms.
DO NOT perform services for the other co-marketing party that are outside the terms of the agreement.
DO NOT share the cost of leads generated through websites or arrangements. Each party must pay the fair market value of the leads they purchase.
The DO’s and DON’Ts examples listed here are not all-inclusive and small variations in the facts can lead to different outcomes. If you have questions about the law and your activities or if you would like to hold an educational session on RESPA’s impacts for your team or brokerage reach out to the Kendrick Law Group team at 407-641-5847 to schedule a complimentary consultation or set up a free workshop in your office.
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