A while back, a real estate agent’s flyer showed up in my mailbox. In it, Mr. Agent announced that if anyone referred a client to him, he would pay that person $300 when the transaction closed. Three hundred bucks. That’s a lot of money — enough to make anybody want to start combing through their mental Rolodex to find this guy a prospect or two. It’s a pretty good deal for Mr. Agent, too. After all, $300 really isn’t a lot of money to get him a client and a closed transaction he wouldn’t have had otherwise. So why wouldn’t every real estate agent offer a deal like that? Simple. Because it’s illegal. And it’s not just a “little bit” illegal, or illegal only here and there. It’s prohibited by federal law. The Real Estate Settlement and Procedures Act (RESPA) governs all real estate transactions that involve a goverment entity (like FHA loans) or a financial institution that is regulated or insured by the federal government (like every bank and mortgage provider). So RESPA applies to every transaction involving a loan, unless the funds are coming from underneath Uncle Barney’s mattress. 12 USC Section 2607 (a) says, “No person shall give and no person shall receive any fee … [pursuant to a referral agreement].” The paragraph goes on to exempt referrals between two people who are both licensed to sell real estate. But referral fees between agents and nonlicensed people are not exempted. Both broker and recipient would be guilty of a violation. And what a violation it is — punishable by fines up to $10,000 and a maximum of one year in prison! Suddenly that three hundred bucks isn’t looking so good, is it? What baffles me is how any competent real estate agent could not know that. In our world, RESPA looms large over everything. It regulates what gifts we can receive and from whom we can receive them. It regulates what fees we can pay and to whom we can pay them. We’re constantly being reminded of the long arm of RESPA and the penalties of running afoul of the regulations. If an agent doesn’t know about RESPA policies, it makes me wonder what else he doesn’t know. Even if this practice wasn’t illegal, I’d have a problem with it. After all, if you asked a friend for a referral to a good realtor, what criterion would you want them to use? Would you prefer “I know and trust this person” or “I know nothing about this guy, but I get three hundred bucks if I can get you to use him.” I want people to refer me because they know I’m good at what I do and that I’ll take good care of their friends, not because I’ve paid them off. At any rate, beware of brokers bearing bucks!!
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Beware of Brokers Bearing Bucks
9 comments • Mary Beth Bonacci CRS, SRES • February 25 2009 10:23AMComments
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This even makes you wonder about house warming gifts to clients who just bought a new place with you.
I've never heard any discussion about housewarming gifts and RESPA. My guess is that it wouldn't apply because the gift is for the client, not a third party. I do know that the IRS will only let us deduct client gifts up to $25, which doesn't buy much of a housewarming gift!
I agree that I would not do this as my good referrals are not for sale. If I refer to you, just do a great job and make us both look good. In the long run we'll both make more money from future referrals from the happy clients.
Unfortunately, this agent realizes that many people look out for themselves BEFORE they look out for the clients. RESPA is designed to be sure that in these cases, the client is not the one paying (even indirectly) for all this "bought favoritism."
And I find RESPA is ignored or, more often, cited incorrectly by many people. While RESPA has sections that are is too vague and general, I rarely find anyone that has spent time reading HUD's clarifying statemens on RESPA. Interesting reading if you have the time.
Good post! G
Dear Mary Beth,
There are some folks who know better, but choose to ignore!
Thanks for your post!
Barbara
Glenn -- is there an easy place to find HUD's clarifying statements on RESPA. I've always worked directly from RESPA, and that gets a little overwhelming!
Barbara -- Mr. Agent hasn't sent out any of the big bucks offers out lately, so I'm thinking someone may have set him straight.
Bravo, MB! Even if the practice weren't illegal, I still agree with you that it's really really dumb. I understand when new agents want to bribe motivate their friends to send them business, but it just makes them look desperate. You refer to someone because they'll make you proud, not because they'll write you a check to do so...
Mary Beth, there is not a best place unfortunately and that helps create more confusion.
The HUD site is a starting point for all things RESPA of course. http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm
In addition to the law, there is alot of other information, including an FAQ section and items published in the Federal Registry.
You can also find lots of interesting things if you just do a google search on the words: respa hud clarification
Hope that helps! I just spent alot of time reading webpages across the spectrum periodically and it can be very interesting comparing what we "hear" vs what is written.
All the best!!
G
Thanks Glenn!