Today we continue to look at Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) and discuss how a real estate agent can advertise with a service provider.
RESPA does not prohibit joint marketing with other service providers. However, CFPB urges extreme caution when doing so. Most of the sanctions issued by CFPB for RESPA violations involve some form of a joint marketing plan. CFPB pays particularly close attention to what it considers a marketing scheme designed to hide the transfer of value between service providers.
The most important thing to understand is the fee paid by a service provider must be based on the market value of the services actually rendered and not upon the value of the business that may be derived from referrals between the parties.
In determining if a joint marketing plan is proper, several RESPA cases have outlined some basic rules. First and foremost, the intent of the joint marketing agreement is paramount. Was the purpose of the joint marketing plan to put the service provider’s information in front of consumers in exchange for a fair and reasonable service fee or was it to help offset the other’s expenses and marketing cost? Because each service provider is required to pay their fair share of joint marketing, including the design, production and delivery, any offsetting of marketing cost is problematic. Thus, if the primary function of an agreement is to transmit value between service providers then it is most likely a violation.
Secondly, the fair market value of the services provided must be determined prior to implementation. The value must have some basis in fact and by whom. If you are the subject of a CFPB investigation you would have to prove the fair market value of the services and justify how you arrived at the amount. How much of an agent’s advertising is the lender covering and is the lender’s advertising exposure proportional to how much the lender spent? To ensure compliance it is best to have an outside party value the service as CFPB tends to frown on values that are derived by the parties to the agreement.
Next, if there is any form of an implied or unwritten agreement to one service provider to refer closings to the other because of the joint marketing, it is improper. Any agreement or understanding, even unwritten, is illegal.
Lastly, both parties must monitor the agreement to make sure that both parties are participating in the marketing plan and it was not done just to transfer money. If one party to the agreement is not truly participating then it tends to show the payment is an illegal attempt to transfer value.
Important South Carolinians You May Not Know: As more and more people move into our great state it is important to know the many historically significant figures in our history. Over the next few weeks I will discuss some of my favorites.
Ronald McNair was born October 21, 1950 in Lake City, SC. McNair received a Bachelor of Science from North Carolina A&T and Ph.D from Massachusetts Institute of Technology. In 1978 McNair was selected as a NASA astronaut from over 10,000 applicants. McNair flew aboard Challenger, becoming the second African-American to fly in space. He flew on the ill-fated January 28, 1996 Challenger mission that disintegrated 73 seconds after liftoff. He is survived by his wife and two children. McNair is a South Carolina and American hero.