Co-marketing listings can be a win/win for real estate professionals. It’s an effective way to increase exposure and reach new prospects. It’s also a value-for-money proposition as you’re able to save costs through shared marketing.
However, real estate brokers and licensees need to comply with the Real Estate Settlement Procedures Act (RESPA) when it comes to transactions involving federally-insured mortgage loans. The legislation exists to prevent referral fees and kickbacks and protect consumers.
As a real estate licensee, you need to navigate the co-marketing of listings carefully and with an eye for compliance. Here’s what you need to watch out for and how you can steer clear of a RESPA violation when co-marketing a listing.
Potential Compliance Issues
When partnering with another licensee or settlement service provider, you need to be well aware of the scope of RESPA so you can protect your business. In a nutshell, you need to ensure you:
- Do not take any cash (or other things of value) for referrals. That includes things like sporting event tickets, food and beverages, golf outings, or other perks such as prizes and raffles.
- Do not pay referral fees to any non-licensees. RESPA strictly prohibits referral fees or financial benefit being paid to a non-licensee. That means no finder’s fees, referral contests, or other activities where a referral fee may be paid to a non-licensee.
- Remember commission splits are only compliant when the party actually does the work (that requires a real estate license) in the transaction.
Keep in mind that some states may have their own regulations about referral fees. For example, read about allowable referrals and commission splits in California real estate transactions.
How to Maintain RESPA-compliance When Co-marketing Listings
Clearly define roles and responsibilities
Ensure all parties are clear about their responsibilities and obligations to comply with RESPA and any other legal requirements. Real estate licensees should develop a co-marketing agreement which accurately outlines the marketing services that each party will provide.
Ensure each party receives fair and reasonable compensation
You need to ensure your agreements include fair and reasonable compensation that is proportional to the services rendered. Your co-marketing agreement should provide tangible benefits to both parties, and focus on delivering real value to consumers. Ensure your compensation arrangements cannot be perceived as kickbacks that are purely aimed at generating referral fees.
Keep accurate records of your marketing spend for the co-marketed listing
Document all marketing expenses and retain invoices and other relevant documentation. Having an accurate paper trail can be useful if you need to justify that your expenses are fair and reasonable and related to the marketing of the co-listed property. This can be helpful if you need to defend a claim of RESPA non-compliance.
Be careful who you collaborate with
Be careful who you decide to collaborate with. Not all real estate professionals have an in-depth knowledge of RESPA, and others may knowingly (or unknowingly) be non-compliant for their own personal gain. Only co-market with ethical licensees who understand their obligations under RESPA and are happy to meet the standards required. Also be aware that a conflict of interest or non-compliance situation might ensue if you partner with someone that has exclusive working relationships with other real estate companies.
Be transparent and disclose your co-marketing relationships
If you are co-marketing a listing, disclosing that relationship is essential from an ethical and RESPA-compliance standpoint. Clearly disclose the commission split arrangement to all parties involved, including the client. Include a disclosure statement on your marketing materials and a statement on your website or social media.
Avoid Steering
Ensure your co-marketing arrangement does not steer potential clients to use specific companies. You must not suggest a client has to use the company you are co-marketing with. In order to comply with RESPA, you must avoid any practices that could be seen as restricting their options or influencing their choices. Co-marketing listings should instead be focused on increasing exposure for your listings and helping you to reach new target markets.
Here’s a good discussion of the issues with co-marketing for real estate licensees.
Get Legal Advice
If in doubt about the complexities of co-marketing a listing, obtain professional legal advice from a qualified real estate attorney. This will help you to comply with RESPA and avoid a lawsuit in the future.
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