Marketing services agreement: A kickback by another name

While Affiliated Business Arrangements (also known as a The Legal Kickback) between settlement companies and real estate brokers have been much discussed and criticized over the years as anti-consumer, they continue to permeate the market.

Here is yet another kickback scheme – the Marketing Services Agreement (MSA), which is becoming more popular among real estate brokerages (i.e., brokers) and self-described “independent” title companies, also referred to as the broker’s Preferred Partner.

Here’s how it works. Example: Acme Title Co. approaches Beta Real Estate Co. and offers to pay $20,000.00 per year to Beta for the following so-called services:

• Acme Title Co. to be designated the exclusive preferred settlement service provider by Beta
• Acme Title Co. logo and website link to be prominently displayed on Beta’s website
• Acme Title Co. signage and marketing materials to be placed and distributed with Beta’s sales offices and on for sale signs
• Acme Title Co. settlement services offer to appear on all Beta’s home listings
• Beta grants Acme Title Co. the exclusive right to make monthly presentations to its real estate agents
• Beta to place Acme promotional materials in all buyer packets presented by Beta to its clients

These “services” would be better described as “privileges” since the truth is that Acme Title Co. is buying exclusive access to the referral sources (i.e., Beta’s sales agents). It’s an effort to gain “face-time” with those sales agents who are in the best position to refer homebuyers to the title company.

The consumer, in this case a homebuyer, is most likely to use the title company recommended by the sales agent and may never know or realize that she has a right to shop around and choose her own title company.

At the end of the day, this is little more than a kickback from a service provider to a referral source in exchange for access. Is it legal?

Most MSAs are not administered in a legal manner. RESPA Section 8 prohibits a Broker from receiving a thing of value for a referral. Thus, if the marketing fee ($20,000 per year in this example) is based on anything other than the actual value of the marketing services performed by the Beta on behalf of Acme, then the arrangement would be in violation of federal law.

In other words, would an independent consultant value Beta’s efforts to market and promote Acme’s services at $20,000. The answer is most likely “NO.”

Ideally, the Consumer Financial Protection Board (CFPB), with oversight of RESPA compliance matters and its army of nearly 1,000 employees, will better scrutinize these Marketing Services Agreements and Affiliated Business Arrangements. As its name implies, the CFPB was established to protect the consumer.

Let’s hope the CFPB follows its charter.

Todd Ewing

Todd Ewing is an entrepreneur and attorney. After receiving his law degree from Drake University, Ewing left his home state of Iowa for opportunity in the Capital Region.He launched Federal Title & Escrow Company in 1996. The company that began on a piece of plywood strewn across a couple of sawhorses in a tiny office in Tenleytown had a unique premise: Give back to homebuyers what other title companies kick back to their referral sources.The innovative REALCredit™ distinguished Federal Title from its competitors and helped move Federal Title to the top echelon of independent title companies in the United States.A perennial trail blazer, over the years Ewing has also introduced one of the title industry’s first paperless closing workflows and a mobile app known as Close It! that was first to pinpoint for buyers, sellers and agents exactly how much cash would traverse the closing table during settlement.Ewing is an active outdoorsman who enjoys golf as well as hunting and fishing.

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