Marketing services agreement: A kickback by another name

By November 28, 2012 Uncategorized

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.

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