Years ago we made a bold move by shunning all Affiliated Business Arrangements (a.k.a., ABAs, joint ventures, or legal kickbacks) and Marketing Service Agreements. Since we no longer have to share our profits with referral sources (i.e., executives and brokers of large real estate firms), we decided the money made from those arrangements should go to the homebuyer.
The truth about ABAs
Sometimes, several businesses that offer settlement services are owned or controlled by a common corporate parent. These businesses are known as “affiliates,” while the relationship is called an “Affiliated Business Arrangement” or “ABA” for short. When a lender, real estate broker, or other participant in your settlement refers you to an affiliate for a settlement service (such as when a real estate broker refers you to a mortgage broker affiliate), the law requires the referring party to give you an Affiliated Business Arrangement Disclosure. This form will remind you that you are generally not required, with certain exceptions, to use the affiliate and are free to shop for other providers.
In the end, ABAs wind up costing the consumer more money. This is because the referring party usually receives a reward for keeping the transaction in the family, so to speak. The referral fee is covered by the cost of the transaction, meaning the consumer foots the bill. Are you overpaying for settlement services? Find out with a free online quote.