I rarely write commentary about news articles but this one stood out.
I was intrigued by Dina ElBoghdady‘s exposé today: Realtor Discourages Use of Outside Lenders, Long & Foster Pushes Own Mortgages, where she questions an email sent by Mr. Foster to all Long & Foster agents.
Flashback/Prognostication (wow that really is a word!), I wrote about this topic months ago with my “Affiliated Business” or Illegal Kickbacks? post.
RESPA is a rule that bans kickbacks in real estate transactions. However some companies have gone the technicality route and found ways to comply with the law, but perhaps not with the intent.
While using an “affiliated partner” should not result in money being put directly in an agent’s pockets (Remax found a way to give partial ownership in title companies to Remax agents), how is that different than what Foster said when he says he “wrote the memo to make agents understand that each time they use Prosperity, they’re helping Long & Foster, which in turn enables the company to provide better resources and more advertising for agents.“
Let me break it down:
“Illegal” as per RESPA:
- Agents tell customers to use partner.
- Agents receive a cash kickback or profit sharing.
- Agents tell company to use partner.
- Company receives benefit.
- Company gives agent more advertising (indirect benefit).
Um… Ok, got it!
Now there is nothing wrong with having reliable partners (lenders, title companies etc.). And Wes Foster even had a great marketing program that offered $5,000 in mortgage payments if a deal went sour with their lender. As an agent, you don’t want your client using some web bank that has no loyalty to the customer, or agent. Somebody that won’t care if they pull the rug out from under you at the last second. Instead you want accountable partners with track records for getting the deal done.
But there is a fine line from a recommendation from an agent receiving ANY benefit, direct or indirect from that referral. And even if the client signs 37 disclaimers saying they are being referred to a partner.
I have loan partners. I don’t allow them to give me kickbacks (direct or indirect) beyond a $10 sandwich (trust me, I could get free lunches for a year if I wanted to let any lender take me to lunch).
Also I know a top producing agent at Weichert that isn’t allowed to say that she is #1 in the office since she doesn’t use the partnering lender or title companies. While this isn’t a monetary incentive (kickback), it is similar in that it is a penalty for not funneling deals to their partners.
Why this is important for buyers:
You need to know who is recommending what, and what benefits that person is getting. Otherwise abuse in the system can lead to price gouging. There is currently a case against Coldwell Banker where even though their agents got disclaimers signed, the suit questions whether the agent acted in their fidiciary duty and routed clients to overpriced partners.
Have you experienced pressure from your broker to use “partners?”
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– Written by Frank Borges LL0SA- Broker FranklyRealty.com
(please report typos)