BARRISTER'S BRIEFING: Things to Consider Before Entering Into a Marketing Service Agreement

Leon Cameron, Esq. | January 2018

Real estate brokers and agents have to comply with the federal law known colloquially as RESPA, which stands for the “Real Estate Settlement Procedures Act.” This law restricts real estate licensees from receiving anything of value in exchange for the referral of settlement service business. Appraisers, real estate licensees and title companies are just a few common examples of settlement service providers. Marketing Service Agreements may still comply with the law as long as they are carefully structured to adhere to RESPA. The penalties for violation of RESPA are severe and can include triple damages, governmental fines and even imprisonment.

This article will cover some of the most important items to keep in mind before entering into a MSA.

Key Actions Before Entering Into an MSA:

• Understand that RESPA allows payments for services to a real estate licensee only if actual services are performed and fair market value is paid.

• Make sure that that MSA is committed in writing and states in detail the services to be performed and the exact fee(s) to be paid.

• Make sure that advertising and marketing services outlined in the MSA are actually performed and not merely memorialized in the agreement.

• There may need to be verbiage in the contract reflecting an audit obligation so that the service provider must document that marketing services were actually performed.

• Give a disclosure to affected consumers informing them of the existence of the MSA agreement between the parties.

• State, either in the MSA itself, or in a separate document, how the parties arrived at the marketing fee figure and the determination of fair market value.

• Contemplate using a credible and independent third party to assist in this regard.

• Change the fee under an MSA only when objective, verifiable changes are made to the services performed and/or other terms and conditions of the agreement.
• Document the objective reason(s) for the modification.

Do Not:

• Include “services” in the MSA that require a broker to market a settlement provider’s services directly to a consumer.

• Choose a settlement service provider as the broker’s “preferred” or “exclusive” company as part of the MSA.

• Allow fees that are in excess of the fair market value of the marketing services performed.

• Calculate the amount of marketing fees on the volume of referrals or the success of the referrals.

• Accept fees under an MSA for allowing access to proprietary information, such as sales meetings or monthly reports.

• Make constant changes to the fees paid under an MSA based on the volume, or dollar amount, of referrals.

• Agree to an MSA with a company that is already a legally affiliated business of the broker.

• Agree to an MSA with a month-to-month term.

Brokers, who would be the authorized person at a firm to enter into a MSA, should consult with a RESPA attorney specialist for further instructions. There may be state or local laws that prohibit activities that are otherwise permissible under RESPA.

Editor’s Note: The foregoing is for information purposes only and does not confer an attorney/client relationship. For a legal opinion or advice specific to your situation, please consult with a private attorney at law.

 

Leon Cameron, Esq.
Leon Cameron, Esq., is Director of Legal Services & Professional Standards Administrator for the Hudson Gateway Association of Realtors.