February 26th, 2011 at 10:29 pm
I have found over the years that it is a good idea to remind ourselves about issues that always seem to come up in our business.? ? One of those issues is RESPA, the federal statute governing real estate settlement services, including real estate brokers.? ? The most common RESPA issues are as follows:
- In general, unless there is an exception, RESPA does not allow us to give someone a “thing of value” in return for the referral of a client.? ? The most common exception to that rule is in the case of licensees, where referral fees are allowed.? ? In other words, unless the person receiving a referral fee is licensed, that fee is illegal.? ? It does not matter if the referring party is an attorney.? ? Unless they have a real estate license, attorneys can only charge and be paid attorney’s fees.? ? They cannot be paid referrals.? ? So, for the most part, referral fees can only be paid to other real estate licensees, and, of course, only through real estate brokers.
- Next, remember, RESPA does not apply to cash deals.? ? It only applies to deals with a loan.
- Next, in order for there to be a referral, there must be three parties involved: you, the client and the referring party.? ? The law says that a person cannot refer their own business.? ? As a result, you can give credits, etc. to principals in your transaction.? ? That would not be seen as a referral
- Finally, remember that RESPA only applies to real estate settlement services.? ? Therefore, if you, for example, know an architect, and he wants to compensate you for referring him business, RESPA does not prohibit that payment.? ? Architects do not perform a settlement service and therefore are not covered by RESPA.? Despite that fact, remember that as a company we prohibit such referral fees since, by accepting them, you are buying liability should the vendor not perform well.? After all, in such cases your client would claim that the referral was made because you were getting money, and not because the vendor was competent and did good work.
As always, feel free to let us know if you have any questions.
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