RESPA Section 8 and CFPB Regulation “No person shall accept any compensation, kickback, or anything of value under any agreement or understanding, oral or otherwise, for that business incident to or part of any real estate settlement service involving a federally related mortgage loan. refers to each person.” 12 USC 2607(a).
The exemptions at 12 USC 2607(c)(3) and 12 CFR 1024.14(g)(1)(v) unambiguously permit payments under cooperative brokerage and referral arrangements between real estate agents and real estate agents. This limited kickback exemption only applies to compensation distributions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity.
A bona fide brokerage must sometimes refer a client to a competitor, just as a mechanic may refer a client to another mechanic or an attorney may refer a client to another attorney. Referrals, splits, and cooperative fee arrangements between bona fide real estate agents often help to facilitate a home purchase transaction more efficiently for both the home seller and the home buyer.
However, real estate agents may only discuss or negotiate the referral fee with respect to an individual transaction in question and not as a means of consumer assignment agreements between competing real estate agents. It is a violation of the Sherman Antitrust Act per se for competing real estate agents to agree to a “standard” fee through a “blanket” referral agreement that is paid for producing a client. It is also illegal to use price-fixing systems where the purchaser of services shares the unearned compensation as a means of enticing consumers to use the system, or systems that falsely advertise themselves to consumers as ‘free’, or systems that provide genuine estate commissions as part of the referral.
The so-called “no upfront fees” referral fee, “agent matching services” or “referral platforms” are not actual agents acting in the capacity of a broker.
For example, in my civil lawsuit with HomeLight, the United States District Court for the Northern District of California recently reasoned that HomeLight deals in a vertical servicer-customer relationship at a different level of the supply chain with +/- 28,000 partner agents. The federal court had reasoned that HomeLight is an “upstream” provider of paid referrals to “downstream” real estate agents, as opposed to a real estate agent acting at the same level of distribution, where “… [E]even though HomeLight is a recognized real estate agency in this context [referral] agreement HomeLight and real estate agents do not act as horizontal competitors …” where “… real estate agents [are] the “intermediate consumers” of the referral platform…” This designation excludes the applicability of 12 USC 2607(c)(3) safe harbor for all their referrals.
The Supreme Court, in Ohio v. Am. Express Co., 138 S.Ct. 2274, 201L.Ed. 2d 678 (2018) recognized a two-sided platform to “facilitate a single, simultaneous transaction” that “offers different products or services to two different groups that both rely on the platform to mediate between them.” In other words, any agreements between two-sided platforms and their customers are between companies at different levels of distribution offering completely different products or services. The term “real estate broker” is codified under 24 CFR 3500.2(b) as a provider of “settlement services” in a single definition that can only be identical to itself. Mere possession of a comprehensive permit for real estate does not meet this designation.
Of course, a “referral platform” can easily sell customer leads to real estate agents. However, such sales should never be linked to the outcome of the successful transaction or based on a percentage of broker commissions. The US-CFPB Advisory Opinion, issued February 7, 2023, further confirms that any operator of a digital comparison shopping platform for “settlement services” receives a prohibited referral fee, in violation of RESPA Section 8, when the operator receives a “thing of value.” for referral activities.
In the United States, anyone who violates RESPA’s referral fee ban commits a criminal offense under 12 USC 2607(d)(1). For honest real estate agents who do the hard work of serving their client’s best interests while strictly adhering to regulations over personal gain, paying referral fees for such “agent matching services” or “referral platforms” is not an option. A petition for rulemaking regarding the widespread use of Real Estate Broker Referral Fee Networks’ Docket ID CFPB-2022-0037 is currently under review by US-CFPB.
By protecting their agent commissions from illegal kickbacks, honest real estate professionals always act to serve their clients with full service value and protect their reputation. RESPA compliance is not only the best practice for any honest professional; it is the fundamental federal law that governs the most valuable transactions in the lives of most American consumers.
Dmitry Shkipin works for Geodoma.
This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.
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