Dennis Norman
By now most real estate agents and brokers have probably heard about the changes to RESPA (Real Estate Settlement Procedures Act) that went into effect at the beginning of this year. One thing that has been a frequent topic of conversation among agents is whether or not they will still be able to collect referral fees, or commissions, from Home Warranty Companies they refer business to. This is a standard practice that has taken place for many years now.
Well, last week HUD published an “interpretive rule” in the Federal Register which makes it pretty clear to me that the short answer to the question is NO. This is in conflict to an earlier opinion by the National Association of REALTORS® in which when addressing this issue said “with regard to home warranty marketing agreements, NAR believes that agents and brokers provide bona fide and separate services for the reasonable compensation they receive.”
The following are excerpts from HUD’s interpretive rule (click on the link to read entire statement):
- RESPA does not prohibit a real estate broker or agent from referring business to an HWC. Rather, RESPA prohibits a real estate broker or agent from receiving a fee for such a referral, as a referral is not a compensable service.
- A referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or
part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge
attributable in whole or in part to such settlement service or business. - The compensation for the HWC services provided by the real estate
broker or agent is contingent on an arrangement that prohibits the real estate broker or agent from performing services for other HWC companies; e.g. if a real estate broker or agent is
compensated for performing HWC services for only one company, this is evidence that the compensation may be contingent on such an arrangements. - HUD has stated that the mere taking of an application is not sufficient work to justify a fee under RESPA.
So, it appears to me the normal marketing agreements, commissions, etc paid by home-warranty companies to agents are going to be a think of the past.
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I have never understood why an agent cannot hire a person to go out and farm for them – paying them a referral fee per client found and closed. It has always been a mystery and Maybe I’m looking at it the wrong way.
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