It is essential for Brokers to understand best practice when it comes to different services their Associates may provide to the general public. Brokers should establish office policy and ensure that their associates abide by that policy. One area of best practice that Brokers may want to review with their Associates is that of referred business.
Referrals are, in many ways, the lifeblood of small businesses. Some referrals are made to the Broker’s office and some are made direct to individual Sales and Broker Associates. Referrals are a sure sign of a happy customer or a mutually satisfactory B2B (business to business) relationship. Realtors refer customers to home inspectors, contractors, cleaners, property managers and, of course, to lenders and to settlement agents. These professionals refer their clientele to Realtors.
Marketing Services Agreement
Many successful real estate professionals in all fields of the business (Realtors, settlement agents, lenders, etc.) often develop strong business relationships and establish a formal arrangement. This arrangement is known as a Marketing Services Agreement (MSA.) Florida Association of Realtors recently published some guidelines on acceptable MSA standards.
The Consumer Financial Protection Bureau (CFPB) may investigate established MSAs to satisfy themselves that they are not simply a channel for improper referral fees, even though those fees are paid and received in good faith. An improper referral fee agreement violates Section 8a of RESPA. A formal MSA does not.
Best Practice for MSAs
To ensure best practice, Brokers should check that any MSA in which their office is involved meets certain standards. An acceptable MSA:
- Must be in writing and must clarify the services each party will provide.
- Be non-exclusive. The agreement must make it clear that either party may do business with, and perform services for other, similar businesses and professionals.
- State that that compensation is based on the value of the services provided, and not, for example, on volume of referrals made.
- Must clarify that consumers who are referred receive a written disclosure describing the professional’s role in selling that other service.
- Signed consent by a consumer agreeing to the referral should be kept in the appropriate office file.
The real estate business is a strong and vital economic engine in our community. It is also a complex business. It pays to stay on top of legalities. If you would like to learn more about our Sales Associate and Broker license courses as well as our continuing education programs, please contact us by clicking here.