How to Properly Structure the Marketing Service Agreement in Real Estate

How to Properly Structure the Marketing Service

Marketing service agreements between lenders, settlement service providers, and real estate agents are useful for all parties. However, these agreements should be carefully put together to avoid potential legal pitfalls.

Anti-Kickback Rules and Marketing Service Agreements

Federal laws prohibit kickbacks between lenders and brokers. Thus, agreements have to be for the actual services provided and priced at market prices; additionally, they cannot simply be agreements for referrals. The number one way to avoid any pitfalls is to consult an attorney who knows the Real Estate Settlement Procedures Act. To get a rough idea of whether the agreement is legitimate, there are two general assessments you can use.

  1. Make sure that the marketing fees received do not correspond to the number of referrals that you make to the company, service provider, or lender. That is because it can lead to a Consumer Financial Protection Bureau investigation.
  2. If you have a marketing service agreement that entails splitting the costs of a joint project, make sure that the benefits to all parties match the way that the expenses will divide between each party. For instance, if you divide costs between yourself and a title company down the middle, half of the advertisement should pertain to the title company and the other half should belong to you. That is because an uneven split makes it look like one party might be subsidizing the remainder of the cost of the advertisement. This might invite a closer look by the CFPB.

A Few Dos and Don’ts to MSAs

Additionally, below are a few of the dos and don’ts when developing comprehensive and legitimate marketing services agreements:

Dos:

  • Put the MSA in writing with fees for services specified
  • Be sure the services outlined are operating correctly
  • Additionally, obtain evidence that the services will happen when they are able
  • Distribute a disclosure to the consumers
  • Demonstrate how the determined charges meet fair market value
  • Use a third party to determine fair market value, if needed

Don’ts:

  • Include services that go directly to a consumer
  • Use or designate preferred companies
  • Enter into exclusive global marketing service agreements
  • Base any fees on the volume of referrals
  • Accept fees for access to consumers
  • Accept or offer prices higher than fair market value

Certainly, with these tips and tricks, you can create marketing services agreements that work for both you and your partners. Also, make sure to follow all federal regulations.