The fewer entanglements and (perceived) conflicts of interest, the better. Witness this great post by Jillayne Schlicke at RCG about potential RESPA reform.
Sections 8 and 9 of RESPA say we are not to give or receive an item of value in exchange for a referral of a federally related loan. We = any person that earns a fee on the sale or refinance of a one-to-4 family, owner occupied, federally-related loan. Realtors and mortgage lending workers have tremendous power to influence the direction of business for third-party vendors to companies such as title insurance, escrow, home inspectors, home warranty, hazard insurance, private mortgage insurance, appraisers, attorneys, and so forth. For example, title insurance companies do not chose to spend their advertising dollars on general public promotions because a title company can have a much stronger effect on market share by focusing on the people who are in a direct position to refer lots of business: Mortgage lenders and Realtors.
However, this possible arrangement is codified, so-to-speak, in the Virginia Association of Realtors‘ standard Contract to Purchase.
BROKERS: LICENSEE STATUS: (a) Listing Company and Selling Company may from time to time engage in general insurance, title insurance, mortgage loan, real estate settlement, home warranty and other real estate-related businesses and services, from which they may receive compensation during the course of this transaction, in addition to real estate brokerage fees. The parties acknowledge that Listing Company and Selling Company are retained for their real estate brokerage expertise, and neither has been retained as an attorney, tax advisor, appraiser, title advisor, home inspector, engineer, surveyor or other professional service provider.
And even the Realtor Code of Ethics addresses such arrangements –
Article 6 REALTORSÂ® shall not accept any commission, rebate, or profit on expenditures made for their client, without the client’s knowledge and consent. When recommending real estate products or services (e.g., homeowner’s insurance, warranty programs, mortgage financing, title insurance, etc.), REALTORSÂ®shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the REALTORÂ® or REALTORÂ®’s firm may receive as a direct result of such recommendation.
Huh? That something has to be explained in such terms seems to me to be a fairly clear indictment of the practice.
Naturally, there are exceptions within the law:
Nothing in this section shall be construed as prohibiting (1) the payment of a fee… (2) the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed, (3) payments pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and brokers, (4) affiliated business arrangements so long as (A) a disclosure is made of the existence of such an arrangement to the person being referred and, in connection with such referral, such person is provided a written estimate of the charge or range of charges generally made by the provider to which the person is referred.
Matter of fact, one of the home inspection companies I recommend tell my clients about sends me a check for fifteen or twenty bucks whenever a client buys a home warranty that I told them about. I deliberately have no idea which company it is that sends me the “referral” fee.
Consumers (and Realtors) should question everything. Why this product? Mr. Realtor – why are you recommending your “in-house” lender?
You know, if we were to reform RESPA sufficiently, Relo Companies might not be able to charge the onerous fees they charge (nor would Realtors be able to charge relo fees as well; when I send referrals to fellow Realtors, I do not ask for any referral fee – it just doesn’t seem right to me). Just a thought.