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RESPA Section 8 and CFPB Regulation X maintain firm prohibitions against kickbacks and unearned fees, with particular statutory exemptions, about all settlement services involving federally related mortgage loans. “No person shall give, and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. 2607(a).
Unambiguously, 12 U.S.C. 2607(c)(3) and 12 C.F.R. 1024.14(g)(1)(v) exemptions allow payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties act in a real estate brokerage capacity.
A bona fide brokerage sometimes needs to refer a customer to a competitor, just as a mechanic may refer a customer to another mechanic or an attorney may refer a client to another attorney. Referrals, splits, and cooperative fee arrangements between bona fide real estate brokers often help facilitate a home purchase transaction more efficiently for both the home seller and the homebuyer.
However, real estate brokers may only discuss or negotiate the referral fee compensation concerning an individual transaction at hand and not as a means of consumer allocation agreements between competing brokerages. It is a per se violation of the Sherman Antitrust Act for competing real estate brokers to agree on a “standard” fee via a “blanket” referral agreement that will be paid for producing a client. It is also illegal to utilize price-fixing schemes where the purchaser of services splits the unearned fee as a means to entice consumers into using the scheme, or schemes that falsely advertise themselves to appeal to consumers as “free,” or schemes that fix real estate commissions as part of the referral.
The so-called “no upfront costs” referral fee, “agent-matching services,” or “referral platforms” are not genuine brokerages acting in a brokerage capacity.
For instance, in my civil lawsuit with HomeLight, the United States District Court for the Northern District of California had recently reasoned that HomeLight acts in a vertical servicer-customer relationship on a different level of the supply chain with +/-28,000 partner agents. The federal court had reasoned that HomeLight is an “upstream” supplier of paid referrals to “downstream” real estate brokers, as opposed to a real estate broker acting on the same level of distribution, where “… [E]ven though HomeLight is a licensed brokerage, in the context of this [referral] agreement HomeLight and agents are not acting as horizontal competitors …” where “… real estate agents [are] referral platform’s “intermediate” consumers …” This designation precludes 12 U.S.C. 2607(c)(3) safe harbor applicability for any of their referrals.
The Supreme Court, in Ohio v. Am. Express Co., 138 S. Ct. 2274, 201 L. 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 who both depend on the platform to intermediate between them.” In other words, all agreements between two-sided platforms and their customers are established between firms at different levels of distribution offering entirely different products or services. The term “real estate broker” is codified under 24 C.F.R. 3500.2(b) as a “settlement service” provider in a singular definition that can only be identical to itself. A mere possession of a shell real estate license does not meet this designation.
A “referral platform” may, of course, easily sell customer leads to real estate brokers. However, such sales must never be tied to the outcome of the successful transaction or based on a percentage of brokerages’ commissions. The US-CFPB Advisory Opinion issued on February 7, 2023, further confirms that any operator of a “settlement services” digital comparison-shopping platform receives a prohibited referral fee in violation of RESPA Section 8 when the operator receives a “thing of value” for referral activity.
In the United States, anyone violating the RESPA’s referral fee ban commits a crime 12 U.S.C. 2607(d)(1). For honest real estate agents who do the hard work of serving their client’s best interests in strict compliance with regulations above personal gains, paying referral fees for any such “agent-matching services” or “referral platforms” is not an option. A Petition for Rulemaking concerning 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 brokerage commissions from unlawful kickbacks, honest real estate professionals always act to serve their clients with full-service value and protect their reputations. RESPA compliance is not merely the best practice for any honest professional; it is the fundamental federal law that governs the most valuable transactions in most American consumers’ lives.
Dmitry Shkipin works for Geodoma.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: zeb@hwmedia.com
