Comment: Broker-to-broker transfer exemption does not apply to agent matching platforms

Section 8 of RESPA and CFPB Rule X maintain strict anti-payment and non-payment restrictions, and certain statutory exemptions, with respect to all debt settlement services involving federally related mortgage loans. “No person shall offer, and no person shall accept, any money, compensation, or thing of value pursuant to any agreement or understanding, oral or otherwise, for that transaction of business or part of the settlement service involving federally related loans. it will be sent to any person.” 12 USC 2607(a).

Notably, the exemptions at 12 USC 2607(c)(3) and 12 CFR 1024.14(g)(1)(v) allow for payments associated with cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited payment exemption applies only to disbursements within real estate transactions where all parties are acting in the capacity of real estate agent.

A bona fide brokerage is sometimes required to refer a client to a competitor, just as a mechanic may refer a client to another mechanic or an attorney may refer a client to another attorney. Referrals, splits, and cooperative fee arrangements between honest real estate agents often help make the home buying process more efficient for both the home seller and the home buyer.

However, real estate brokers can only negotiate or negotiate referral fee compensation in connection with existing individual work and not as a means of client allocation agreements between competing brokerages. It is a per se violation of the Sherman Antitrust Act for competing real estate agents to agree on a “standard” fee for a “blanket” referral agreement that will be paid to produce a client. It is also illegal to use price-fixing schemes where the buyer of services splits the revenue as a way to entice consumers to use the program, or schemes that are falsely advertised to attract consumers as “free,” or programs that fix genuine items. real estate commissions as part of the referral.

So-called “no upfront cost” referral fees, “agent matching services,” or “referral platforms” are not real brokerages that operate at a brokerage fee.

For example, in my court case with HomeLight, the United States District Court for the Northern District of California recently held that HomeLight operates a vertical customer service relationship at a different level of the supply chain with +/-28,000 affiliates. The federal court reasoned that HomeLight is a “top” provider of paid referrals to “downstream” real estate agents, as opposed to a real estate agent operating at the same level of distribution, where “… [E]although HomeLight is a licensed brokerage, in the context of this [referral] agreement HomeLight and agents do not act as horizontal competitors…” where “… real estate agents [are] “Intermediate” purchasers of the referral forum…” This designation precludes the application of the 12 USC 2607(c)(3) safe harbor to 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-pronged platform for “facilitating a single, simultaneous activity” that provides “distinct products or services to two separate groups that are both geographically dependent on each other.” In other words, all agreements between two-sided platforms and their customers are established between firms at different levels of distribution that provide completely different products or services. The term “mortgage broker” is incorporated under 24 CFR 3500.2(b) as a provider of “mortgage service” in a single definition that may be synonymous with itself. The mere possession of a shell real estate license does not meet this designation.

A “referral platform” can, of course, easily sell a customer lead to real estate agents. However, such sales should not be tied to the result of a successful job or based on a percentage of brokerage commissions. The US-CFPB Advisory Opinion issued on February 7, 2023, also confirms that any operator of a digital comparison shopping platform for “settlement services” receives prohibited referral fees in violation of Section 8 of RESPA when the operator receives an “object of value” with the transfer function.

In the United States, anyone who violates the referral fee prohibition of RESPA commits a crime 12 USC 2607(d)(1). For honest real estate agents who do the hard work of serving their client’s best interests by strictly adhering to regulations above personal gain, paying referral fees to any “agent matching services” or “referral forums” is not an option. The Request for Authorization Regarding the Broad Use of Real Estate Brokerage Funds Docket ID CFPB-2022-0037 is under review by the US-CFPB.

By protecting their sales commissions from illegal fees, honest real estate professionals always work to help their clients with the best value service and protect their reputation. RESPA compliance is not only the best practice of any honest professional; it is the basic federal law that governs the most important transactions in the lives of many American consumers.

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: [email protected]

Related