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Home Warranty Referral Fee Prohibited by HUD/RESPA

I often wondered about this.

"RESPA does not prohibit a real estate broker or agent from referring business to an HWC. Rather, RESPA prohibits a real estate broker or agent from receiving a fee for such a referral, as a referral is not a compensable service."

"The real estate broker or agent has fully disclosed to the consumer the compensable services that will be provided and the compensation arrangement with the HWC, and has made clear that the consumer may purchase a home warranty from other vendors or may choose not to purchase any home warranty."

For the full interpretive rule, click here.

Posted by Heather Embrey , Your :) Real Estate Source on 07/24/2010 08:47 AM

Comments (36)

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36 Comments on Home Warranty Referral Fee Prohibited by HUD/RESPA

JUL

2010

Full and outright disclosure protects everyone!

Heather, I do believe you are absolutely correct. I also believe that the proponents of RESPA have good intensions for the consumers. In a word "Transparency" is the goal. Would it not be interesting if the government applied the same rules to each transaction in which they (the government) are collecting money?

Bill

I agree, full disclosure up front and its not a problem...

Just this year our State (PA.) added a sentence to our Agreement of Sale putting consumers on notice that REALTORs might be compensated for placing Home Warranties.

Michael posted what I was going to say.

Yes disclosure/transparency is a good thing. But that is NOT what this interpretation (not law) is about. I find it interesting that they take pages to explain something that is simple on the face and also lots of text to explain how you get around the interpretation which is a double negative that by doing so you cant... read the document and you will see what I mean (CATCH 22 comes to mind). It would be joke except it is the way government operates...

Accepting referral fees from vendors? Disclose that they are paying more so I can receive a cut? Why not give the seller or buyer the fee that we would have gotten so they get a discounted product. That would be a better way to create a relationship that may result in future business.

I never ever take the referral fee. I pass it on to the seller or buyer as a courtesy. I'm in the real estate business not the warrantee business. Agents are out to find extra income and thats not where to find it !

I BUY home warranties for my clients, and didn't even know there are companies that give rebates for referrals. Dang! Naw - I'm OK to continue doing the way I'm doing.

When in doubt - always go for full and outright disclosure.

I'm with Ocean View on this one, I give it back to the seller with a reduced price. Joetta, I think you better check because almost all of them have a referral fee based in them.

As long as it is disclosed you are fine. Always have been same with any strategic partnerships etc.

We just had a debate on this topic with some other agents in our office. Personally, and we may be in the minority on this one, we see it as a liability by getting involved in selling a home warranty. We feel it best for our clients to contact the home warranty company directly. We give them the 800#, and then the HW company representative gets to explain the different types of policies and riders and it leaves us out of it. If there is a problem down the road on a claim, I don't want to be blamed or involved. In addition, our clients get the rate that does not entail us getting a fee. We think this is the best way to practice although my office and other agents may not agree. In a nutshell, we think ( just our opinion ) getting paid to refer a warranty is lame and makes us as agents look petty.

We do not get any compensation from home warranty vendors. It has not been offered and we do not seek it. What we ask from our home warranty companies is that they provided the best of service to our clients.

This was a topic a few weeks back, btw. Texas did away with the compensation about 12 years ago. The warranty price was reduced by the amount of the compensation, lowering the purchase cost to the consumer. I'm with Dan & Amy, #13; best to allow the consumer to choose and select. I merely offer the choices available.

I read the law and it isn't about disclosure. It forbids accepting referral fees from vendors, sprcifically HWCs.

This is simple. A listing agent or selling agent cannot negotiate that the buyer or seller pay for a home warranty and then the agent receives a referral fee from the warranty company.

For me, I wouldn't sell a resale home without a home warranty. That's simple risk reduction. However, I PAY FOR THE HOME WARRANTY FOR THE BUYER.

I pay $399 and receive a rebate from the warranty company of $60.

I'm not selling the warrenty to a buyer or seller for them to pay the premium and then I collect a fee.

There is a world of difference when the agent pays for the warranty.

I like Dan & Amy's idea. And, like Joetta (#9) & Lenn (#16), I provide (at my expense) a home warranty to all of my clients (buyer & seller) as a client level benefit. I give them a comparison chart of all of the available home warranty folks and let them select one. My Broker receives the referral fee and from my understanding they use this pool for charitable causes. I would rather my client receive the benefit but just like those nasty "additional compensation" (aka admin fees) the brokerage companies charge, these fees may be keeping some afloat.

RESPA is overseen by HUD - a government body. I believe RESPA is federal, not local. I could be wrong, I am not an attorney and do not offer legal advice (CMA;) Although my understanding is if the local regulations are more strict, I believe that is what we have to adhere to.

I am surprised to hear some brokerage firms do not receive referral fees for home warranties. I am not aware of a warranty company that does not offer this. I didn't know about the fee when I was a salesperson - I discovered it when I became a managing broker and got to see the underbelly of the business.

And I don't think this is about transparency/disclosure rather it is a ruling prohibiting the broker from getting these fees at all.

Either way, I am glad to be in good company when it comes to these "it could go either way" rulings.

For our buyer clients we sometime purchase a home warranty as a closing promotional gift. We never received any compensation.

I think with the new ruling if with disclosure you my not be safe to take the fee. We've not decided what we are going to do concerning the fees paid by the HWC.

It's a RESPA violation for an agent to refer a mortgage company to someone and receive something of value for the referral. I believe this is because of the potential for harm that could be caused to a consumer (paying more for a loan) because they took the advice of their agent who is more concerned with their own profit then what is in the best interests of the client. It's a similar concept with a home warranty.

Disclose everything. It's always a good idea.

Homeowners are always asking for warranties as a gift for buying a house, but I have always been under the assumption that it should really be something the seller should give the buyer as incentive.

JUL

2010

I agree get those disclosures signed! It only takes a second to go over it and saves a lot of headaches!

Wow, something to really think about. I am taking this to my broker tomorrow.

I use the home warranty company that my broker recommends. Now, I'm going to find out if he's getting a referral fee from them!

JUL

2010

Thanks for posting this. I wondered if there was a financial incentive to the broker for selling a home warranty. When I was selling my home, I wanted to offer a home warranty and told my broker that I had selected a policy online. Her initial reaction seemed a little panic stricken to me. I ultimatly agreed to use her referred company because of her recommendation. Price was pretty close.

Hello Consumer! Please realize that many agents do not even know the brokerage firm they work under collects this fee. It is kind of like not knowing how much you boss makes;)

JUL

2010

"Under section 8 of RESPA and HUD's implementing RESPA regulations, services performed by real estate brokers and agents as additional settlement services in a real estate transaction are compensable if the services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, the services are not nominal, and the payment is not a duplicative charge. A referral is not a compensable service for which a broker or agent may receive compensation... disclosure isn't the item that has to be performed.

AUG

2010

Most of the larger HWC's have decided not to pay the broker/agent, thus reducing your risk.

Most of the larger HWC's have decided not to pay the administration fee to the broker/agent thus reducing their risk

AUG

2010

A couple of items here, first...individual states restrict fees from the warranty company (texas, california, etc) so if you are not receiving these than there is most likely a reason

Every warranty policy Ive ever read that includes a fee has this disclosed. Having called on realtors as a warranty rep for 5+ years many agents actually felt $60 was not enough $ to fill out the paperwork and would only refer biz where the hwc kicked back more money...

If you work for a large broker, dont expect this to go away, this is an important part of their revenue and they will find an angle to keep this moving forward, expect additional paperwork, etc...just like they want you to use the "in-house" title and mortgage company

Don

http://www.bestratesource.com

AUG

2010

The HUD RESPA "interpretive" Ruling states that as long as compensable services are performed, a marketing fee is permissable. When an agent introduces a home warranty to a client, the education to the client, the submitting of pertinent information and the "after" calls with regards to the warranty IS considered a compensable service outside of settlement. The marketing fees are returned to the brokerage and what the brokerage does with it is out of the warranty company's control. Some brokerages use it to fund charities, office events or put it toward each offices revenue credit. As long as the agent advises that client that home warranties ARE NOT required and that there are options for companies, these are not considered "referrals". If the marketing fee is passed down to the agent, the agent could make the decision to reimburse their client that amount. It has taken HUD over 2 years to bring out their "interpretive" ruling and it will take a few more to come out with a definite ruling!! In the meantime, each warranty company has made their own decision on how to handle the issue at hand. Some are continuing to pay the marketing fee and some have decided to reduce their price. Just remember, CHEAPER DOES NOT MEAN BETTER!!! Always take into consideration, the coverage, the company and the claims paid out by that company. Most of all.....your home warranty representative will always be the piece of the puzzle that makes it complete!!!

MAY

What ABOUT REFERRALS OF OTHER SERVICES.? An agent is putting together a list of contractors for her client's rebuild and is asking the contractors for a 2.5% "commission" to be put on the list. Smells bad to me.

@Jeanne In our area, if a builder offers a commission for work you refer, it would be OK as long as it is paid to the Broker - not directly to the agent. Not sure about the other vendors. Check with your Broker.

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Heather Embrey , Your :) Real Estate Source

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