Beware of the “Counter Offer Trap";

Ignorance Is No Excuse For RESPA Violations: It should not be news to anyone, but Real Estate Markets have changed and Clients are looking for anyone to blame for value issues, slowing sales and changing lending guidelines that Real Estate Offices and Realtors have no control over. Consumer Advocate Ralph Nader is leading a charge to investigate “In-House” Real Estate Services claiming that the "mutually accommodating manner in which real estate brokers and agents work with lenders, title companies, attorneys and other professionals leads to enforced consumption, which is all part of an informal, but nonetheless anti-competitive cartel costing consumers billions of dollars each year." When combined with banking and mortgage problems, it can not be good for the industry that both the Congress and Senate are looking to "Protect" Consumers with new laws and "investigations."

This Market Could Get Ugly Before It Gets Better;
Perhaps the most blatant and easy to prove RESPA Violation occurs every time a listing agent counters a purchase offer with the common request for their preferred “Escrow & Title” Service… this is a huge red flag begging a lawsuit if ever there was one. The record of this request becomes part of just about every purchase offer opening an escrow today, and is clearly illegal. Other than for some hidden "Profit Motive" what could be the explanation for any listing agent to try to influence a buyer's choice of which Title Company, or Escrow Company to use?

From a consumer’s mindset, why would a listing agent write this type of request into any counter offer? How does this sort of request benefit the seller, or does it somehow help the buyer? As licensed real estate agents it is our job to understand the laws. If questioned about this RESPA Violation my guess is that there is no viable defense… my broker trained us to always counter offer for services is not a very good defense, and could generate an audit of the entire office (not a good thing). We are talking about a DRE fine that the basic guidelines stipulates a fine "3-Times the Title Fees Paid" written right into the law; so what could possibly be the motivation in flagrantly violating this provision?     

Realtors pride themselves on their service and professionalism and this sort of manipulation appears to be for no other reason than cronyism and possibly some undue profit motivation in an industry many feel is already over compensated. Now is the time to build our reputation for increased service and above and beyond professionalism… we do not want to see any of our affiliates become ensnared in an easily avoided lawsuit or investigation stemming from shear office greed and or ignorance to the rules.

What Agents Need To Know About “In-House” Services;
If you have been involved with Real Estate for more than the past few years, you have seen how many offices have started promoting their own “In-House” Lending, Escrow and Title services, and become dependent on the added revenues these services once provided. "In-House" services allowed office managers and brokers to increase advertising and office space accordingly and given birth to the concept of the “Closed Office.” But this is all about maximizing profits, and nothing about customer service; but that would be something for another article. These are many of the same offices that are now in trouble and closing down both services and office locations while displacing newer agents that did not know the market could change.
 
With markets cooling off and finances stressed, offices are either pushing "In-House" Services even harder or wisely closing down these unprofitable areas. This is creating some major dilemmas for the larger Real Estate Franchises that have worked hard to develop "Closed Office" networks in order to maximize profits. It is amazing, but the line has been blurred for so many years that many office managers do not even realize how transparent their RESPA Violations have become. Many have simply stopped caring anymore, because they know their jobs are on the line with offices closing and agents quitting every day.  

Many Real Estate Offices openly offer inducements to their agents to use "In-House" Services, and even suggest that agents who "don’t get the title and escrow side of their listings" aren’t doing their part as a "team member." Somehow this is seen as "not supporting their broker," while in reality it is just doing what it takes to push thru as many transactions as possible… which one might think would be good for the office.

Experienced agents have learned how to build and maintain their partnerships with service providers that best provide for their clients and make their jobs as an agent easier, while newer agents tend to succumb to Broker pressures to use the "In-House" Services. Many offices subject offending agents to commission split cuts or they suffer ineligibility for the office "perks" such as paid advertising, reduced desk fees, waived E&O transaction fees. Creative terminology is frequently used with Inducements such as these in an effort to remove the perception of illegality... but that does not make them proper. Please consider that by legal definition, the Department of Real Estate considers any form of consideration, whether cash, prizes or waived office fees, as an inducement to “direct services,” or to be blunt, an illegal "kickback."

As a Realtor (Real Estate Licensee) it is important to remember that not only is it illegal to offer or give a "kickback," it is also illegal to accept them. Presently with the markets slowing down and clients becoming frustrated with press stories of falling values, many are looking for someone to blame… and Realtors often find they are at the top of their list. It is in this “Slower Market” honest Realtors, Lenders and Service Providers have to work harder, over come and develop the business alliances that insure success. This is nothing new to seasoned Realtors, but must be coming as a surprise to newer Agents. It is important to remember that it only takes one disgruntled agent who thinks something is unfair, or is looking to change offices and files a complaint that could bring an investigation onto the entire office.

Realtors - Beware of the “Title & Escrow” Counter Offer Trap;
Over the past years, with the rise of “In-House” services as office profit centers the practice of countering every purchase offer with a listing agent request for “Title and Escrow” services for their “In-House” provides the DRE with a traceable target. Please consider that it will only be a matter of time before some savvy attorney, spurred on by the likes of Ralph Nader or other politically inspired investigation brings on a class-action lawsuit (against greedy Realtors), or knowledgeable buyers start setting up what should be easy small claims lawsuits. The penalties are spelled out as “3-Times the amount paid” automatically… so how hard could it be, and is it really worth the risk?