Title-Company Desk Space for Referrals
A Kansas brokerage, Cedar Ridge Realty, closes about 18 residential sales a year, and most of its buyers use federally related mortgage loans. The owner, Marla, is offered free use of a 120-square-foot desk in a local title company’s office. The title company’s written proposal says the desk is “no charge as long as Cedar Ridge refers at least 12 closings per year” to that title company. The desk’s fair rental value is $1,200 per month. Marla likes the location because it is near a new subdivision. She asks her office manager whether she can accept the arrangement, whether she can instead sign a $1,200 monthly lease with no referral condition, and what she must disclose to buyers and sellers. No settlement services have yet been referred under the proposal.
1. May Marla accept the proposal as written? Explain the RESPA analysis and the result.
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No. RESPA Section 8(a) prohibits giving or receiving a “thing of value” under an agreement that settlement-service business will be referred. The free desk is worth $1,200 per month, and the condition-at least 12 referrals per year-makes it a referral-based benefit. The Section 8(c) safe harbor does not save it because the benefit is not a bona fide payment for goods or services at fair market value and is expressly contingent on referrals. Accepting the proposal as written would create a substantial RESPA violation risk for both Marla and the title company. She should decline it or require removal of the referral condition.
2. If Marla signs a $1,200 monthly lease with no referral condition, what additional facts make it defensible under RESPA?
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The lease should be in writing, cover identifiable office space actually used by the brokerage, and set rent at fair market value supported by a market analysis or appraisal. Payments must not be tied to referrals, closing volume, or continued referral success. The brokerage should keep records showing the space was available and used, and should avoid side agreements or informal understandings that referrals will follow. A compliant lease is not a referral fee; it is payment for real property. Marla should also avoid advertising or implying that using the title company is required.
3. Marla also wants to pay her buyer-agent $250 for each buyer who uses the title company. Is that permissible?
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No. Paying a licensee a per-transaction amount because a buyer uses a particular title company is a thing of value given in exchange for the referral of settlement-service business. Labeling it a bonus or marketing fee does not cure the problem. The agent may be compensated for actual services performed, but the payment cannot be conditioned on selecting or referring the title company. The same principle would apply to payments from the title company to the brokerage or its agents.