Many of the large real estate companies are involved in other businesses besides real estate – they may have a mortgage loan company, a title company, a settlement company, an insurance company.

The law is pretty strict on this sort of thing – if a company has a relationship with another company, it needs to disclose this. That way, you can decide whether or not to use that company, or a different one.

Apparently, these disclosures aren’t good enough for some people.

A recent class-action lawsuit focuses attention on a long-festering consumer issue in real estate: Alleged steering of home buyers to affiliated title, settlement and mortgage companies by large real estate brokerage firms, a practice that could cost consumers hundreds of dollars, compared with fees and services offered by nonaffiliated competitors.

Two buyers in Minnesota filed suit Feb. 21 against Coldwell Banker Burnet Realty, one of the largest brokerage firms in the state, charging that it breached its fiduciary duties under state law when it steered the buyers to its own title and settlement affiliate, Burnet Title, despite knowing that the affiliate’s fees were significantly higher than those available elsewhere.

It’s a slippery slope, you know? An agent for a real estate company may feel that the service provided by the “in-house” agency is superior to that of a competitor – perhaps that’s why the agent recommended it.

It’s not like the agents were personally benefiting from the arrangements, right?

Among other alleged breaches of fiduciary duty, according to the suit, the real estate brokerage did not “disclose that it pressures its sales associates to direct their clients’ closing and title insurance business” to the affiliate. Nor did the firm disclose that it offers financial incentives to sales associates who cooperate, including a “quick check” program that pays agents’ commissions at closings, rather than at a later date, provided the closing occurs at Burnet Title.

The suit also claims that other incentives include a “partnership compensation plan,” that pays for retirement plan contributions, marketing expenses and “bonus pools” that are “tied, in part, to the direction of clients’ business” to the title affiliate.

Oh. Whoops!

The solution to this problem would be, of course, for real estate companies to be banned from having relationships with outside companies. Seeing as many real estate companies are looking to make money any way they can, this isn’t very likely to happen.

** I worked at Coldwell Banker Residential Brokerage in the South End for over two years (hi Jon!), and I have to say, everything was above board, there. The disclosure forms we used explained everything very clearly. I was never offered a “kick-back” from an affiliate company for persuading clients to use their services.

Source: Agents’ Costly Referrals Spark Class-Action Suit – By Kenneth R. Harney, The Washington Post

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Updated:  2018

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