Let’s get right to it, shall we? Do you want to avoid $1 million in fines? That’s exactly what I thought — keep reading. 

The topic for this article is marketing service agreements, or MSAs. And if you do them wrong, you could end up facing that kind of fine. When it comes to MSAs today, things are getting serious. 

First, an MSA is a relationship between a real estate office and a title company, mortgage broker or a home warranty company where the real estate office agrees to market the services of one of those entities for a fee. It might go like this: one of those companies pays you say $3,000 a month if you include their information in your marketing materials or ads. These agreements are fine, and they’re permitted under the Real Estate Settlement Procedures Act (RESPA). 

The problem occurs when a real estate office gets greedy and makes several of these agreements with different title and mortgage companies — basically reducing its marketing spending to zero — or worse, actually entering into these MSAs as a way to make money. 

Attorneys say it’s imperative to make sure that the relationship between the real estate office and the title or mortgage company is not tied to sales or productivity. They say valuing the marketing services that the real estate office is performing is essential to analyzing whether the agreement complies with RESPA. Overvaluation can lead to serious penalties from the Consumer Finance Protection Bureau (CFPB).

In fact, those prosecutions by the CFPB for RESPA for violations are on the rise. It appears that MSAs are squarely in the CFPB’s crosshairs. And the CFPB may fine companies up to $5,000 a day for violating RESPA. If the violation was reckless, those fines can jump to $25,000 a day. And if a company knowingly violates or ignores the provisions, the CFPB can levy fines up to $1 million a day. 

If you’re a broker and your real estate office has an MSA with a title company, let an attorney look it over to ensure it complies with RESPA. It’s better to spot a problem and fix it before the CFPB gets involved.

In the meantime, here are some key points attorneys say to remember about MSAs:

• Offer only advertising and/or marketing: In an MSA, the real estate office is essentially being hired to advertise the services of the other entity, so limit your services to advertising — nothing else.
• Keep payments proportionate: If your MSA is between two parties, then each party needs to pay its proportionate amount of marketing expenses — each needs to pay 50 percent. If you bring in a third party, then break the payments into thirds. 
• Value your marketing services objectively: Sharing ad space and passing along prorated advertising costs to a partnering company are aspects of MSAs that are easy to value. But email campaigns or other generic marketing services are tougher to value. Experts suggest hiring an auditing firm to offer objective values of marketing services.
• Track services: If a real estate office is being paid for services it’s not performing, that’s a RESPA violation. Create a way to measure services rendered objectively so that both the real estate office and the company paying for the services can track what’s being done.

Bubba Mills is the executive vice president of Corcoran Consulting and Coaching Inc., an international consulting and coaching company that specializes in performance coaching and the implementation of sound business systems into real estate companies, mortgage companies and small businesses.