While in a fiduciary relationship do you think it is right for an agent to accept money from a vendor when the agents' client purchases a product from that vendor?

Example:

A home warranty company will give you up to $70 for every home warranty you sell to your clients.

Or

A mortgage bank will pay you a commission for submitting a loan application for a client.

Let me ask you this question: We have an attorney who is a licensed RE broker, he owns the RE company, title co., lender etc., he charges his clients for all these services, although he does not do the work himself (his employees do), should he profit from them? He does disclose this relationship to his clients.

That is a very good question and a hard one to answer, but my answer is no, I don't think he should profit from them all.

Hypotheticaly (I am not implying that this man has done anything but act ethically) I see potential for a conflict of interest.

An example:

Before I opened my own brokerage I was an agent at a company who's parent company also did title and mortgage. This relationship was disclosed and agents where encouraged to recommend both subsidiaries.

I and some of the other agents felt the mortgage company was not very good. In fact it seemed to be a big problem for the parent company getting the agents to recommend the mortgage company.
Why? Because there was no positive incentive for the agents to recommend the mortgage company. The agent got nothing out of the deal and the agents client was likely to get bad service from the mortgage company, another negative incentive for the agent.

So here is what the parent company did, they started having raffles with BIG prizes. The winner was chosen at random, BUT for every client that an agent "recommended" to the mortgage company and wrote a loan for, the agent received another entry in the raffle. Sure enough, the numbers of referrals went up.

What that suggested to me is that some of the agents started to recommend the mortgage company not because they felt that was the best choice but because it was an OK choice with an incentive. This I consider to be a conflict of interest.

Had they felt that the mortgage company was the best choice, would the incentive been ok?

If the agent recommends the mortgage company because he truly feels that mortgage company is worth recommending on its own merits then the incentive I believe, is irrelevant. However from a practical standpoint it is impossible to determine how much the incentive influenced the decision, agents after all are only human.

Freak,
Let me guess you are opposed to one stop shoppingor bundled services. Real Estate Brokerages that also own title companies, mortgage brokerages, etc..

So if the buyer client uses my services as Realtor and also uses me to do the title work as my prices are comparable and the relationship between realty & title company was fully disclosed you feel this is unethical to profit from both even though the work for both was done.

A mortgage company paying money to an agent for applications is illegal. That is a clear violation of RESPA. Now, affiliated business relationships (ABA's) are extremely legal. The problem which has occurred in the industry is that is is ILLEGAL to get paid on a PER DEAL basis. If you own 10% of the company, you get 10% of the profit. That 10% payout has no bearing on how many deals you sent that month. RESPA is the yellow brick road...

Several years ago, I was working at an independent CB office, we had an internal mortgage loan dept. and the agents got paid ½ the loan orig. fee when they had a buyer, and all agents were “employees” of the mortgage co. Naturally, the business relationship was disclosed to the buyers in writing.

RESPA may be the yellow brick road, but the clearly other legal paths that can be taken.

Below is a transcript from a conversation with a representative from a company that will in essence pay an agent for a referral:

------------ : hi
[17:27] RealtyFreak: I was wondering about your program for real estate agents
[17:28] ------------ : well, in a nutshell, i represent a marketing arm for a mortgage bank...we were working with a broker but switched in the last couple months....
[17:29] RealtyFreak: how can a real estate agent get paid for selling mortgages?
[17:29] ------------ : basically we're allowing our reps to submit loans and the bank handles the processing....
[17:29] RealtyFreak: Is that legal?
[17:30] ------------ : absolutely
[17:30] RealtyFreak: as long as it is disclosed?
[17:30] ------------ : correct...for RE agents we have a disclosure statement that your clients sign
[17:31] RealtyFreak: So basically I just fill out a loan application for my clients and I get a commission for that?
[17:33] ------------ : either you or your client can fill out the app (they're one page unless the client has extra info...plus there's the borrower auth form) and fax it in...the bank prices the loan and you let the client know the rate/term....
[17:33] ------------ : then inform the client of what docs they need to submit
[17:33] RealtyFreak: interesting
[17:33] ------------ : the bank handles the processing
[17:34] RealtyFreak: how much can one make doing this?
[17:35] ------------ : well since we just switched to the bank i haven't seen the official commission structure
[17:35] ------------ : but
[17:36] ------------ : i'm guessing when we have our marketing arm "launch" in january the starting commission should be around 20-30%
[17:37] ------------ : but your commission will go up after a certain amount of production....just as in most companies with good loan officers
[17:37] ------------ : but as soon as i know the exact percentage i can let you know
[17:37] RealtyFreak: and all I have to do is help fill out the loan app?
[17:38] ------------ : yep

As for getting by a percentage of an ABA's profit, the question is not if it is legal (your right it is) but should it be? Getting payed a percentage does not remove the incentive from referring the business.

Do you think there was the potential for a conflict of interest with this arrangement?

Realty Freak!
hey, i like what you had to say. i am a mortgage broker in ohio and mortgage lender in the state of florida. i was looking into setting up a structure in which the agent sold the deal and i processed it and then paid the agent on the loan. before moving forward with that, i called the Ohio Department of Financial Institutions and discussed the relationship. The Department told me that it is truly a "gray" area. If the agent is an "employee" of my company and is licensed as a loan officer, can they get paid for doing a mortgage loan, yes; however, can they get paid on their own transaction - "gray". The department said that they believed that i was looking for a way to essentially hide a kickback. In conclusion, I was told that if audited, the state would probably call it a violation of RESPA and i would probably be selling cars the next day.

I am glad you are not selling cars!

The potential for a conflict of interest can be anywhere, just look at our own Realtor (pac) contributions to politicians.
I believe that the reason and motivation have to be considered. However, since they are not that transparent, it can become judgmental.

cardinal1,
If the agent actually does the loan origination paperwork and submits it to his mortgage broker then there as No RESPA issues as the agent has done what they got paid for...got this from a RESPA Compliance Officer at HUD.

Paul,
you are correct - i agree; however, the reality is markedly different. again, this is why the state was saying it is "gray". does having a customer fill out a 1003 loan application deem getting paid a commission on a loan? why is licensing required then (which, by the way, is a joke (send in $100 dollars and you are a loan officer))? i could simply have a bum on the street copy someone's information down and pay him on it. when you are dealing with someone getting paid money, no one would agree that they do not legitimately deserve it. what prevents me from saying to an agent, "i will pay you $1,000 for every customer you send me. we'll just put your name on the bottom of the 1003 and suddenly it's not a kickback." that is pathetically what is happening, the customer's interests are not looked after, and that is why the industry is perceived in the manner that it is.