Agents, would you consider this a conflict of interest or an opportunity?

Question

Hello BP,

I'm just getting started into investing in real estate--  I also work for a company that offers access to all genres of attorneys to the general public for a low monthly fee.  I've been contemplating approaching agents that I know in states that require closing attorneys to see if they'd be interested in marketing the legal service to their clients to use for closings and beyond. To me, this seems like a win/win-- the client saves money through a service that handles all of their legal needs (including a hopefully imminent closing) for $17/mo, and the agent makes commission from the sale of their client's membership. Licensees, what do you think of this? Is this a kickback or is it something that could enhance a buyer's experience with you?

Thank you,

Jordan Acosta

Account Closed · Answer

About Realtors, you're mostly right. I don't know about other companies but one of the first questions every agent I've ever seen asks to more experienced agents is "what title company do you use?" "what home inspector do you use?" etc.

This is why marketing to agents in general can be frustrating, because it is very much a referral driven business.

About providing additional services though, there is nothing wrong with an agent recommending a company in which he has an interest (ie title company, a specific loan officer they like) as long as it's disclosed and the agent mentions that they are not required to use that service.

Joel Owens · Answer

I think if you are a broker/agent and you depend on these small referral fees to survive instead of closing deals then you need to analyze your business model.

I have never liked these approaches where people want you to send them your way and then say they will give money back. If the service is great enough on both sides then referrals can be given without compensation. I remember in my state my old broker owned a title company along with a brokerage as separate companies. A disclosure was given that they owned the company and also 2 other title companies were given if the buyer didn't have one they wanted to use. This gave the buyer options and took away implications of forcing the buyer to do something or use a specific company.

Bill Gulley · Answer

LOL, mostly right? Does that mean I'm a little wrong? Absolutely other agents and clients ask. My point was to steering business not making a recommendation.

I was also speaking to perception, having been around in the business for so long, often it's not what is illegal or unethical, but the perception of conflicts of interest. As I said, there is nothing wrong with an agent having other business interests, but when they cross paths in RE, they need to be disclosed and I'd add, tactfully. :)

Bill Gulley · Answer

I have slightly different views on this. There are no issues with an agent having another business venture or a job that sells anything really, but there disclosure issues if those interests cross paths.

The see several problems or issues.  One, Realtors who require an attorney are usually going to have their favorite one. It's a relationship that has been developed not just with the agent but also with the broker and their office staff.

Next, as Joan mentioned, you can't require any particular service be used, steering and where you may have a financial interest. In reality, agents usually give a client a choice but then they will add comments how well someone has done in past transactions and the relationship the have, the client usually goes with the agent's selection. Now, adding to that that there is a financial interest may not go over well, "the agent is already getting a commission and now they want more?"

As to the marketing of legal services, I would think that company would have some  rules. Attorneys may advertise, but they are under more ethical and even legal requirements concerning doing something to acquire clients that are already represented. I see the marketing of any company that leads to a service of representation by any one attorney as being the same as if it had been done by that attorney. I'm sure the lawyers have been through these arrangements inside and out, however, I would view that agent as being in an agency relationship with that attorney as the agent is drumming up business for them. I suppose if the agent has idea what attorney would be assigned a case, there would be no chain linking the two. But, there is still an odor to it IMO.

Not just any attorney may be able to close any RE transaction. A lender may require an attorney to close their loan. The closing attorney must also be an insured closing agent of the title insurance company, that can usually be arranged, but the title insurance company will have something to say about that and most have attorneys and the agency may be owned by one.

Have you even asked the discount company if they have closing attorneys, as it is a specialty and you may bump into an attorney who gets into a situation where they would normally be assigned a closing through the title company and then receive the same request for service from the discount company. Your discount company may not have closing attorneys in that area.

Another side, if I were the agent/broker and another agent ask me to join this company, I'd have reservations. I already have an attorney and if I don't my broker does to some extent. Now, another agent is asking me to basically switch as they have a financial relationship in the matter while suggesting that I take on such an interest as well. I would and others may, feel that while a few extra bucks might be nice it doesn't pay for the difficulties it may cause. I'm being put in a position to take on this venture or turn down the agent/friend/associate that is selling this service, that puts a strain on that relationship. Not only would I turn it down but I'd probably avoid that agent selling the service as that becomes rather unethical, on the low end of the scale, to suggest that I go there. You're asking me to abandon another professional relationship that I have with my attorney.

I can think of other issues as well. Like what really good attorney takes work on a discount basis? I'd think they must no be doing well enough on their own. I see basic legal services, such as getting a Will in such an arrangement, but not specialized areas of law, I want and would require for my clients a higher degree of local expertise.

I understand having the idea, but I don't think it's a good idea, at least as to closings. Now, if you market to agents on the basis on general legal services, I know a couple agents who were involved in that, but they didn't cross into areas of RE.

And, as to clients of an RE agent, unless your client is a personal friend, clients expect a degree of professional conduct, not to be solicited for other services, do you want to project your expertise in RE or be seen as one who does all kinds of things because you're not that great at any of your chosen fields. Many want a full time Realtor who are dedicated to RE, but there are exceptions too, like a teacher who is also a Realtor, there is a difference. Think of Mr. Hainey on Green Acres (if you're old enough) he just flipped signs on his truck to sell what ever product or service was applicable to the situation. :)

JOAN DICKIE · Answer

This could also fall under federal RESPA laws which would make it questionable for any agent anywhere.  That is what would make me cautious.

Wayne Brooks · Answer

I've always considered the pre paid legal plans useless for RE investing, and any other business need I've ever had.  Other than the legality of the commissions, I think it would hurt the credibility of the agent.

Chris Martin · Answer

Many states won't allow a licensed broker to accept compensation for ancillary services (legal, loan brokers, home inspections, etc.) So be careful in marketing in these states.

Dev Horn · Answer

I guess I just don't deal much in states or jurisdictions that require this (closing attorneys), so my comments my be of limited value.

Most our RE investor deals are cash deals with few of no contingencies, using standard contracts & terms.  As long as title clears, we're good.  I'm curious about other areas where attorneys are required - what the need is and what they do...

I wish you the best in your endeavors with this!

Account Closed · Answer

I believe it's fine, however agent is required to disclose kickbacks and tell clients they are not obligated to go through that attorney if they don't want to.

Also keep in mind agents usually are not allowed to receive money. It has to go through their broker.

So.. yes marketing to agents is smart but make sure you do it right.