RESPA & Joint Ventures: What Is Allowed?
March 6, 2023
We have heard reports that state Attorneys General may be taking an increased interest in certain joint venture arrangements between real estate licensees and settlement companies.
Agents may look for easy ways to supplement their income; however, they may find themselves in a situation that not only seems too good to be true—it actually IS too good to be true.
The Real Estate Settlement Procedures Act (“RESPA”) prohibits real estate licensees from giving or receiving a “thing of value” for the referral of settlement services with a few limited exceptions. One exception is in affiliated business arrangements, including joint ventures, where the only thing of value received is a return on an ownership interest.
RESPA clearly states that a “return on an ownership interest” does not include any payments that are related to referrals. This means that payments that are calculated directly or indirectly based on the number of referrals, or ownership shares which are adjusted based on the number of referrals, would violate RESPA.
While the most obvious violation would be where agents in a joint venture who make twice as many referrals as others in the joint venture receive twice the distributions or payments of the others, that is not the only potential violation. RESPA specifically says that a return on an ownership interest does not include “a payment based on an ownership, partnership or joint venture share which has been adjusted on the basis of previous relative referrals by recipients of similar payments.” This means that if agents are part of a joint venture that has minimum quota requirements or adjusts ownership based on referrals, they are involved in a joint venture which would violate RESPA.
As brokers, you have an obligation to ensure that your agents are complying with laws and regulations. This means that you should talk to your agents about what is and is not allowed under RESPA. Encourage any agents who are involved in or approached about joint ventures or other programs that seem too good to be true to proceed with caution.
It is possible for RESPA compliant joint ventures to exist, but they must be established and operated following strict guidelines.
Still have questions? We encourage you to submit your inquiry to the Virginia REALTORS® Legal Hotline.
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