Real estate agents have the potential to drive a lot of business to home inspectors. It’s a longstanding tradition to bring along goodies when inspectors visit agents, but there’s a fine line between goodies and an ethical and legal dilemma.
How can you treat agents with kindness and avoid an unwitting RESPA snag? Here’s what you need to know.
What is RESPA and Why Does it Matter?
Real Estate Settlement Procedures Act or RESPA was created to protect and help educate home buyers. It regulates the real estate industry through guidelines that lenders, real estate agents, mortgage brokers and other professionals follow.
- Industry-wide definitions
- Mortgage loans
- Escrow use
According to Investopedia, RESPA was originally passed in 1974, with the latest updates put into effect in 2010. Before RESPA was passed, lenders could participate in unscrupulous behavior, including lending at a higher rate than the borrower could qualify for and giving the difference to another party as a perk or kickback.
How do Home Inspectors Run the Risk of a RESPA Violation?
Generally, perks in exchange for profit are prohibited. A Home inspector isn’t allowed to bring gifts to a real estate agent in exchange for the agent driving in more business. However, the inspector can treat the whole office to lunch as part of a “lunch and learn” event.
The National Association of Realtors® gives this example:
- A home inspector pays for a real estate agent’s dinner but doesn’t attend.
- The inspector gives an agent a free round of golf, vacation or pays for a special function.
- A home inspector buys a real estate agent’s dinner and discusses business over the meal.
- The inspector gives a real estate office swag such as coffee cups, pens and sticky pads with the inspector’s name clearly visible.
The precarious line between right and wrong, or acceptable and unacceptable, is the explicit exchange of a thing of value for more business.
How do Home Inspectors Avoid the Dreaded RESPA Violation?
RESPA isn’t a small issue. If anyone, including a home inspector, is found in violation, the punishment may be as small as a fine or as large as a prison term. Avoidance is key, but it’s not difficult.
You want to encourage a good relationship with agents, which is understandable. The important thing is to maintain transparency.
Bring the office lunch, but only as part of a learning event that educates agents about home inspection services. Give agents goodies, such as pens, but only if they’re emblazoned with your name or that of your home inspection company clearly visible. And hand out educational materials along with them.
It’s not difficult to stay on the right and legal side of the Real Estate Settlement Procedures Act. Consider whether your actions could result in favoritism and if the real estate client might be harmed as a result.
A dinner might seem like a small “thank you” in exchange for more home inspection business. However, the client suffers if the agent puts your relationship ahead of their best interest. Stay on the right side of the law and everyone wins.
Are you thinking about becoming a certified home inspector? You’re in the right spot to learn the industry, ethics and law that surrounds it. Enroll now and embark on your new career at your own pace.