A frequent question asked by our clients is how to generate more incoming leads without spending more marketing dollars. The simple answer…offset a percentage of your marketing budget with a business partner’s support, specifically by utilizing a Marketing Services Agreement (MSA). So what’s a MSA you ask? It’s a marketing agreement that real estate agents can enter into with a service provider like a mortgage company, title company, home inspector, home insurance agent, or pest company where the service provider pays the real estate agent to co-market the service provider along with themselves.
As the agreement’s title implies, the Marketing Services Agreement is designed to reimburse real estate agents for real bona fide co-marketing, not a fee for referrals, which would be a RESPA violation. To that end, Marketing Services Agreement’s have several points to consider before deciding to enter into one.
- The MSA dollar amount must be commensurate with the amount of exposure a real estate agent is giving their MSA partner via their co-marketing efforts. For example, if an agent runs a print ad in a home magazine and pays for five column inches of advertising, and the agent devotes one column inch to their MSA partner, then the MSA partner would be responsible for 1/5 of the ad’s cost.
- Agents that already have a large marketing budget with many advertising outlets in place may never not be able to obtain MSA dollars equal to the amount of exposure they can give a partner. In those cases how do you decide what’s “fair?” Well, with mortgage companies you can start with 20 basis points of the total amount of funded loans the mortgage company closed with the real estate agent over the previous year. Note, it’s unusual to see a MSA where more than 30 basis points of the funded loans are being returned to the agent or team in the form of MSA dollars. In the case of settlement providers, a retrospect review of title premiums will help establish the right amount. Anticipating 30%-50% of the owner’s title premiums are what many settlement providers set aside for marketing.
- RESPA compliant MSAs do not adjust dollar amounts frequently. Anticipate that a MSA is going to be for a minimum of one year at a set dollar amount that doesn’t adjust. Frequent adjustments (<12/mos) to MSA dollar amounts are an indication that the service provider is reimbursing the real estate agent for referral business rather than paying for bonafide marketing, which is a RESPA violation.
- It’s incumbent upon real estate agents and their MSA partners to keep accurate records of all the co-marketing in the event either party is audited. The MSA should have reporting provisions for the agents to report back to the MSA partner on a monthly basis with copies of the co-marketing pieces that are in print, any links to online marketing pieces, and date stamped pictures of a partner’s marketing materials that may be posted within an agent’s office.
- If you have an MSA you must exercise a healthy amount of CYA (cover your ass) and disclose it to ALL clients, buyers and sellers alike. Even if there is no potential that your client is going to use one of your MSA partner’s service, you still should disclose the existence of the relationship to be safe.
- Ignorance is not a defense when it comes to violating RESPA, statutes enforced by the Consumer Financial Protection Bureau, or state laws. That being said, if you do plan to enter into an MSA make absolutely sure you have it reviewed by a local real estate attorney knowledgeable in this field who can advise you properly. Keep in mind that several states have enacted legislation that prohibits certain classes of service providers from entering into a MSA.
While we are not attorneys, nor do we give legal advice or practice law, we can answer general questions you may have concerning Marketing Service Agreement or forming Joint Ventures. Just give us a call at 757-550-0744 and we will be happy to help.