What every real estate pro should know about kickback rules

In the high-pressure world of real estate sales, every agent quickly learns the timeless adage: “Always be closing.” It’s the lifeblood of the business, right? The deal, the commission, the win.

If you’ve ever seen Glengarry Glen Ross, a classic dark comedy drama, you know how brutally honest and unforgiving the sales game can be. The movie’s legendary line, “Coffee’s for closers,” is less about caffeine, of course, and more about success: Who earns it and who doesn’t.

But there’s another mantra every real estate professional should live by, one that’s far less catchy or popular but even more critical in the long run: Always be complying. (Did I just coin that?)

And when it comes to the Real Estate Settlement Procedures Act (RESPA), compliance might be the most crucial closing strategy a practitioner can adopt. Without it, it’s not just risky business; it’s what I call a career-ending party foul in this industry.

Just as mastering the art of closing separates top producers from the rest, understanding and respecting RESPA is a prerequisite in real estate. It separates thriving careers from regulatory nightmares.

So, where do we begin? At the top, naturally. Let’s dig into the basics, explore important guardrails, and paint a picture of what RESPA compliance and diligence look like in the field.

What Is RESPA?

RESPA, enacted in 1974 and enforced by the Consumer Financial Protection Bureau (CFPB), is a federal law designed to protect consumers by promoting transparency in real estate settlements. Among other things, it prohibits kickbacks and referral fees between settlement service providers that artificially inflate costs.

The law applies to a wide range of service providers involved in the settlement process, including real estate brokers, mortgage brokers and lenders, to name just a few. However, RESPA is only triggered when the transaction involves residential real property and a federally related mortgage loan.

Though complex and sometimes confusing, RESPA’s mission is simple: Keep the settlement process honest and fair. The consumer is the focus, and protection is the goal. Among its key provisions, RESPA requires clear disclosure of all estimated or actual transaction costs and empowers consumers to shop around for settlement service providers.

Perhaps RESPA is most famous for what it strictly forbids: giving or receiving any “thing of value” in exchange for referrals related to settlement services such as title insurance, escrow or inspections. That means no secret commissions, no disguised referral fees and no gifts.

So, what exactly counts as a “thing of value”? Think broadly. It goes far beyond fees or commissions and can include stock dividends, discounts, gifts, trips — the list goes on. In fact, a CFPB attorney once told me that not even a stick of chewing gum is legal if it’s tied to or conditioned upon a referral.

Important exemptions to RESPA

No RESPA overview is complete without a quick examination of its exemptions. That is, while RESPA prohibits many referral fee arrangements, it also includes important exemptions under Section 8 that permit certain fees, salaries, compensation or other payments without limitation. Notable exemptions include:

• Bona fide payments for services or goods: Payments made to any person as a bona fide salary, compensation or other payment for goods actually furnished or services actually performed are permitted [12 CFR §1024.14(g)(1)(iv)].
• Cooperative brokerage and referral arrangements: Cooperative brokerage and referral agreements between real estate agents and brokers are allowed, but only when all parties are acting within their licensed brokerage capacity. This exemption does not apply to fee arrangements between real estate brokers and mortgage brokers, or between mortgage brokers themselves [12 CFR §1024.14(g)(1)(v)].
• Affiliated business arrangements (ABAs): ABAs are allowed if specific conditions are met, including full disclosure to the consumer — typically via the ABA disclosure form in Appendix D of RESPA (which I frequently share with clients). Under these arrangements, the only thing of value received can be a return on ownership interest or a franchise relationship, which means referral fees from affiliated entities are prohibited. Crucially, consumers must retain the freedom to choose any settlement service provider; they cannot be required to use a particular provider [12 CFR §1024.15 et seq.].

Although these exemptions exist, and they are not exhaustive, some critics argue that the real estate industry limits true consumer choice by steering clients toward preferred providers, raising concerns about the spirit of consumer freedom that RESPA was intended to protect. But let’s put a pin in that notion for a minute and keep moving through our RESPA crash course.

Additional considerations on fees and market value

To showcase how complicated and not straightforward RESPA can be, it’s important to also understand the following regulatory guidance regarding payments and fees (which I am pulling straight from the law itself):

“The Bureau may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. 

The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited” [12 CFR §1024.14(g)(2) line breaks added for clarity].

The dos and don’ts: Playing within RESPA’s guardrails

Let’s break down this complex body of law into a few manageable (and hopefully memorable) pieces. RESPA has clear guardrails:

• Don’t offer or accept gifts, discounts or payments tied to referrals.
• Do pay for legitimate services rendered, not for the referral itself.
• Do disclose ABAs fully and transparently, and make sure the disclosure adheres to RESPA requirements.
• Don’t enter into marketing service agreements without legal counsel, as these can be RESPA landmines.

For those who work better with real examples, here are a few activities that are illegal under RESPA:

• A title company pays a broker $500 for every client referred.
• An agent refers borrowers to lenders and receives a $100 gift card per referral.
• A brokerage owns a home warranty company but fails to disclose the relationship when referring clients.
• An escrow holder pays monthly marketing fees to agents in exchange for referrals.

Honestly, there is no shortage of scenarios. In fact, this article is practically written on the heels of yet another case involving alleged RESPA violations: a marketing service agreement between a real estate brokerage and a lender, in which homebuyers claim in six separate lawsuits that a North Carolina brokerage steered them to use its partner lender. As a result, they say they paid higher interest rates and discount points on their loans than they would have if they had shopped around.

Similar kickback issues are explored in a recent article about an escrow company allegedly compensating agents for business referrals.

Listen, there will always be an example or headline — just don’t be one of them. A smart rule of thumb for RESPA compliance: assume a referral fee is illegal until you’ve safely confirmed otherwise.

When kickbacks cross legal lines

Having spent years investigating real estate licensees for non-compliant activities during my time at the Department of Real Estate, I am no stranger to unlawful kickback schemes. In California real estate, this isn’t just theoretical. A common arrangement I’ve witnessed, both while working for the state and later as a consultant, involves brokers financially incentivizing their agents to use the firm’s in-house escrow divisions. This is an unlawful practice under both California law and RESPA.

I co-wrote a comprehensive piece on the parallels and disconnects between federal RESPA and California’s referral fee laws, which still lives on the DRE’s website. One way to think about the legal dynamics surrounding referral fees is this: RESPA sets the federal baseline, whereas states often layer additional enforcement rules, creating a complex compliance landscape.

Consider California’s B&P Code §10177.4 — a household reference in my compliance world — which prohibits referral fees for services including escrow, title and pest control. Even though it covers a smaller set of service providers, its scope is broader than RESPA’s, applying to transactions without secured loans and to property types such as commercial and industrial.

In essence, depending on the state, real estate licensees may be subject to multiple laws that don’t always align. That’s why it’s critical for licensees to carefully vet referral fee activities for both state and federal compliance.

Avoid the ‘f’ word in real estate: Tips for practitioners

If I’m being completely honest, sometimes I think of RESPA as the “f word” in real estate. I say this half-jokingly, but the truth is, no one ever utters “RESPA” when things are going smoothly. It usually comes up when something has gone wrong, often as the headline of a story alleging misconduct.

The reality is, consumers get hurt when settlement service providers engage in unlawful referral fee activities. And it’s no better on the other side. Agents tempted to sidestep RESPA, whether by offering or receiving referral kickbacks, hiding fees or skirting disclosure, risk more than fines. They jeopardize their licenses, reputations and livelihoods.

Ignorance is no excuse either. And though this article offers just a teaspoon of knowledge in the vast ocean of RESPA education, here are a few fundamentals to keep in mind if you want to survive RESPA compliance. 

If you’re making or receiving referrals, make sure:

• They’re non-compensable or comply with both federal and state laws.
• You’ve disclosed everything clearly and in writing to clients.
• You avoid any form of compensation tied to referrals.

Did I mention that a referral fee arrangement doesn’t have to be documented in writing to be illegal? Under RESPA, an agreement or understanding can be established simply through a pattern of activities or a course of conduct.

For example, if a “thing of value” is received repeatedly in connection with the volume or value of referred business, that alone can be enough to trigger enforcement. Put differently, even without a signed contract or explicit conversation, the arrangement can still violate the law.

To wrap up these tips, remember that compliance goes beyond just knowing the rules. Always speak up and ask questions when something isn’t clear or doesn’t feel right. If you are an agent, your responsible broker is a good place to start that inquiry. Document your activities thoroughly — as if you might one day be called to defend them in court (though hopefully you won’t). This means retaining emails, texts and any other relevant communications.

Diligence not only protects your clients but also safeguards your license and professional reputation.

Closing with compliance

If you ask a compliance consultant what real success looks like, be prepared to hear the words “regulatory compliance” in my response. Boring, right? But trust me, I’ve seen a lot in the game of real estate. The true winners aren’t just the best closers; they’re the ones who respect the rules, protect consumers and keep their businesses out of legal hot water.

You can close the most deals and earn the highest commissions, but if you lose your license over a single illegal referral, it’s meaningless. That’s my point: Real success depends on compliance.

Remember: “Always be closing” only works if you’re also always complying.

Further reading and resources:

NOTE: The opinions, suggestions, and recommendations contained in this discussion are based on Summer Goralik’s experience working for the California Department of Real Estate and as a real estate compliance consultant. They should not be considered legal advice or relied upon as such. You should consult with your brokerage and/or appropriate legal counsel in your jurisdiction for further clarification.