Up next in 10
In this video, we'll explore the concept of kickbacks and how they relate to the real estate industry. We'll define what a kickback is and why it's important to understand the laws surrounding them.
We'll also discuss how kickbacks can be illegal and unethical, and the potential consequences for those who engage in them.
Join us to learn more about kickbacks and how to avoid them in your real estate career.
Here are the chapters for this video. Feel free to jump around accordingly:
0:00 Introduction
0:17 What is a Kickback?
0:48 Examples of Kickbacks
2:07 Why Kickbacks are Illegal
2:40 Who Enforces Kickback Violations
3:10 What is NOT Considered a Kickback?
3:54 Avoiding Kickbacks
4:18 Kickbacks vs Referral Fees
5:52 Kickbacks vs Rebates
6:20 Can Real Estate Agent Give Gifts?
6:44 What Do You Need to Know for the Exam?
Show More Show Less View Video Transcript
0:00
a kickback in real estate is when an
0:02
agent receives benefits or items of
0:04
value from a settlement service for
0:05
referring clients to them this practice
0:07
is highly illegal in real estate and is
0:09
essential for students to understand for
0:11
the real estate exam hello everybody
0:12
it's Zach here from Real Estate
0:13
licenseward.com today we're talking
0:15
about Kickbacks let's get started so
0:17
what is a kickback a kickback is when a
0:19
real estate agent receives Financial
0:21
benefits or items of value for referring
0:24
clients to a business or service this
0:26
practice is called a kickback because it
0:29
kicks some of the profit gained from
0:30
referrals back to the agent who helped
0:32
them get it while it may sound like a
0:34
great way to make some extra cash it is
0:36
highly illegal the following
0:38
professionals should never give or
0:40
receive Kickbacks real estate agents
0:43
salespersons Brokers mortgage brokers
0:45
escrow companies and title insurance
0:47
companies so what's an example of a
0:50
kickback in real estate a kickback
0:51
occurs when a settlement service offers
0:53
a real estate agent a thing of value in
0:55
exchange for referrals because a thing
0:57
of value can be interpreted in different
0:59
way case here are some common examples
1:01
of Kickbacks a monetary gift web page
1:05
production production of marketing
1:06
materials A reduced escrow fee tickets
1:09
to sporting events fancy dinners and
1:12
things like that of course these items
1:14
are only considered Kickbacks if they
1:16
are given in exchange for referrals now
1:19
that we've covered the basics let's
1:20
check out a real life example of how
1:22
Kickbacks work in real estate so there
1:25
was actually a real estate agent
1:26
imprisoned for an illegal Kickback
1:28
scheme not too long ago actually last
1:30
year so according to the U.S Department
1:32
of Justice a real estate consultant from
1:34
Michigan was severely penalized for
1:36
engaging in a kickback scheme in July of
1:38
2022 Stephen A Mills asked for and
1:42
received around
1:43
577 hundred thousand dollars in
1:46
kickbacks from real estate agents that
1:49
he was supposed to quote unquote
1:50
supervise he also failed to report these
1:53
Kickback fees as income on his tax
1:55
return as a result the court sentenced
1:57
Mills to 18 months in prison for
1:59
committing tax fraud and violating the
2:01
real estate settlement procedures act
2:03
this case exemplifies the importance of
2:05
avoiding Kickback schemes as a real
2:07
estate professional so why are Kickbacks
2:09
illegal Kickbacks are illegal because
2:11
real estate agents are responsible for
2:13
being transparent with their clients
2:15
when an agent only refers a business to
2:18
home buyers because they are
2:19
incentivized to it's a conflict of
2:21
interest real estate agents should make
2:24
referrals based on the best option for
2:26
home buyers not themselves essentially a
2:29
kickback is a real estate bribe that
2:31
enables home buyers to sign settlement
2:33
contracts without full contacts luckily
2:35
laws are set in place to prevent this
2:37
predatory practice and promote fair
2:39
housing so what laws prohibits Kickbacks
2:42
well as I mentioned earlier capacs
2:44
violate the real estate settlement
2:46
procedures act or respa response is a
2:49
law that requires lenders and real
2:50
estate agents to provide home buyers
2:52
with disclosures of settlement terms
2:54
this ensures that borrowers are
2:56
protected from Kickback fees and other
2:59
abusive Lending practices who enforces
3:01
this will the Consumer Financial
3:03
Protection Bureau enforces respa and of
3:06
course looks into Kickbacks and Kickback
3:08
related issues now are there legal
3:11
Kickbacks so in real estate there is no
3:13
such thing as a legal Kickback however
3:16
real estate settlement Services can
3:18
still Market themselves by offering the
3:21
following benefits to everyone
3:23
educational seminars to maybe an entire
3:26
Realty board food and Catering for
3:28
events held by a whole Realty board
3:30
donated gifts or prizes at real estate
3:33
offense where anyone can win that's
3:36
important to note anyone can win and
3:37
then maybe even discounted escrow fees
3:40
for both parties in a settlement the key
3:42
to avoiding a kickback scheme is
3:44
ensuring that the benefits are available
3:46
to all not just one real estate agent or
3:49
group that's the key message there it
3:51
has to be available to everyone so how
3:53
do you avoid these Kickbacks well real
3:55
estate professionals must follow respa
3:57
and other Fair lending acts to avoid
3:59
Kickbacks real estate agents should not
4:01
accept fees or other things of value
4:03
from Settlement Services especially on
4:05
the contingency of a referral of course
4:07
real estate agents can recommend
4:09
businesses and services to their clients
4:11
as long as the agent doesn't have a deal
4:13
with the company and recommends them in
4:15
good faith that is of course entirely
4:18
legal so one question to get asked all
4:19
the time is what's the difference
4:21
between a kickback and a referral fee
4:23
many students get these things confused
4:25
so listen up these practices are kind of
4:28
similar but different so you need to
4:30
understand that a referral fee is when
4:33
real estate brokers receive a set
4:35
commission for referrals so for example
4:37
let's say you're a real estate agent in
4:40
California and you have like tons of
4:43
clients and you're just like consumed
4:45
with all your clients and you don't have
4:46
enough time to help every single one so
4:49
you have a friend who is also a real
4:52
estate agent who maybe works you know
4:54
like 30 minutes north of you well you
4:57
can refer that client your client to the
5:01
other real estate agent and they can
5:03
give you some sort of fee for that that
5:05
is perfectly legal because again the
5:08
really everyone's benefiting and also
5:10
there's no illegal bribery or items of
5:13
value being exchanged you know it's very
5:16
transparent and of course these are two
5:18
real estate agents doing this it would
5:21
be different if that would be a
5:22
settlement service because settlement
5:24
service operates differently they don't
5:25
have the same code of ethics that real
5:27
estate agents do and they don't apply to
5:29
the exact same rules so that would be
5:31
considered a kickback so try and keep
5:34
those two things in mind I know that's a
5:35
little bit confusing but at least that's
5:37
the way that I think about it so just
5:38
remember referral fees are is like agent
5:41
to agent kickback is like agent to
5:43
service and things like that and again
5:45
Kickbacks are illegal and referral fees
5:47
are not in most cases there obviously
5:50
are some cases where it's illegal but
5:52
yeah so that's the gist of that so next
5:54
another question I get is about rebates
5:56
so this is the same vein what is the
5:58
difference between a kickback and a
6:00
rebate well a rebate is a refund that
6:02
the home buyer will receive from their
6:03
real estate agent during closing rebates
6:06
come from part of the Asians commission
6:08
and are used to track more business
6:09
unlike Kickbacks rebates are legal
6:12
because they're not secret deals that
6:14
the buyer is unaware of instead rebates
6:16
benefit home buyers by rewarding them
6:19
with more money after closing now
6:21
obviously the question is always asked
6:22
can real estate agents give gifts to
6:25
clients a real estate agent can for sure
6:27
give gifts to clients as long as there
6:30
are no strings attached for example real
6:32
estate agents often give clients A
6:34
celebratory bottle of champagne after
6:36
closing on a home but this gift should
6:38
only serve as a token of appreciation
6:40
rather than an obligation for further
6:43
business so what do you need to know for
6:45
the real estate exam we need to be aware
6:47
of the term Kickback a kickback is when
6:49
a real estate agent receives benefits
6:50
from lending companies in exchange for
6:52
referrals this abusive lending practice
6:54
violates the real estate settlement
6:57
procedures act or respa for short and
6:59
results in serious penalties remember a
7:01
kickback is different than rebates and
7:03
referral fees a referral fee is
7:05
typically from agent to agent a kickback
7:08
is Agent to service or agent to
7:10
settlement service so there is a
7:12
difference there and then obviously your
7:14
rebate is completely different that's
7:15
just an incentive for somebody to
7:18
purchase something but again it helps
7:20
the client it's the client that's
7:22
benefiting not the agent so hopefully
7:24
you understand all that any questions
7:26
leave them down below for more videos on
7:28
Fair Housing Fair lending laws click
7:30
here and click here to subscribe thank
7:32
you guys so much for watching until next
7:33
time see ya bye
#Real Estate Services
#Real Estate Title & Escrow
#Other