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Daily Real Estate News  |  July 5, 2011  |   Agent Fees From Home Warranties in Question
The practice of real estate professionals earning a fee for promoting home warranty policies has come under increased scrutiny.

Home warranties, which cost anywhere from $400 to $500 and offer repairs and replacements to home owners when appliances or systems break, are often touted by real estate professionals. However, it’s when these real estate professionals receive a fee (which can often range from $60 to $90) for promoting these policies that could land them into trouble.

A recent lawsuit accused American Home Shield, a home warranty provider giant, of violating the law by paying kickbacks to real estate professionals for promoting warranty policies to their clients. American Home Shield, denied any wrongdoing, but settled the lawsuit to curb ongoing litigation costs.

In Violation of RESPA?

But the question still remains on whether home warranty fees provided to real estate professionals is in violation of federal laws. The Real Estate Settlement Procedures Act bans payments for referrals of “settlement services” in most mortgage transactions as well as the exchange of fees or other compensation when no substantive services are provided.

However, the National Association of REALTORSŪ has argued that federal anti-kickback regulations should not cover home warranties because they don’t constitute “settlement services” and have no ultimate effect on the closing of a transaction.

“Consumers are often not familiar with the numerous home warranty products,” wrote Vicki Cox Golder, 2010 NAR president, in a letter to the Department of Housing and Urban Development, a RESPA regulator. “Real estate brokers and agents do not merely flash a brochure concerning these products to individual buyers and sellers. [They] devote valuable time educating consumers about the features, limitations, coverage, and pricing of home warranties.”

Many real estate professionals have called an interpretive ruling by HUD last summer on home warranties vague on the issue. Meanwhile, several class-action lawsuits have emerged across the country that are challenging home warranty payments to real estate professionals.

Source: “Home Warranty Fees Coming Under Scrutiny,” Washington Post (July 1, 2011)

Read more:
New-Home Warranties: The Basics

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