Zillow and RESPA Part 2: The Details
Hey guys! Ken Perry with the Knowledge Coop. I’m giving you a follow-up video to last Friday’s Zillow video that got 20,000 plus views which of course you probably know why everybody’s paying attention that video and to this investigative action the CFPB has taken to go out and investigate Zillow. You probably can see that the issue is that so many people are using co-marketing with Zillow that they’re all now relooking and going “oh dang” is this something we should be concerned with? [Charlie Brown]”Why is it that everything I tried turns out wrong”… in fact it was funny I would see people tag other people in my video so I don’t know you know you never know why somebody’s being tagged. But I imagine some people are using it wrong and they’re just kind of letting people know you should probably check this out. So one of the most common things that I got back as far as questions and responses go, people were messaging me on Facebook and sending me emails and asking about what can we do? And what happened was a lot of Real Estate Agents last week, some loan originators canceled how much they were paying, or renegotiate how much they’re paying, and it made real estate agents a little bit upset because they’re not sure what’s going on or why this happened. And I will tell you that real estate agents being the recipients of the marketing money are just because there were ones getting money they’re the ones that are going to be the toughest to convince that they need to really pay attention to this. I speak all over the country mainly to mortgage folks, but I also speak to real estate communities, my message is always the same. You can’t break the law and you need to be really careful with the way that you’re doing business and you need to really analyze what you’re doing so let me just give you a couple quick slow down explanations of what happened. So RESPA Real Estate Settlement Procedures Act comes out 1974 (that’s all the history I’m going to give you) and in it they have a few just different sections to pay attention to. The one that we’re specifically looking at in the Zillow case is section 8 of RESPA and that’s really simple when you read it. It says that you cannot give or receive a thing of value in exchange for the referral of business. Remember you cannot give or receive, so giving or receiving a thing of value, both of those things are the same amount of wrong. Right? So you’re violating a lot of doing either on. In fact these, the amount that you could pay is ten thousand dollars or a year in jail for violating either by receiving by giving a thing of value in exchange for the referral of business. It’s a huge part that becomes an issue when I go speak to real estate companies because they’ve had different people do seminars and say you can give somebody something when they refer to business. And so when they hear that they think that they can it’s actually not true. One of the common misconceptions I hear all the time is that you can give somebody something like a gift card as long as it’s not more than $25 that’s totally false. The line in RESPA is you cannot give or receive anything of value. And if you read the definition of thing it’s like it’s everything it’s dollar amounts it’s chances to win it’s offsetting your marketing expenses it’s in there these are things you can’t give. The deal is that the only thing a loan originator is allowed to give back to a realtor for sending them business is great service to the person who was referred. – “You’re doing me and my family a great service.” – anything outside of that can be a thing of value. So I would encourage you if you’re a real estate agent watching this go read section 8 of RESPA. Specifically read the definition of thing of value and make sure that that’s not anything that you’re getting from a loan originator. Because that’s like the line is just clear it’s any-thing …so let’s take that and apply it to Zillow. So when we’re looking at Zillow and you’re doing co-marketing the deal is a realtor cannot have their marketing expenses offset by a loan originator what they would have paid for. Now the old days is really easy right you take a flier or a newspaper ad you would measure the amount of space the real estate agents getting you would measure the amount of space the loan officer is getting and you just divide them and you figure out what percentage can be paid by a loan originator and what percentage by the realtor. That’s easy when we go digital it’s not nearly as easy because now we’re looking at a digital experience so we can measure the square “inchage” on the page and go “hey my name is down here the house and the real estate agents over there.” That’s one way to do it and if you’re doing it that way you’re going to find in most Zillow ads you’ve got about less than 10% of the page the total screen is actually the Real Estate Agent and so when you’re looking at that that’s straight up marketing if the loan officers are paying 50% the real estate agents are paying 50% you may have an issue because the loan officer is only showing up here then I would look at my click rate to make sure we’re not paying too much. So how many clicks am I getting? How many clicks is the real estate agent getting? Start doing that math and then compare that marketing with other just different websites that allow you to market find out if it actually is makes sense advertising. I sent out a video, one of my Wednesday update videos, was months ago where I was saying if you wanted to do it just pure with no risk of violation the loan officer should call Zillow and say I would like to advertise and sign an agreement with Zillow to advertise but not be able to choose their real estate agents; and the real estate agents should call Zillow to advertise would not be able to choose which loan officer shows up separate them completely. The reason I really like that idea is because there’s no possible way we have the the offsetting of the cost and the thing of value if I didn’t even get to choose which realtor was getting that. And then you can also measure does it make sense for me to advertise it that well. It would be sweet, here’s the funny thing, when I shot that video people were laughing at me! And their like Ken that’s cute there’s no way we do that and my question was well why wouldn’t you if you’re going to advertise why wouldn’t you pay a normal advertising fee to Zillow to get that space. Instead of splitting the cost with the realtor and the response was “well because the value is in the relationship with the realtor and what you’re doing to support that relationship.” It’s so easy to look at that and go there’s the problem! The problem is when you start mixing your advertising in your marketing you have to be so clear on how much is going to you and how much is going to them because any tie in between the realtor and the loan officer, where the loan officer is now providing extra value, that’s what becomes suspect. That’s the type of stuff they look at. So hopefully that helps you if you have any questions again read section 8 of RESPA under thing of value remember I’m not an attorney so do whatever you want and then let me know how that works out for you. But I’m telling you when you read the cases if you read the case against Remax and Keller Williams and Prospect Mortgage that was just a couple months ago out of Corvallis, Oregon, you can start seeing the way the CFPB looks at marketing. Here’s one final note: the CFPB doesn’t typically go to court, they settle. You settle with the CFPB. So we’re not talking about did you break the law, we’re talking about just the CFPB believe you broke the law. Because if they believe you broke the law they come to you with a settlement it’s going to be enough for you to stay in business but it’s going to be painful and you’re probably not going to court because the court is the CFPB Administrative Court and we saw what happened with PHH they are still fighting the good fight. So most people just settle out so anyway go back and check that out I hope you’re doing it right. I’m excited for people who’ve been doing it right. And my last message to real estate agents: don’t press your loan officers to pay for your marketing it’s not worth it you can pay fines for receiving that thing of value you don’t want that to happen nothing’s worse for business than the CFPB filing an enforcement action against you. So have a great week we’ll see you next week. Thank you for liking commenting and sharing the video! We look forward to reading your comments and joining the discussion with you. Check out our other videos on this page or in our feed on Facebook.