Questions often arise under the Real Estate Settlement & Procedures Act (RESPA) concerning the issue of joint advertising by and between settlement service providers. Common questions that arise include:

1. Can a title company create flyers for a real estate agent that promote the agent and/or the property and include the title company logo?
2. Can a mortgage lender offer open house flyers which display property details and financing options and include the agent’s picture and contact information on the flyer?
3. Can a title or mortgage company provide postcards to a real estate agent that promote the agent and include the mortgage company or title company logo.

Let’s start with a couple of basic principles of RESPA. First of all the federal statutes prohibit the exchange of “items of value” between settlement service providers and HUD has issued numerous rulings that define marketing or advertising as an item of value. Therefore it is relatively clear for example that a settlement service provider shouldn’t be providing marketing, advertising or promotional material to another settlement service provider free of cost. Common violations include paying for an agent’s business cards or paying for an agent’s print advertising.

However RESPA allows for the existence of joint advertising by settlement service providers where there is a pro-rata sharing of the costs involved in the marketing. Pro-rata means that the costs and proportionate space have been equitably divided between the parties. For example a 30 second TV commercial that costs $1,500 where the title company uses 15 seconds of the commercial and the real estate professional 15 seconds should have them sharing the cost on a 50/50 basis since they have used equal amounts of the space. The same rule applies to flyers, brochures and other promotional material. There is no guidance in the RESPA statutes as to what can be included in the pro-rata sharing of costs. If one party pays for the flyers, the other party may contribute their pro rata share of the costs by distributing the flyers or if one party pays for the design and creation of the flyers, the other party may pay for the printing costs. There are lots of ways of sharing costs and expenses. Each business will ultimately decide on its own whether it can appropriately and reasonably justify the pro rata sharing of costs and expenses.

Regardless of how any particular business decides to try and allocate or justify the pro-rata sharing of marketing or advertising expenses all settlement service providers should know that any alleged violation may require them to justify what they have contributed to the marketing effort in conjunction with how much proportionate space they occupy in the joint advertising. Different situations may require different allocations of cost so that there is compliance with RESPA’s mandatory pro-rata sharing rule.

Len Elder, DREI, JD. is a national real estate educator and has been teaching courses related to RESPA and its compliance issues for the past 20 years.