Real Estate Agents and Referrals

In a lot of our instruction and real estate investment training materials we talk about building a team for real estate investment success. Depending on the type of investing you’re doing, this team could have one or more of these people involved:

-real estate agent
-insurance agent
-title company
-real estate attorney
-home inspection professional
-accountant
-property management professional
-mortgage broker/agent

It’s also very common, and usually quite productive, to ask the real estate agent you work with for referrals. Who would they recommend for some of these other team positions? After all, they’re working with real estate transactions every day, it’s their business. However, depending on when you’re asking, especially if you’re involved in a transaction, some of the warnings given to home sellers apply to investors as well.

RESPA & Mortgage Referrals – The Real Estate Settlement & Procedures Act makes it illegal for a real estate agent to be compensated in any way for referral of mortgage business. This means not even a lunch paid for by the mortgage broker. We should always be watchful for “cozy” deals or too much enthusiasm when real estate agents refer a mortgage company. There’s also the “business relationship” angle to watch out for. It’s not illegal for a real estate agent or brokerage to have a financial interest in a mortgage business, and even to send business that way. However, it is illegal to do so without full disclosure to everyone involved.

Inspectors – While kickbacks haven’t been a big news issue with real estate agent referrals of inspectors, conflicts of interest have been. An inspector is supposed to be working for the buyer, and should do a thorough job of inspection and reporting of defects. Real estate agents work with inspectors on just about every deal, and over time they know which are lax and don’t do a thorough job. This harms the buyer, but it does pave the way for smoother deals. When getting referrals for inspectors from a real estate professional, ask for the inspectors that meet deadlines, are thorough, and produce complete reports. Then research each one yourself. Ask the inspectors how many deals died last year due to their inspections.

Title Company – The same RESPA mortgage rules apply to referrals of title companies, and there are also real estate brokerages that own title companies or have an ownership or financial interest in them. The same cautions apply as for a mortgage broker referral.

As your real estate investment experience and business grows, you’ll build out a reliable and trustworthy team that will contribute greatly to your success. Just be very careful in choosing team members or single transaction professionals who aren’t on your team.