Controlled Business Arrangements-Is there a reason for that referral?

The ABC's of CBA's


When you have a real estate agent represent you on the purchase of your home, you may find that they make recommendations for the mortgage provider, the escrow company, the title company and other related services.

Many times, the agent will make the recommendation because they have had positive experiences with these service providers, they trust them to take care of you, the client. They have a track record of confidence in the service provider's ability to keep their word and deliver on the level of service that all parties deserve.

There may be other reasons for recommendations from the real estate agent. It could be that the companies they are asking you to patronize are associated with the real estate company in the form of a CBA - a Controlled Business Arrangement. In most cases, the larger real estate companies that have national name recognition have a mortgage company, an escrow company, and a title company in which they have an ownership interest.

In and of itself, there is nothing wrong with a real estate agent wanting to maximize profit to the parent company by creating more business with their client base. A problem could arise if you are not made aware that there is a CBA in place, and if the service providers are not offering low, competitive costs for their service.

The agent has a duty to their client to put the client's interests ahead of their own (or ahead of their real estate company). The agent or their company should not be profiting without the consent of the client, which means that disclosure is required. It could be construed as a breach of their fiduciary responsibility to their clients to steer them to higher-cost services that benefits the broker or agent financially.

The agents are highly "encouraged" to refer the CBAs because there is more money flowing into the company's coffers - and this extra profit is often distributed to include the sales managers and the agent. It could be in the form of a check after closing, contributions to retirement plans, contributions to marketing expenses, or into bonus pools that are distributed periodically to the deserving participants.

What should you do? If you are presented with these kind of recommendations, ask some questions. Ask if there is a CBA between the companies. Ask what the agent's motivation is for making the recommendation. Ask for several trusted service providers from the agent so that you can shop among several sources.

Remember that it is your right to shop for the service providers based on their quality/cost or to seek the lowest cost services. The important thing is that you make an informed decision and that disclosures are properly made to you.

I rely on real estate agents to recommend my services based on my 30 year track record of providing a high-quality experience for them and their clients. I am willing to take the time to educate you, shop for the best terms I can find, be organized and efficient in the placing of your loan and always be available to answer questions and brainstorm solutions. There are no financial arrangements between me and my referring agents.

Our common goal is to do a great job of servicing you, our client.