Real Estate Kickbacks vs. Legal Rebates in Florida: What RESPA Allows

What is a kickback in real estate? In plain terms, it is money or any other "thing of value" paid in return for steering a customer to a settlement service, such as a lender, title company or inspector. Federal law bans this in most home sales with a mortgage. Yet Florida also lets a licensed agent share part of their own pay with a buyer or seller, as long as everyone involved is told. Those two rules can sound like they clash. They do not, once you see where the line sits. This guide explains both, with examples from the kinds of deals we see in Palm Beach County.

Key takeaways

• RESPA Section 8 bans giving or taking a fee, kickback or thing of value for referring settlement business on a federally related mortgage loan.
• Payment for work actually done is allowed. So are cooperative fee splits between real estate agents and brokers.
• Criminal penalties can reach a $10,000 fine and one year in prison. Civil liability can reach three times the charge for the service.
• Florida lets a licensee share brokerage pay with a party to the deal, with full disclosure to all interested parties.
• Lenders limit seller and agent contributions. On Fannie Mae loans, the agent counts as an interested party.

What is a kickback in real estate under RESPA?

The Real Estate Settlement Procedures Act, or RESPA, is a federal law. Section 8, codified at 12 U.S.C. 2607, has two main parts.

• Section 8(a) bars anyone from giving or accepting "any fee, kickback, or thing of value" under an agreement to refer settlement business on a federally related mortgage loan.
• Section 8(b) bars splitting a settlement charge with someone who did not actually perform services for it.

Most home loans are federally related, so RESPA reaches most financed purchases. Settlement services include things like lending, title insurance, closing work, appraisals and inspections.

A "thing of value" is broad

The CFPB's rule, Regulation X at 12 CFR 1024.14, defines a thing of value broadly. It includes money, discounts, salaries, commissions and fees. It even includes "the opportunity to participate in a money-making program." So a gift card, paid trip or free marketing can count, not just cash.

A "referral" is broad too

Regulation X also defines a referral widely. It covers any oral or written action that has the effect of affirmatively influencing someone's choice of a provider. It also covers cases where a person is required to use a particular provider.

What a kickback in real estate looks like

These examples show the kind of setups RESPA aims at. They are simplified, and real cases turn on the facts.

• A lender pays an agent a flat fee for every buyer the agent sends its way, with no real work behind it.
• A title company covers an agent's advertising costs in exchange for referrals.
• A home inspector gives an agent gift cards for each client referred.
• A closing agent splits its fee with someone who did nothing on the file.

In each case, the payment rewards the referral itself. That is the core of a kickback. The harm is that the buyer may not get the best price or service, because the choice was steered by money they never saw.

What is not a kickback in real estate

RESPA does not ban all payments between settlement providers. Section 8(c) lists several exceptions. Among them:

• Fees paid to attorneys for services actually rendered
• Payments by a title company to its agent for services actually performed
• Payments by a lender to its agent for work actually done to originate, process or fund a loan
• Bona fide salaries or pay for goods or services actually provided
• Cooperative brokerage and referral arrangements between real estate agents and brokers
• Affiliated business arrangements, if the required disclosure is given and the consumer is not required to use the affiliate

The cooperative brokerage exception is why agents can split a commission with another agent or broker, or pay a referral fee to an out-of-area broker. That is a normal part of the business. It is also why our guide on the buyer's agent fee can discuss sellers paying the buyer's broker.

What happens after a kickback in real estate

RESPA carries real penalties. Under Section 8(d), a violation can bring a fine of up to $10,000, prison of up to one year, or both. On the civil side, violators can owe three times the amount charged for the settlement service involved.

Federal and state officials can also step in. The statute lets the CFPB, the HUD Secretary, state attorneys general and state insurance commissioners seek court orders to stop violations.

Legal rebates in Florida

Now for the part that surprises many people. Florida lets agents share their own pay with the buyer or seller in the deal. The Florida Real Estate Commission's rule 61J2-10.028(2) says sharing brokerage pay "with a party to the real estate transaction with full disclosure to all interested parties" does not violate Florida's licensing law.

So a buyer's agent may give the buyer part of the commission as a credit at closing. A listing agent may reduce their fee or credit the seller. These are rebates to a party, not payments for steering business to a third party.

The disclosure rule

The key phrase is "all interested parties." Florida Realtors reads that broadly. In its guidance, it notes that the buyer's lender would need to know about a commission rebate, because it could affect the lender's loan math. So a rebate should be in writing, shared with the lender early and shown on the closing paperwork.

Who cannot get a share

Florida Realtors also points out a general rule. A licensee may not share real estate compensation with an unlicensed person. The exception is a rebate to a party to the transaction. So an agent cannot pay a friend, neighbor or unlicensed "bird dog" a cut for sending a client.

Kickbacks to agents under Florida rules

Rule 61J2-10.028(1) covers the other direction. If a licensee receives a kickback or rebate for placing business, such as sending a client to a vendor, it violates Florida law unless the licensee first fully advised all affected parties of the facts. Even then, RESPA may still apply on a financed deal. Disclosure under Florida rules does not cure a federal referral fee.

How lenders treat credits in Florida transactions

A rebate is legal in Florida, but the loan program decides how much credit a buyer can actually use. This is where many deals need care.

Fannie Mae calls these interested party contributions, or IPCs. Its list of interested parties includes the seller, the builder and the real estate agent or broker. For a principal residence or second home, the limits on financing concessions are:

• 3% when the loan-to-value ratio is above 90%
• 6% when it is from 75.01% to 90%
• 9% when it is 75% or less
• 2% for investment property, at any loan-to-value ratio

Fannie Mae also says an agent rebate that is not credited toward the transaction counts as a sales concession. A sales concession is subtracted from the sale price, which lowers the price used for the loan math. So the way the rebate is written and applied matters. FHA, VA and other programs have their own rules, and lenders may add stricter ones. Ask your lender how they will treat any credit before you sign.

Builder incentives and preferred lenders

New-construction buyers often see incentives tied to a builder's preferred or affiliated lender. These can be lawful. Under RESPA, an affiliated business arrangement needs a written disclosure, and you cannot be required to use the affiliate, with limited exceptions.

In practice, compare the full loan offer, not just the incentive. A large closing credit can come with a higher rate or fees. Get a Loan Estimate from at least one other lender, then compare the total cost over the years you expect to keep the loan.

What to watch for: spotting a kickback in real estate

You do not need to be a lawyer to ask good questions. Watch for these signs.

• Someone pushes hard for one lender, title company or inspector and will not say why.
• A provider offers you or your agent a gift tied to choosing them.
• A fee appears on your closing papers for a service no one seems to have done.
• A credit or rebate is promised verbally but never shows up in writing.

It is fine for an agent to suggest providers they trust. Just ask whether they receive anything for the suggestion, and remember you can choose your own. Our West Palm Beach and Boca Raton pages cover local buying in more detail.

Frequently asked questions

What is a kickback in real estate in simple terms?

It is a payment or other thing of value given in return for referring settlement business, such as a loan or title work. On most financed home sales, RESPA Section 8 bans it.

Is a commission rebate legal in Florida?

Yes, if it goes to a party to the deal and there is full disclosure to all interested parties, under FREC rule 61J2-10.028(2). The buyer's lender should know about it early.

Can agents pay each other referral fees?

Yes. RESPA exempts cooperative brokerage and referral arrangements between real estate agents and brokers. Florida generally bars sharing pay with unlicensed people.

Can my lender limit how much credit I get?

Yes. On Fannie Mae loans, contributions from the seller and the agent count toward limits of 3%, 6% or 9% for a primary home, based on loan-to-value. Investment property is capped at 2%.

What agencies police a kickback in real estate?

The CFPB, HUD, state attorneys general and state insurance commissioners can seek court orders. Consumers can also sue, and courts can award three times the charge for the service involved.

Sources

• 12 U.S.C. 2607, RESPA Section 8
• CFPB, Regulation X 1024.14
• Florida Administrative Code, rule 61J2-10.028
• Florida Realtors, Florida laws on real estate commissions
• Fannie Mae Selling Guide, B3-4.1-02 interested party contributions

This article is general information, not legal, tax or financial advice. RESPA and loan rules depend on the facts of each deal, so consult a real estate attorney or your lender about your situation.

Selling in Palm Beach County? We put every fee and credit in writing so you can see your net before you sign. Check what your home is worth or book a listing consultation. Buying instead? Schedule a buyer strategy call and ask us how credits work with your loan.