Rent-a-Desk; Kickbacks to the Individual Agents? Just Say NO!

In a previous post, RE-Insider called into question the legality of brokers renting out desks in the office and asked for reader examples of the “Rent-a-Desk” policy in practice. We received many examples; the following is an email exchange with one of our RE-Insider readers. Please note, company names provided by the reader have been omitted until RE-Insider can verify the information. We feel that this continues to be a very big issue in the industry and we’d appreciate your feedback.

My previous brokerage, (name omitted) has an “in house lender.” They provide the office space and push the agents to use that lender and in exchange the lender splits their profit with the office.

What we would like to know:

1. Did the real estate brokerage offer the space/desk to all other Home Mortgage and or Home Warranty Companies before leasing the space?
No, they interviewed several lenders and went with the one who would give them the most $.

2. Do the rental charges exceed the actual square footage cost of the brokerage’s rent cost?
They incorporate the “rent” in what they get back from the lender

3. Does the Real Estate brokerage favor its “tenants” in providing access to the agents? Does the Real Estate brokerage provide the same access to agents to other Home Warranty and Home Mortgage companies?
The “in house” lender speaks at each office meeting and is presented as “part of the team.” Other lenders are not allowed in the office to speak.

4. Does the Real Estate brokerage favor its “tenants” in allowing them to participate in company events while preventing or discouraging other Home Warranty and Home Mortgage companies from participating?
Yes

5. Does the Real Estate brokerage encourage their agents to use the services of the “tenants,” or does the broker make clear that the agents may use the Home Mortgage company or Home Warranty company of their choice?
No, the brokerage itself does “profit sharing” with the agents so they encourage the agents to use the in house lender in order to increase the office profit and thus give kickbacks to the individual agents.

Please continue to share your information and help us in our goal to bring the real estate industry into full legal compliance.

  • bobthebroker

    This is getting me really, really angry. Aren’t brokers 1) extorting money from their agents and 2) significantly restricting their ability to legally operate as an independent business? When will our DA’s and other regulators say, “Enough!” and take action?

    Call me fuming in the desert!

    • RE-Insider

      We can feel your anger from here! I know a lot of professionals feel the same as you; it hurts everybody in the industry when some people don’t follow the rules.

  • Busy REO broker

    Do real estate professionals really believe that this story is blowing the lid off of something new? As a volume REO broker I’ve been aware of this for YEARS, it’s rampant in the industry. Not only have I been approached with MSA or desk rents agreements, I see how apparent it is from cooperating brokerages that present an offer that is “pre-qualified” by their “in-house” or “preferred” lender, a lender that is not reputable or reliable, but paying rent or “partnered” with the broker. In this scenario, the real detriment is to the buyers who have been told that they qualify only to get 17 days in to a transaction and find out that their lender didn’t vet their qualifications properly and is fishing for an exception to lender guidelines, thus buyers deposit becomes at risk, not to mention the non-recoverable cost of appraisal, inspections, credit report, etc…

    Again, it’s wide spread and has been for years, Another example is home builders that have “preferred lenders” who are owned by the builder. Many major banks have recapture programs with their REO listings and require buyers to pre-qualify with their origination branches… is this a RESPA violation? Many larger, national chains brokerages have in-house escrow, or an affiliate company for Escrow that is in house, again, a RESPA violation? In my humble opinion, even worse than this, is a buyer’s agent who is also doing the loan, is this not a conflict of interest in an REO transaction? What lender would want to tell the listing agent or their client that they are still shopping the loan to lenders while repeatedly being have loan declines, if the seller cancels they lose two commissions – in my opinion, far more egregious than a desk rent.

  • Dave

    It’s not just mortgage loans and warranty companies. It’s escrow companies too.

    • RE-Insider

      The trouble is across the industry. Let’s keep looking out for each other.

  • William

    Whoever wrote this email needs to quit whining and move along. He obviously doesn’t like his broker for whatever reason but I see nothing of any problem or deceit here. He doesn’t even listen to himself! On the very first questions about the broker offering the space to several lenders he says “No” then instantly says they interviewed several companies. Which is it? And, of course, they would go with whatever company offers the best financial relationship! This guy might want to stop complaining and learn how business works! Does he think they should take the worst deal? That would be brilliant business!

    He clearly states that his broker doesn’t REQUIRE the agents to use these companies and that is ALL that is required of the broker. It is not the broker’s responsibility to present EVERY possible service provider to their agents. There is absolutely nothing wrong, immoral or unethical with “favoring his tenants” so long as their use is not mandatory to the agents in the office. This guy just sounds like another lazy agent who wants to be spoon-fed to stay in business. It’s none of his, or any agents, business who the broker rents space to unless those businesses are forced upon the staff.

    • RE-Insider

      There is significant gray area between “requiring” agents to use in-house services and “strongly suggesting” the same.

  • Anne

    Great article! We have tried for years to do business with one company’s agents in the North County area of San Diego, and have been told there are incentives’ to use the in-house lender. We were never offered to rent a space with them. We have heard or gas cards, advertising and other things offered to use the in-house lender. I hope they come down on them as we have been locked out of such companies. And let’s not enough get into the new builders lenders, they are even worst.

    • RE-Insider

      The CFPB is most definitely interested in non-monetary incentives. Please read our interview with Brian Sullivan to learn exactly how they’ll be going after them.

  • DK

    yes, this was general practice at my older brokerage, who is no longer in business 🙂 – things have a way of working themselves out…… but I still get pressure at my broker now who does loans..but Im working to go independent, already passed broker exam, and finishing up current work load… I dont like the games either and dont participate in them

    • RE-Insider

      It’s good news that the market corrected itself. Best of luck with your independence!

  • Marco

    oh boy if we could only get the brokers not to use “In house” vendors…. like owners escrow companies they HAVE to use… that wuld be amazing.. so much business is lost because Brokers HAVE to use in house vendors..

    • RE-Insider

      We’re all working to clean up the industry. There is money to be made out there by doing things the right way.

  • AM

    I’m wondering is it a violation to reduce transaction fees if specific vendors are used…whether they share a space or not?

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  • The brokers give incentives, such as free transaction coordinator services, if the agents use the inhouse/broker owned companies, such as escrow, title, mortgage, home warranty, etc. I have confirmed with the CA Dept. of Corporation this is illegal, I have provided them with written evidence and they do nothing about it. Why isn’t the regulator enforcing the law? Meanwhile, hard-working, law-abiding companies are losing a tremendous amount of business due to this illegal activity. Why isn’t something being done about this? I wish all of the independent and unaffiliated companies would file a class action lawsuit against these brokers for this illegal activity and also name the DOC because they aren’t doing their job by enforcing the law. We have real damages from losing all of that business.