Consumer’s Right to Choose
Since the real estate market turned I’ve become more and more aware of the importance of the consumer’s right to choose their own representation in all aspects of a real estate transaction. This includes the right to choose a REALTOR, lender, home inspector, and settlement agent. Now the law is pretty clear on this subject. No one can make a consumer use a particular tradesperson as a condition of an accepted offer or loan approval. However, I am seeing more and more companies violate this law, or bend the law, as times get tougher. I guess it is the “protect your own” mentality. The reasons these laws are in place is to help prevent anti-trust violations and kickbacks. Yes, kickbacks are illegal in real estate.
The most common example of the consumer’s right to choose being ignored occurs when trying to purchase a Foreclosure. Virginia law says that the purchaser has the right to choose the settlement company. Why is it the purchaser’s choice? Well, in Virginia, the purchaser pays for the title work and title insurance. Therefore, the purchaser has the right to choose the company that will be ordering the title work and supplying the insurance policy. (This varies from state to state. In some states the seller pays for title work, so the seller gets to choose the settlement agent). Many Foreclosure banks are conditioning an offer’s acceptance on the buyer using the bank’s settlement agent. Many times this settlement agent is located well outside the area the of the foreclosure and is rather inconvenient to get to. This scenario violates RESPA and the purchaser’s right to choose their own settlement agent. Some banks are getting around RESPA by offering the buyer free title work or a discount title policy. Just remember, you get what you pay for. Sometimes it’s worth paying full price to make sure you are getting the most protection.
Are incentives for using particular tradespeople allowed? For example, if you use this particular tradesperson you get a bonus as a seller or a buyer. Yes, incentives are allowed. However, the consumer needs to weigh what they may be giving up for accepting an incentive. Who is the tradesperson working for? Are they working for the person or company referring them the business or the consumer? Should the consumer still interview out of network tradespeople? Yes, by all means, you should be interviewing out-of-network tradespeople to make sure you hire someone that will represent your best interests. This is not to say that tradespeople within the network are not going to represent a consumer well. I know many in-network tradespeople that are fabulous to work with. In-network tradespeople may go through additional training and may be required to carry certain designations in order to remain in the network. But, the consumer has the right to explore all of their options and no one can prevent a consumer from hiring an out-of-network tradesperson. You just may not get your incentive if you go outside the network.
The important thing to remember is that consumers have a choice. A consumer’s decision to waive their right to that choice can alter a transaction’s outcome greatly.
