Key Takeaways

  • A marketing services agreement (MSA) defines the scope, obligations, and compensation terms between a service provider and a client for marketing activities.
  • MSAs are commonly used in real estate, mortgage lending, and brand development partnerships.
  • Compliance with RESPA regulations is essential for real estate-related MSAs to avoid illegal kickbacks and ensure fair marketing practices.
  • Key agreement elements include scope of services, compensation structure, exclusivity terms, termination clauses, and subcontractor involvement.
  • Effective MSAs outline performance standards, approval rights, intellectual property ownership, and dispute resolution mechanisms.
  • Risk management strategies, such as audit rights, indemnification, and compliance monitoring, are critical for maintaining legal integrity.
  • Working with an attorney can help ensure that a marketing services agreement meets legal and business needs while staying compliant.

A market service agreement acts as a contract between two organizations in regards to the details related to facilitating the marketing aspects of one company by another. A market service agreement is used to determine what one party will complete for another party. This may include building an online presence, creating and executing a marketing plan, and launching an advertising campaign for a new product.

Most marketing service agreements (MSA) will include an exclusivity clause to keep the client from using the services of another marketing company. This helps preserve the future profits of the marketing company. The exclusivity clause and the entirety of the contract will cover all employees and contractors of the client.

Marketing Service Agreements in Real Estate

Marketing service agreements in real estate can be in place between a real estate company and a title company or mortgage broker. In this scenario, the agreement will detail a marketing plan with a wider scope that will be completed in partnership with all companies in the agreement. The mortgage and title company employees will gain access to the real estate agents and their clients.

Sometimes, the agreements will include space in the real estate office at a price that falls under "fair market value of marketing and advertising services performed." Realtors are utilizing market service agreements as a way to increase leads and generate income from sources other than just buyers or sellers.

What Is Included in a Marketing Services Agreement?

A well-drafted marketing services agreement (MSA) typically outlines several key elements to clearly define the expectations and responsibilities of both parties. Common components of an MSA include:

  • Scope of Services: Specifies the marketing activities to be provided, such as digital advertising, lead generation, event marketing, content creation, or social media management.
  • Statement of Work (SOW): Often attached as an exhibit, the SOW provides detailed descriptions of the services, timelines, and deliverables.
  • Compensation Structure: Explains how payments will be calculated, including flat fees, retainers, or performance-based compensation.
  • Exclusivity Clause: Addresses whether the service provider is the exclusive marketing partner or if the client can engage other vendors.
  • Approval Rights: Defines the client’s rights to approve marketing materials, strategies, and creative assets before publication.
  • Subcontracting: Clarifies whether the service provider may use third-party vendors or subcontractors and who is responsible for their performance.
  • Confidentiality and Intellectual Property: Establishes ownership of intellectual property created under the agreement and sets confidentiality obligations to protect sensitive business information.
  • Termination Clause: Outlines the terms for ending the agreement, including notice periods, termination for cause, or termination for convenience.
  • Compliance Representations: Includes provisions requiring adherence to federal, state, and industry-specific regulations, such as RESPA in real estate.

Real Estate Settlement and Procedures Act

The Real Estate Settlement and Procedures Act (RESPA) states that MSAs are allowed as long as realtors and lenders understand and can manage three areas of business. The three areas are:

  • Something of value has changed hands.
  • Referrals are provided.
  • An agreement is in place.

There are specific rules of RESPA that should be noted.

  • RESPA Section 8 states that when a federally related loan is referred, an exchange of any value is not permitted.
  • Quid pro quo agreements are not allowed.
  • In-house loan originators must work quickly, honestly, and close faster than their competitors.

RESPA expects that the real estate office and the lending companies agree to a marketing service plan and do not base the agreement on sales or overall productivity. The marketing services must be properly valued and are not inflated, which would be a violation and subject to penalties.

RESPA will most likely see a mortgage lender speaking about their services at real estate meetings, banquets, or other opportunities as a RESPA violation.

Points to Consider When Entering an MSA

Prior to entering a marketing service agreement, there are a few key points to consider and follow to avoid violating the agreement.

  • Limit services provided to advertising and marketing and avoid service or base compensation on referrals or business generated.
  • Avoid exclusivity provisions that point to being anti-competitive or exclusive access to licensees.
  • Lease agreements should be clearly separate from MSAs.
  • Rent must be fair market value in comparison to similar spaces.
  • Objectively value marketing services through an auditor or actuarial company.
  • Track services to show proof that the services being provided are what is expected in the MSA.

For MSAs to be the most effective and profitable, the people involved work to follow any and all compliance issues and work to create a positive business partnership. MSAs that violate RESPA should be avoided because they can be quite costly, ranging from $5,000 a day to $25,000 a day for extremely reckless violations.

Common Risks and Compliance Considerations

While marketing services agreements offer a structured approach to marketing partnerships, they also come with risks, particularly in regulated industries like real estate and mortgage lending. Key compliance considerations include:

  • Avoiding Referral-Based Compensation: Under RESPA, marketing fees must be based on actual services performed and not on the volume of referrals.
  • Fair Market Value Requirement: Payments for marketing services must reflect fair market value for the services rendered, without factoring in the amount of business generated.
  • Documentation and Proof of Services: Service providers should maintain records, including invoices and descriptions of services performed, to demonstrate compliance with the agreement.
  • Audit Rights: Including the right to audit service delivery can help ensure transparency and regulatory compliance.
  • Clear Separation of Services: Marketing services must remain distinct from other types of agreements like leasing arrangements or consulting contracts.
  • Training and Monitoring: Parties should consider compliance training for employees involved in the agreement and establish oversight mechanisms to monitor ongoing performance.

The Future of MSAs and Real Estate

The relationship between real estate companies and mortgage lenders is a proven stream of revenue. The real estate companies want to maintain a relationship and remain RESPA compliant, as it is important to the future continued partnership. However, the mortgage industry has some that want to keep it as is, while others would like to move away from this business model and fine those who do not comply.

Mortgage lenders who are already in MSAs and are successful do not want any changes made. Those against MSAs believe they violate RESPA and pass the cost of the relationship to the customer. MSAs also inadvertently result in the elimination of free-market consumerism by discouraging competition.

Best Practices for Drafting a Marketing Services Agreement

To create an effective and enforceable marketing services agreement, consider the following best practices:

  1. Define Specific Deliverables: Clearly identify the services, objectives, and performance metrics.
  2. Include Performance Standards: Specify service levels and key performance indicators (KPIs) to measure success.
  3. Clarify Payment Terms: Outline payment schedules, milestones, and invoicing requirements.
  4. Address Intellectual Property Rights: Determine whether the client or service provider owns the content, creative materials, or other intellectual property produced.
  5. Plan for Dispute Resolution: Include provisions for mediation, arbitration, or litigation to resolve disagreements.
  6. Detail Termination Procedures: Ensure that termination clauses address notice periods, grounds for termination, and any penalties for early termination.
  7. Ensure Regulatory Compliance: For industries like real estate and lending, confirm that the agreement complies with applicable laws, including RESPA, the Truth in Advertising Act, and local regulations.

Engaging legal counsel to draft or review the agreement can help prevent costly mistakes and ensure the contract aligns with business objectives.

Frequently Asked Questions

  1. What is the purpose of a marketing services agreement?
    A marketing services agreement defines the scope of marketing activities, payment terms, and responsibilities between a client and a service provider, ensuring clarity and compliance.
  2. Are exclusivity clauses common in marketing services agreements?
    Yes, many marketing services agreements include exclusivity clauses to prevent the client from engaging competing service providers, though such clauses must be carefully structured to avoid anti-competitive issues.
  3. How does RESPA impact marketing services agreements in real estate?
    RESPA prohibits compensation based on referral volume in federally related mortgage transactions. Marketing services must be bona fide, properly documented, and priced at fair market value.
  4. What risks should be considered when entering into a marketing services agreement?
    Key risks include non-compliance with regulations, unclear service expectations, disputes over deliverables, and intellectual property ownership issues.
  5. Can marketing services agreements include performance-based compensation?
    Yes, but the compensation must be tied to specific services rendered, not to the number of referrals or sales generated, especially in regulated sectors like real estate or lending.

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