Market Service Agreement: Everything You Need to Know
A market service agreement acts as a contract between two organizations in regards to facilitating the marketing aspects of one company by another.3 min read
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.
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.
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.
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