FACTORS TO CONSIDER IF YOU’RE EXPLORING A JOINT VENTURE

Is a joint venture a viable alternative to a marketing service agreement?

By Sue Johnson, strategic alliance consultant

The Consumer Financial Protection Bureau’s (CFPB) aggressive enforcement against Marketing Service Agreements (MSAs), coupled with its 2015 Bulletin warning providers to “proceed with caution” in this area, has led many companies to explore a joint venture as an alternative to an MSA.

The CFPB has not outlawed MSAs per se, and the Supreme Court may decide this year whether or not the agency has overstepped its bounds in its strict interpretation of how RESPA’s referral fee prohibition applies to this type of agreement.

But given the uncertainty of today’s MSA regulatory environment, should you actively explore a joint venture? The answer is, “Maybe.” Here are some factors you should consider as you begin your assessment.

Will you be able to capitalize adequately the joint venture?

To create a RESPA-compliant joint venture, you’ll need to capitalize the entity. No specific amount is required, but many RESPA attorneys recommend an investment covering start-up costs and six months of expenses. Be aware that RESPA regulators expect your investment not to be tied in any way to expected referrals. If the returns are disproportional to the amount invested, you open yourself up to an investigation.

Will your volume of business support a joint venture?

You obviously will need a certain volume of business to make the capital investment and operational costs worthwhile. A pro forma income statement done in conjunction with your prospective partner will enable you to assess how many transactions the new entity will need to close to cover your costs and to achieve your profit goals.

Do you have a viable joint venture partner?

Your partner will be critical to the venture’s long term success. You could start by assessing the suitability of companies that already do business with your sales force and customers. One possible partner is a company with an established track record of creating and managing RESPA-compliant joint ventures.

Are you and your partner ready to make a long-term commitment?

Beware of potential partners that approach you with proposals involving quick profits. A successful and compliant joint venture involves a long-term commitment by the senior management of all owners. If one is a real estate brokerage company, it takes time and excellent service to win the business of its real estate sales force.

Are you ready to comply with RESPA’s ABA standards?

First, you should comply with the three statutory conditions of RESPA’s affiliated business arrangement (ABA) safe harbor:

  1. Provide an ABA Disclosure in writing at or before the time of the referral.
  2. Do not require the consumer to use the affiliated service.
  3. Do not receive any “thing of value” from the venture other than a return on ownership interest or franchise interest.

You also should not consider a joint venture unless you and your partner are ready to comply with the RESPA Sham Joint Venture Guidelines that RESPA regulators use to determine whether a joint venture is “bona fide” or a “sham” designed to  circumvent RESPA’s referral fee prohibition. They include:

  1. Adequate and proportional capitalization: As discussed above, the joint venture should be adequately capitalized, with any returns being proportional to the capital investment.
  2. Employees: It should perform its essential services with its own employees, not employees loaned by either owner. Many RESPA attorneys advise hiring at least one full-time dedicated employee.
  3. Separate management: Its operations should be run by its own management, not the management of wither owner.
  4. Separate office space: Its office(s) should be separated from those of wither partner, and it should pay market value for the space.
  5. Performance of “core” services: It should perform the essential functions for which it receives a fee. If it contracts out services, it should pay for the fair market value of those services.
  6. Outside business: The entity should actively compete for outside business, and not send business exclusively to an owner or its affiliates. Many states require that a certain percentage of revenues be obtained from unaffiliated sources.

Do you need to meet all of these guidelines? Not necessarily. Some, such as capitalization, employees, and the performance of core services, are considered more important than others. But you should be prepared to meet as many as possible to prevent the RESPA police from knocking on your door.

A successful joint venture can bring you long-term financial benefits and enable you to build value for your customers. But it also requires a substantial financial and management commitment, as well as compliance with a separate set of regulatory standards. If you decide to explore this option, make sure you do so with the advice of an attorney with an established RESPA practice.^

This article originally appeared in the September 2016 issue of the REAL Trends Newsletter is reprinted with permission of REAL Trends, Inc. Copyright 2016.

The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

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Q: How does a real estate licensee who engages strictly in commercial real estate business apply for the exemption?

Answer:

Real estate salespersons and real estate brokers engaged solely in the commercial real estate business can apply for the exemption form the agency law, fair housing law and the required module CE requirements and test by filing a verification of this status with the Commissioner of the DOC.

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

Q: How do I file an ethics complaint?

Answer:

  • Complete form #E-1 (Ethics Complaint) – making sure that you sign and date the form.
  • Attach a written summary of the situation and any documentation (such as listing agreements, purchase agreements, buyer contracts or disclosure forms) which support your complaint.
  • Complaints must be filed within 180 days of when the facts constituting the matter complained of could have been known in the exercise of reasonable diligence or the date of closing the transaction, whichever is later.
  • Include one (1) copy of the complaint form and all attachments.

For complete details on the ethics complaint process, go HERE

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

4 Tips on Disclosure and Contracts

  1. An Agency Relationship in Real Estate Transactions form must be presented to a buyer/tenant and seller/landlord at first substantive contact with that party. This is a disclosure form, NOT a contract, although it does ask for the party’s signature as an acknowledgement. First substantive contract generally means before discussing financial, confidential or motivational information with a consumer.
  2. Listing contracts be signed before offering/advertising to property for sale or lease.
  3. Buyer/Tenant representation contracts must be signed before taking any action to represent a buyer/tenant and before a purchase agreement or lease agreement is signed.
  4. A contract is not required to act as a facilitator when working with a buyer/tenant. However, when acting as a facilitator and working with a buyer/tenant, a Buyer/Tenant Facilitator Services Contract may be wise in order to insure compensation is received for services provided, to establish an exclusive relationship so other agents are not intruding on the relationship between the facilitator and the buyer/tenant and/or to specifically define the services to be provided. (While most listing agents will use an Exclusive Right to Sell/Lease Listing Contract, a Seller/Owner Leasing Facilitator Services Contract may be used in listing property for seller/landlord.)

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

Q: What logos am I required to have on my business cards and advertisements?

Answer:

There is no statutory requirement or any National Association of REALTORS® (“NAR”) policy that dictates which logos you are required to have on your business cards or in your advertising. However, your broker may have a policy in place. Please check with your office policies on which logos you must use.

PLEASE NOTE: If you are using any of the NAR logos (i.e. the REALTOR® “R”, any designation logos), please be sure to review the graphics standards on how to use these logos. You can download the REALTOR® “R”, as well as view the graphics standards HERE

RESOURCES ON ADVERTISING

National Association of REALTORS®

  • Download the REALTOR® Logo: HERE
  • Other REALTOR® Logos: HERE

Minnesota Statutes

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

Sprinkler Victory: Evidence that the MN REALTORS make a difference!

MN REALTORS can jointly claim victory with the Builders of the Twin Cities in our fight against regulated sprinkler mandates in new construction homes.  Today, the Minnesota Supreme Court denied the Minnesota Department of Labor and Industry’s petition for review, meaning that the Court of Appeals decision invalidating the sprinkler mandate in 1 and 2-family homes stands, and is now the law throughout Minnesota.

MN REALTORS® played an import role in this long regulatory battle – in the legislature and in the courts.  After obtaining a grant from the National Association of REALTORS®, MN REALTORS® worked with the BATC to jointly engage in a public campaign against a sprinkler mandate.  The two associations obtained over 10,000 petition signatures by running public facing ads, conducted multiple calls for action, published newspaper counterpoints, and used a phone vendor to patch through constituents to their legislators via telephone in order to voice their opinion.

When legislative efforts were not enough, MN REALTORS® joined BATC in the court room by supplying an amicus brief to the Minnesota Court of Appeals.  The Court of Appeals sided with the Builders and the MN REALTORS® and invalided the sprinkler mandate in 1 and 2-family homes.  Today, the Minnesota Supreme Court denied the Department of Labor and Industry’s petition for the Supreme Court to review the Court of Appeals decision.  This means that there is not a sprinkler Mandate in 1 and 2 family homes in Minnesota; and keeps housing affordable by saving Minnesotans ten thousand dollars or more in their new construction homes.

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

Learn More $ Earn More – Program #2 – Feb 17th

The second program in the Learn More $ Earn More series is Wednesday, February 17th at the Maple Grove Community Center!

Program Cost $29 – 8 am registration – program 9 am – noon

Expand Your Market Share

Come spend three hours of your morning getting valuable information you can start using in your everyday business! Tailor the morning to you – starting with a keynote session on Emerging Markets and then picking one program from two breakouts that best fit your professional development needs!

The Program:

9 – 9:50 am Keynote Session – Emerging Markets (1hr)

10 – 10:50 am Breakout #1Choose from one of the following:

  • New Construction Impactology (1 hr of CE Approved) * – Get an overview from an expert and expand your client’s choice by learning about new construction. Instructor: Rob Phyle
  • TBA

11 – 11:50 am Breakout #2Choose from one of the following:

  • Energy Fit Homes: Certification and Market Benefits (1 hr of CE Approved) * Instructor: Rebecca Olson
  • Rental Property Management (1 hr) Instructor: Deb Newell

*These courses have been approved by the Minnesota Commissioner of Commerce for 1 hour for real estate continuing education. 

Register Today!

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active is all aspects of the real estate industry.