What is a preferred vendor list in real estate?

A preferred vendor list is a list of service providers, such as lenders, title companies, inspectors and contractors, that an agent or brokerage recommends to clients. The term is neutral on its face. The questions start when vendors pay, or give something of value, to be on the list, because the client may not know the recommendation was bought.

This article is general information, not legal advice. Talk to your broker or a lawyer about your own situation.

What does "preferred vendor" mean?

In everyday use, it just means "people I'd send you to." An agent who hands a buyer the names of a home inspector, a plumber and a mover she trusts has a preferred vendor list, whether or not she calls it that.

The same words are also used for something different: formal programs where a brokerage or a platform designates certain companies as "preferred," often in exchange for fees, marketing payments or other arrangements. A 2015 Inman article by Amy Tankersley described these lists going by names like "preferred partner," "trusted partner" or "recommended vendor," and covering title and settlement companies, lenders, escrow agents, home warranty companies, insurance providers and home improvement contractors.

To a client, both kinds look the same. That's the problem.

Why do paid preferred vendor programs raise questions?

There are two separate issues: trust and regulation.

The trust issue

When a client hears "preferred," they usually assume it means "my agent thinks these people do good work." If the real reason a company is on the list is that it paid, the client is relying on a recommendation that means something different from what they think. Even if the vendor is good, the client didn't get the full picture.

Paid placement also changes who the list answers to. A list funded by vendors has a reason to keep paying vendors on it. A list nobody pays to be on only has to answer to the person who made it.

The regulatory issue

For services tied to a home purchase with a mortgage, there's a federal law to know about: the Real Estate Settlement Procedures Act (RESPA). Its Section 8 rule, as published by the Consumer Financial Protection Bureau, says no person shall give or accept "any fee, kickback or other thing of value pursuant to any agreement or understanding" that settlement service business on a federally related mortgage loan will be referred. The definition of "thing of value" in that regulation is broad, and includes things like discounts, trips and "services of all types at special or free rates."

RESPA doesn't mention preferred vendor lists by name. The 2015 Inman article made exactly that point, and noted that compliance experts still saw these lists as a possible regulatory minefield. It quoted Ken Trepeta, then president of the Real Estate Services Providers Council (RESPRO): "I would venture to say that there probably are not that many preferred providers who are preferred without some strings attached," and "One must avoid calling anyone a preferred provider or anything that looks like an attempt to steer."

Whether any particular arrangement crosses a line depends on the facts, the type of service and the law that applies. That's a question for your broker and a lawyer, not an article.

What do state real estate commissions say?

State license law adds its own rules, and they vary. Two examples:

Your state may be stricter, looser or simply different. Your state commission's website and your broker are the places to check.

Is it wrong to have a preferred vendor list?

No. Clients want names. A first-time buyer who has never hired a roofer is better off with three people their agent trusts than with a search engine. Recommending good people is part of the job.

The questions come from money and disclosure, not from the list itself. A list you build from your own experience, that no vendor pays to be on, is a different thing from a sponsored list wearing the same label.

What's the alternative to a paid preferred vendor list?

A list nobody pays to be on. In practice that means:

If you're building one now, what to put on a realtor vendor list covers the trades and details clients actually use, and how to build a vendor network as a new agent covers finding the first names. For contractors in Oregon and Washington, checking the license takes a minute.

Where Proferral fits

Proferral is a free app for keeping that kind of list. No provider pays to be listed, and Proferral takes no referral fees and no cut of anything. You keep your providers, check in after each referral, and give every client a go-to list link they can open without an app or a login. To compare it with other tools, see vendor list apps for realtors, compared, or read how it works.

Start your list, free

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