What Is RESPA in Real Estate?

The Real Estate Settlement Procedures Act (RESPA) is a federal law designed to protect homebuyers by ensuring transparency in real estate transactions. RESPA governs how settlement costs are disclosed and prevents hidden fees or kickbacks that can inflate closing expenses.

📘 How RESPA Works

RESPA requires lenders, title companies, and real estate agents to clearly disclose all settlement-related costs to buyers and sellers. This includes the Loan Estimate and Closing Disclosure forms, which outline every fee involved in a transaction—from loan origination charges to title insurance.

The law also bans referral fees and unearned commissions between industry professionals. For example, it’s illegal for an agent to receive payment for referring a client to a lender or title company.

🔍 Key Protections Under RESPA

  • Full disclosure: Buyers must receive a detailed list of settlement costs before closing.
  • No kickbacks: Service providers cannot give or accept referral fees. (See RESPA Section 8)
  • Escrow transparency: Lenders must clearly explain how escrow accounts are handled for taxes and insurance.
  • Advance notice of changes: Borrowers must be informed if their loan servicing transfers to another company.

🏡 What RESPA Means for FSBO Sellers

Even if you’re selling your home For Sale By Owner (FSBO), RESPA rules still apply to the buyer’s financing and the closing process. If the buyer’s lender issues a Loan Estimate or Closing Disclosure, these must comply with RESPA’s transparency requirements.

As a seller, understanding RESPA helps you recognize legitimate charges on the HUD Settlement Statement or Closing Disclosure—so you can avoid surprises at the closing table.

RESPA is one of the most important consumer protection laws in real estate. It ensures that every buyer and seller understands the true costs of closing—and that the process remains fair and transparent.