About a year ago, I wrote a post for the Virginia Association of Realtor's blog, VAR Buzz, about these real estate "fees". I got in a lot of hot water over my "opinion" and toned it down a bit. But, today, I heard something that made my blood boil.
One of the largest real estate companies in the United States recently hired an outside consulting firm to conduct a compensation study with their agents. Know what the #1 complaint among the agents was? It wasn't the agent split nor the outdated office equipment; it was the company forcing the agents to charge the clients and customers a "transaction fee". Know what the CEO said? "Tough. It's not going away".
It's been about 10 years since as an agent, I was instructed by upper management to charge this "fee". Over the years, the name of the fee has changed, the amount of the fee has increased, new policies have come out about how to "address" the fee with the consumer and the penalty the agent faces for not collecting the fee. And after 10 years, I still feel like a heel when I charge my clients the fee.
At this point, most all of us know about Busby v. JRHBW Realty, Inc. d/b/a Realty South, Case No. 06-15308, 11th Cir. January 17, 2008. In basic terms, this case was about Busby seeking class action status for a claim that the Brokerage fee charged was unearned and in violation of RESPA Section 8(b). After this case, many brokerages began calling the "fee" a "flat fee commission".
Well, I'm not the CEO of a brokerage nor am I an attorney. I understand that these "fees", by whatever they are called, generate quite a bit of revenue for the real estate companies. I also understand that in 10 years, I have never once witnessed consumer A, who pays the fee, getting more real estate services than consumer B, who doesn't pay the fee.
But, all that being off my chest now, here's where my thoughts have brought me today:
Annie Agent represents Buyer Bonnie in the purchase of a home. Annie looks at the MLS and finds a home she would like to show Bonnie that is listed by Listing Agent Leroy. Listing Agent Leroy has negotiated a commission with Seller Susie and made an offer of compensation to cooperating brokers of 10 apples. Annie Agent is a good, responsible agent and has disclosed to Buyer Bonnie in a buyer brokerage agreement that she will be paid 10 apples plus an orange (i.e. commission + flat fee/transaction fee or whatever you call it) for her real estate services.
Annie Agent, in writing the purchase agreement for the home Buyer Bonnie wishes to purchase, requests Seller Susie to pay all of Buyer Bonnie's settlement expenses. Seller Susie agrees and the transaction proceeds to closing.
At closing, Seller Susie is surprised to see that along with Buyer Bonnie's lender and title charges, she is also being asked to pay for an orange for Annie Agent on behalf of Buyer Bonnie. Seller Susie and Listing Agent Leroy are upset because when Annie Agent showed the listing, that is an agreement to accept the co-brokerage commission offered of 10 apples. The brokerage fee agreement signed between Listing Agent Leroy and Annie Agent also states that Annie Agent is to receive 10 apples (not 10 apples plus an orange) from the negotiated commission between Listing Agent Leroy and Seller Susie.
Is Annie Agent's additional charge of an orange, which Seller Susie is being asked to pay, an interference in the commission agreement between Seller Susie and Listing Agent Leroy? If so, is that not in violation of the Realtor Code of Ethics:
"Standard of Practice 16-16: REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker's offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker's agreement to modify the offer of compensation. (Amended 1/04)"
What are your thoughts on this?
Footnotes:
A few interesting points that have now come up....
1. If the Brokerage is now required to call the "admin fee" a "flat fee commission", does it now fall under "commissions earned" by the agent? Has the Brokerage amended their agreement with their agents to address this additional commission as earned revenue which should be based off the agent's split?
2. Again, since the "admin fee" is now a "flat fee commission", then the ONLY place it should be permitted on the HUD-1 would be line 701 or 702 (Total Real Estate Broker Fees). Many agents have said they are still seeing the fee on lines 1301-1305 (Additional settlement charges).
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Tina Merritt and Assoc. can be reached at email: tina@tinamerritt.com or 757-287-6338.
Our Network consists of both buyer and listing specialists helping buyers and sellers in Virginia Beach, Chesapeake, Norfolk, Portsmouth, Suffolk, Isle of Wight County, Hampton, Newport News and Poquoson, Virginia.
I got a little mixed up with the Orange A and Apple B...It is early in the day. I always pay the transaction fee for my client. When you make a pile of money and then nickel and dime a client on a fee, it just does not sit well with them in the Naples market.
Most of the companies here now charge it and some have ammended their listing contracts to include it.
I'm not sure where it is all going to go, but the buyer should not have to pay for a seller listing the home or a service fee to the listing agent. I see that here a lot with REO agents.
The buyers have no relationship with sellers and should not be asked to pay the fee, but I do see it.
In many cases if they got the house for a great price, they will pay it but IMO it is not right.
HA -- I love the title of your post!!!
Fees disclosed up front at the beginning of the relationship are disclosure and they are what they are. If an agent is getting the lionshare of the commission and they have heartburn over the house being compensated, then the answer is simple, the agent pays the commission on behalf of the transaction.
Oh man, don't get me started on this. I wrote a blog called: DO THE MATH! Which Company is Right for you? (which basically outlines commissions and fees for agents looking to change companies.
In it, I said:
"If a homeowner is already paying quite a bit in commission (let's say $5,000 - $30,000) for you to sell his house, the COMMISSION should cover everything. $349 tacked on as a "transaction fee" or "brokerage fee" is nothing more than an attempt by a broker to get more $$ - at YOUR CLIENT's expense. He can't charge you because then he can't advertise you get 100% of your commission - so instead he's charging YOUR CLIENT. If the listing belongs to the broker, isn't the broker's FEE the commission?!?!?!? Personally, I find this rather slimy.
Side note: Is it any wonder our industry is looked at like used car salesmen when new brokerages are trying every which way to get paid so they can claim they pay their agents 100%?"
I understand the big box companies are competing with companies who are offering higher and higher splits. However, charging another fee (for nothing, I might add) isn't the way to make it up. A better way? How about cutting down on extensive overhead (do you really need a 10,000 sf office in a high rent area when most agents work from home?) and trimming the fat (personally, I'd rather have 5 experienced agents than 50 who don't do anything!)?
Here's another thought - As a Realtor, we have a fiduciary duty to our clients. If you saw your client being charged a fee for nothing by someone else, you'd step up to the plate and stop it. If a transaction fee isn't in the best interest of your client, then you are breaching your duty by charging it.
I'm not sure that I totally understood the above(apples/oranges), but the Buyer Agent in no way should be attempting to charge the Seller side of the transaction any kind of fee !!!!!!!
Gosh - I'm hungry for some fruit salad right now! We do charge a conveyancing fee -- to both buyers and sellers. But a) is is upfront and on this listing contract for sellers, and b) is both upfront and on the buyer agency contract AND on the agreement of sale. You can't say that we don't disclose it to everyone! Is it fair? Well, that's certainly open to debate. On the buyer's side -- I sure think it is. While I am getting paid by the seller, my conveyancing department is doing a lot of work on behalf of the buyer after the contract is accepted.
On the seller side? You could also argue either way. But that money goes to a crack team of conveyancers who make sure the transaction goes smoothly. Well worth the money, in my opinion.
We have a blank on our listing agreement for the administrative or marketing fee. It gives the choice of paying at the time of listing or the time of closing. Any amount can be entered from -0- to whatever.
Where I have run into trouble is with the buyer's agency agreement which also has a place to plug in an additional fee. I have only had it show up on a HUD once or twice for the seller to pay as part of the buyer's closing costs.
To protect my sellers, during negotiations I always put a cap on what the seller is to pay by stating the seller is to pay buyers' closing costs and prepaids NOT TO EXCEED $3000 or whatever the figure is agreed upon. If a marketing fee or administrative fee or a 'pig is a pig' fits in that amount my seller is not hurt because the amount was negotiated up front.
Ultimately, if the seller is willing to pay $3000 in closing costs then the seller would have come down $3000 in price for a cash buyer so who is really paying?? The buyer has just financed their closing costs into their loan.
Great post. Being forewarned is being forrarmed. Being sure to put a cap on what the seller is paying solves a lot of problems.
I don't like those fees but I don't think it interferes with the listing agreement.
In Georgia, seller paid closing costs are very wide open as far as what they can be used for. In your scenario, the seller agreed to pay a certain amount of closing costs and they shouldn't worry about what the buyer uses it for. That's the buyer's choice. Would the seller be upset if the buyer selected a high cost closing attorney to do the closing vs. a low cost closing attorney that the seller knows?
Our contract has a blank for the listing agent and client to fill in. I know this is a source of income for the company, but it is difficult to explain.
Tina,
While I am not a supporter of these fees, I don't think that it interferes with your example above. After all, seller Susie agreed to pay for ALL of buyer Bonnies settlement expenses. If she didn't want to pay for certain expenses, it should have been in the agreement.
Rich
Once again, we have BROKERS acting badly. The local board knows what they are doing yet do nothing to stop it. These BROKERS that force their agents to enter the "fee" into the MLS data sheet even go as far as to announce their secret agreement between themselves and other dis-honest BROKERS that waives such fees. If your BROKER doesn't join in on the charade, you pay the fee.
My brokerage has such a fee. It is actually written into our listing and buyer agreements. It is to cover "transaction management". Most sellers don't mind it, but there are a few that do. Buyers wonder about it, but for the most part go along with it. Those buyers and sellers who don't agree with the fee get to cross it out, well we still have to pay the fee - but it doesn't come out of the buyer or seller's pockets, it comes out of our commissions. Personally, I think it sucks...but unless I'm willing to switch brokerages, I don't see the use in complaining about it.
We had a marketing fee of $150 then it became a brokerage fee of $199....I don't like it and I sometimes split it, and we are a large franchise. I would have no problem with it if it was explained to me where it goes we have a full time corporate attorney a phone call away and he can't be cheap...but!
If the seller and the sellin agent have agreed to this fee then fine. The relative merits of the fee itself are a differnt issue than what you ar bringing up. So when the buyer gets the good faith estimate ,hopefully when they are still in due diligence and see this fee it should be brought up then. If the buyer is ,in this case expected to pay this fee then it should be disclosed WAY before the closing. In fact it probably whould be included in the listing on the MLS in agent to agent remark, so everybody knows up front. In your example the seller agreed to pay the fee then slipped it to the buyer who had no idea. So regardless of whther this fee is good or bad( personally I find this type of fee objectiopnable) disloing to all up front along with other costs would have avoided the situation
Gregory - I think I see a new HDTV show brewing now! "Brokers Behaving Badly"!
Rich - What if Agent Annie were charging Buyer Bonnie 20 additional apples and those apples were tacked onto the HUD as "additional commission" - would you feel any differently?
Kay - I hate that blank. It is difficult to explain.
Tim - I agree with you, somewhat. What if the seller agrees to pay "up to" $XXXX for the buyer and the buyer's agent increases her "flat-fee" to go all the way up to the $XXXX amount? With the new disclosure guidelines that came out with regards to the HUD-1's and GFE's - shouldn't there be some sort of disclosure as far as what the seller is paying for on behalf of the buyer with regards to additional commissions and brokerage fees as well?
Barbara - but isn't the issue here that what the seller is being asked to pay on behalf of the buyer are additional commission/brokerage fees? So, isn't the buyer-agent going in the back door way of re-negotiating the commission offered by the seller/listing agent? Because, at the end, the seller is still paying it.
Richard - you are the first agent I have ever heard of who can show what that fee is actually paying for and there is value to it. That being said, if the buyer doesn't pay it (due to the lender disallowing it or the buyer just not being able to afford it), and you work for the buyer, then who pays it?
Michael - i agree with you
Victoria - I hadn't thought of the fiduciary duty part of it - that's VERY interesting. We now have a seller addendum stating that the seller will not pay any of these fees charged by the buyer-agent (And I also added the verbage to the Brokerage Fee Agreement). It causes some friction at the closing table, but our seller hasn't gotten stuck paying it.
Concord Real Estate - but, in this scenario, if the seller is being asked to pay the Brokerage fee on behalf of the buyer, and the only verbage in the contract is "seller to pay $XXXX toward buyer's settlement expenses" then how is that considered disclosing the Brokerage fee to the buyer up front?
Pam - thank you.
Missy - as usual, I agree with you. Since most banks refuse to pay it, the listing agents are trying to pass the fee onto the buyer. If the buyer has a signed buyer-brokerage agreement with their agent stating a mutually agreed-upon amount to be paid to the buyer-agent at closing, is the listing agent now interfering with THAT relationship by charging the buyer a Brokerage fee?
Marcia - yes, from what I understand, many agents are paying the fee rather than charging it to their clients. If that's the case, then why don't the Brokerages just charge a transaction fee to the agent instead of the consumer?
I have argued about these fees since i got my license, (six years now with the same broker) her answer was always "everyone else does it" My broker finally listened to reason and dropped the fee.
In your case I would be interested in seeing how the contract was written regarding the closing costs. I thing the seller could argue that the buyers commission is not strictly speaking a closing cost, any more than advance taxes paid to an escrow account, or the cost of property insurance or a survey are. It should be clear in the contract,however, exactly what is and is not defined as a buyers closing cost to be paid by the seller. I dont see how the transaction fee can be considered an interference in the commission agreement between seller and listing agent. This was clearly the buyers agreement with her broker (seller and sellers broker are not involved.)
How is it different than other commission? Aren't the lawsuits over it being "after the fact"? Undisclosed?
Let's face it, this fee is never going to go away. So call it what you want. Put it anywhere in the listing agreement. Collect it from the agent if the agent fails to collect it at the settlement table for the broker. I'm always surprised that buyers and sellers don't object more often to the fee. They're signing all the papers, signing the listing agreement, signing the contract of sale, signing, signing, signing. Now this "fee" is buried in the "compensation" paragraph. It used to be a separate page, but, I guess that it created too many problems.
I remember one buyer, who objected to the fee - an attorney - and flat out refused to pay it. I explained to the attorney the fee would be collected either from the attorney or from me by the brokerage no matter what the attorney/buyer wanted to do. I further explained that I work hard for my commission, would work hard for him, and hoped that he understood that I wasn't going to pay the fee on his behalf. The disagreement between myself and the buyer over this fee ultimately damaged my relationship with the buyer. And the fee was brought up by the buyer again and again. As a result of the fundamental way in which to handle this fee, the buyer ultimately didn't buy working with me. Of course I was disappointed. You see, I get paid when something closes. And, this transaction failed to close, so I didn't get paid.
Moral to the story, hmmm? Sometimes we just have to suck it up and pay the "fee". In this case I probably could have written it off as a cost of doing business and gotten a dollar for dollar deduction on my taxes, but, it became a principle thing on both my part and the buyer's part (I'm not going to pay it ... and neither am I), and since I really didn't feel like giving this buyer a $349 "closing gift" ultimately I lost the buyer!!! Silly me, a pricipled disagreement over $349 and I lost $3,490 in commission (after splits) or whatever number. So much for principles.
My previous broker at a franchise I belonged to tried to institute a mandatory transaction fee that we would have to pay if our clients wouldn't. It seems that they were not making enough off of us and our clients with fees for everything since we are not really Realtors of the franchise as much as profit centers to exploit and vicariously the public. The fee was scrapped when the whole office said thianks but we are leaving the firm. Then without telling us they made a policy that they would take a good chunk of our transaction fee if he charged one and then took a split on the difference accroding to our agreements. Needless to say if feels great to be an independent.
We've worked for brokerages that charge that penalty fine fee, and I would say that most of our sellers DID mind paying it. They couldn't understand how a company who is making several thousand dollars on the sale of their home can have the BALLS to charge another BS fee on top of it. Many paid it, most did not, which means we were left to eat it ourselves. We just so happen to agree with our clients: any and ALL expenses your brokergage incurs as a result of selling someone's home should be covered by the commission you earn. Period. We have fixed this unfortunate situation in a most extreme way: we started our own brokerage.
NEWS FLASH: We do NOT charge this ridiculous fee to ANYONE, and never will. Period.
Great post topic Tina. If you were hoping to spur a conversation and incite strong opinions - MISSION ACCOMPLISHED! Have a great Friday! ;-)
I have not heard of offices in our area charging this fee....making in mandatory that is....I pay for my own transaction coordinator....never have charged my client...buyer or seller the fee...but other agents I have heard of doing this...I guess because in my office it is an option to use a TC...not a requirement. I know I couldnt' do what i do with out one...so I use her and gladly pay the fee...I haven't ever understood why I would ask the client to pay it?? Maybe I am missing something...I also couldn't ever justify it as a commission....I mean in our office that fee goes directly to the TC....she is contracted...they don't take a split out of it...Interesting post for sure!
Stephen (#19) says it best - I always have to weigh the expense of an upset buyer or seller at closing when they see the fee again (even after having it disclosed to them at the beginning of our relationship - that could have been months ago!). Some buyers have even called it insulting. I consider it a cost of doing business and believe that my hard work will be rewarded in the future with referral business. I can't stand the fee but it's not going away!
Wow, interesting scenario. We are not required to charge these transaction fees. In fact it took quite a hoo ha to get our state real estate commission to even allow agents to charge them. Some of our larger teams regular charge them to both buyers and sellers. I do not. When I was an assistant on a team, I was always embarrassed to go over that part with clients. Sellers are already paying a commission, and in their eyes a hefty one. When buyer agency first came here to Maine, the argument used to convince buyers to use their own agent was that they did not pay for it. The fee section is listed in all of our buyer and listing agreements and I make a big deal about the giant $0.00 that I put in that blank.
Tina, we had those fees for years. When news of Busby v. JRHBW Realty, Inc. d/b/a Realty South, Case No. 06-15308, 11th Cir. January 17, 2008 reached our Broker they eliminated it. Thankfully.
Great job Tina,
I agree 100% with you. I don't think I could work for a company that is forcing it's agents to charge their clients the fee. It sounds like just another way for the company owners to get more money from their agents (employees) and their clients, and it certainly is not putting the client first, it is putting the owners profits first.
I only know of one national brokerage in our area who charges such a fee to their client be that a seller or a buyer. Some of the smaller 100% commission shops charge such a fee in addition to the small monthly brokerage fee.
My understanding of several recent lawsuits is that charging administration and transaction fees may be RESPA violation. Our brokerage policy is to not charge these types of fees.
I know many agents who complain about all the morey their brokerages take in. I owned and operated a brokerage and I understand it's not easy for the brokerage to generate a profit in today's environment. Higher commission splits to the agents and increased costs have driven down profitability. It's the reason we're seeing larger brokerages. Since the profit per agent is less, you simply have to have more of them to generate a profit.
I closed my brokerage, found homes for 35 agents, and associated my company with a national brand. I came out ahead in the deal. No more commercial leases, no more E&O, no more supervising agents, etc. I'm actually more profitable and I have a lot less stress.
I wrote a new blog entry about this issue.
Tom
The fee is simply a way for the brokerage to extract more money- no attached benefit.
It would seem, if the fee were not typical of an area, that rather than being part of the offer (closing costs), it should be identified as a request SEPARATE (not contingent) upon the offer, in much the same way that a buyers agent can request additional apples from a listing broker/seller when a listing company/seller has declined ANY apples to a buyers agent, or too little to cover the buyers agent- and the buyer seeks to have a suffient amount covered so that they have no out of pocket expenses. My understanding (correction welcomed) is that it is perfectly OK, separate of the offer, to request the addition to be supplied out of the fee offered to other agency representations vs. buyer agency, but it can't be an element of the contract itself, because that does interfere with the existing agreement between seller/listing company. Would seem to apply to the fee mentioned...what's the fee for, exactly? I feel for those stuck with it.
I completely agree with you that this fee violates the SOP, at least when imposed by a buyers agent on a seller. I also agree that no client ever being charged the fee has gotten service above and beyond those not paying it. Why not call a spade a spade and increase the commission percentage. I charge my client once, and once only - and it's called commission. If you aren't getting paid enough there, then increase it...if you can find justification.
I am a buyters agent and my buyers agent agreement makes it clear that my client pays my firms fees NOT the seller.
I agree with the fact that if no extra benefits are being given then the charge seems to be wrong. Most in our area have it and everyone has a different spin on it but as your post title says....
It's bad enough negotiating a contract between buyer and seller let alone haggling with our own clients about these fees. These fees become a reflection on us as the agent rather than the broker. In the client's mind they are working with us, not the broker - and the only way to avoid confrontation is to absorb them ourselves making it one more expense realtors are paying - and a flat expense, rather than a percentage, at that.
Last summer a bunch of us agents went "shopping" and a Realtor friend of mine made a spread sheet. She put in all fees: monthly/split/transaction/marketing/etc. She used the median price or area homes sold. This was a big eye opener and some people would be amazed how much they are paying even when they are led to believe they are on higher splits!! Some brokerages were only paying out 30% to their agents.
That being said, I can see why some agents go after getting their fees paid by buyers and sellers. Me, I am at a 100% shop with a tiny monthly fee and a transaction fee that is very low. I just pick up the transaction fee and call it the cost of doing business! It amounts to an approximate 5% split on my average transactions.
Are we talking apples and oranges???? lol One of the reasons I switched to the ("virtual") brokerage I am with currently is that there are no "B.S." fees.
AND, when searching through the MLS, I do everything in my power to avoid showing listings that state they will be charging any extra fees.
These "BIG BOX" brokers need to realize that agents do not necessarily need THEM to survive, THEY need the AGENTS to survive.
This is 2010, and 'VIRTUAL BROKERAGES" are popping up everywhere. Those brokers need to wake up and smell the coffer (along with the apples and oranges).
I have been jumping up and down about this since I entered the business. My first firm charged this fee to both sides of the transaction, even though no benefit could be established for the fee. The broker claimed that the mere fact that his company is now required to "Keep and store" records for a longer period of time, is evidence that the fee is for a service. But RESPA says we can not charge a fee for service "after the fact." Storing records is after the fact and that fee was a BS fee for the Broker to earn more money.
Someone above illustrated the use of that money in terms of a department doing work between accepted offer and closing. Don't we all do this? Either there is one closing agent or a whole department, but keep this in mind: they are receiving a salary, and I'm sorry to disagree but it is part of the cost of doing business. And we should be running our business based on our commission structure, not additional fees, just because it costs money to run a business. That argument did not hold up in the lawsuit.
I was embarassed to discuss this fee with both buyers and sellers, but I had to discuss and disclose it to them, and I ended my little explanation with, "But I will be paying that fee." It cost me $350 per transaction.
Once the Busby decision was handed down, my current brokerage finally, finally, ceased charging that damned fee. Consumers get Nothing for that fee, and I don't care what it is called. It is just a rip off and they should absolutely go away everywhere.
It is hard to argue with your post. However I work for a totally fee based company so that is basically their only source of revenue. They don't get a split from me. Just the fees.
In 1987, as our "Merrill Lynch" Realtor was writing up our offer, he passed before us some paperwork that included a misc $50 fee. What's this, I asked. It's a transaction fee (or some such thing he called it, I don't recall exactly). Well, cross it off, I said. I can't he replied. We have to include this. It's required by the company. "Come on kids. Let's go I announced as I prepared to gather up 3 impatient daughters to move on"
Realtor: You're going to walk away from this for $50?
Me: Absolutely! Are you?
I don't blame Realtors. After all, there are Realtors today who actually believe tall kinds of nonsense .. for example, "the seller pays their commission." Honest. As outrageous as it may seem to believe, I swear, some Realtors actually believe that.
Hi Tina, If your question is the correctness of charging an additional fee that question is being answered by companies no olonger doing it. If the question is aimed at the listing agent passing a charge thru to the selling agent it would seem a lawsuit waiting to happen. Have a terrific Memorial weekend !
It's a pig!
I agree, shady business to say the least. . . by the buyers agent to just float that out there and let it surface in the 11th hour of the escrow. We see stunts like that in our neck of the woods with short sales -- like those transactions need anything else to make them any more difficult to close.
Good post.
My vote = in the above cooperative commission split agreed to for a listing & showing of 10 apples period . . . --> this is a violation of ethics
If an agent uses a transaction coordinator, then a case can be made for a transaction fee. Personally, I consider that a cost of doing business, and not something that should be passed on to the client.
No way should the buyers agent be allowed to do this. Compensation is agreed between seller and owner and how much to pay buyers agent. Buyers agent gets whats disclosed and if he wants the orange he has to collect that from his client.
There is nothing like this to confuse and upset our cleints even more than they already are.
Super Friday post to make sure we are all awake before a holiday weekend!
Hi,
I think this is the wave of the future. Companies that charge their agents a nominal monthly fee(under $100) and charge the agents fees on all of their sales. They tell the agents to try to pass some or all of the fees on to their sellers if they do not want to pay them. These fees can be put on the listing ( marketing) agreement. That way the company gets paid from the fees and the agents do not pay a % of thier commission to the company.
Joan Carrier, Holland , MI
Well written Tina and congrats on a well deserved feature. AND it's a great question. On one hand the SELLER did agree to pay BUYERS fees. Not up to or only anything.... but on the other hand the question still remains; does this alter the listings offer of compensation? It is shady area... anyone from the board of REALTORS® care to comment?
Junk fees are junk fees. Lenders do it all the time. My opinion is:
Just because it is disclosed doesn't make it fair or ethical.
It's the same when Brokers charge their agents a "franchise fee". It's just another way to get more money out of someone. And we wonder why Real Estate Agents and Mortgage Brokers have bad reputations?
I am always in shock and amazement when I hear about aqn agent charging a client (buyer or seller) an transaction fee or "storage" fee or whatever you want to call it.
And even more shocking to me is that people actually can look themselves in the mirror every day and justify it too themselves.
What other "profession" does their job and then charges extra for the paperwork? How would you like your doctor to check you out, and then tell you that he has to charge you $350 to write notes in your file?
Seriously people, charging a fee to do the paperwork. That is desperate and lame.
And if your using a transaction coordinator to make your life easier so you can sit on your ass and watch tv instead of working on the file, then YOU pay for it.
Sorry, just like Tina, this subject makes my blood boil.
Junk fees are junk fees. Lenders do it all the time. My opinion is:
Just because it is disclosed doesn't make it fair or ethical.
It's the same when Brokers charge their agents a "franchise fee". It's just another way to get more money out of someone. And we wonder why Real Estate Agents and Mortgage Brokers have bad reputations?
I think this is really a problem with the relationship between the brokerage and the agent. If I "had" to work for a brokerage that charged this fee, I would pay it out of the commission on the buyer's behalf. Fortunately, I have never had to do this.
Greedy brokerages make everyone look bad. But, it takes A LOT of money to support the lifestyle many of these brokers have. Apparently for some, it takes more than the monthly rip off, more than the inflated E&O premiums, and more than the 10-40% of their side of the split to make ends meet.
Tina,
At my old broker we paid a transaction fee of 6% but that fee was not paid for by the buyer or seller. Well in essence I guess it was paid for the seller because it came out of the commission but it wasn't added on to the commission due. It came off the top of the commission check made payable to my old broker. They paid 3% and I paid 3%.
I would like to jump on board as calling the admin fee a pig! it is what it is. Certain companies were taken to court on these "fees" and I feel the result was they told these companies it was basically a bogus fee, they did not do any additional services for these fees, and can not charge it. So, the big companies went back, changed the name of the fee , called it a commission ( oh so now you want 3 kiwis plus the fee) and went back to charging it. I am interested to see what happens when another legal savvy buyer/seller says hmm... I dont think so and takes it back to court. I see a lot of comments on disclosing the fee and so then it is okay.. I am not sure I agree w/ that... disclosure does not necessarily make something legal. the admin fee was clearly disclosed yet not legal. and on "the seller should just pay for it as he agreed to pay all the buyers closing costs...." I am not sure I agree w/ that either. it would depend on the wording on the contract w/ the buyer asking for seller concessions. If the seller agrees only to pay all closing costs... a closing cost is ONLY anything REQUIRED to close the loan... I don't believe the fee falls in to this category... the concessions would have to be worded to include " prepaids, any and all aquisition expenses" and if we see this on our seller's contract in an offer to purchase we write on the counter: "Seller does NOT pay any admin/ brokerage transaction fees"
This is a garbage fee, just like title companies, escrow companies, and lenders have. I have always felt that "underwriting", "document processing", "sub-escrow", "hoa transfer management", etc are part of doing the business and should be included in the original fee quote. Direct costs such as courier service, FedEx, and county transfer tax and recording fees should be passed along directly.
If consumers allow it, it will continue and eventually become an "industry standard".
If you are an agent, and your broker requires it, you can either go along with it, or vote with your feet by changing brokers.
Wow - I had no idea my late night rant from yesterday would generate so much discussion. Y'all are awesome!
I've added a few after-the-fact footnotes to the post....let me know what you think.
Oh - and please be very careful about mentioning commissions and percentages in your comments. We prefer to speak in terms of "fruit shares" here.
I have always had an issue about this extra fee that is charged. Some call it an added expense for meeting the document storage requirements (please, how much money is involved in storing an electronic file?). However, shame on the buyer for allowing his/her agent to keep some of the closing costs meant to benefit the buyer. And shame on the seller and their agent for not specifying a cap to the closing costs. Stating that they would pay "all" of the buyers closing costs is way too broad.
I also have a issue with the extra fees, we nickel and dime clients, lets face it, brokers make that money, that's why they are brokers for the money. Is it not the broker taking responsibility for the transaction, right. Thats they way the game is played.
Seems like everyone has some sort of justification for charging the fee - administartive expenses, conveyance expenses, office overhead - whatever, it's all a part of the cost of doing business.
Personally, I think the fees are just another gouge - just like the buyers agent fees listed in MLS, example 3% - $300 .... that's just garbage.
On the lower priced listings, when the "fee" is deducted from the buyers agent's end, it results in a net commission to the buyers agent of less than 2%!
The rationale that "Everybody is doing it" just doesn't work - (it didn't work when I was a teen trying to convince my mother of something and it doesn't work now either)
ohhhhh....DO NOT get me rolling on this! :o)))) I had a listing one time and a co-broke put it under contract, it was an FHA deal so the seller was paying some closing costs...we get the HUD settlement statement the day before closing and there is a line item for a "brokerage compliance fee" of $100.00 being charged to MY sellers! I SAID "OH NO YOU DIDN'T!!!!!" I promptly looked up an article online from our State Association magazine that said a buyer broker cannot make a seller pay a FEE that should be charged to the buyer as a CLOSING COST! I sent that article over to the broker and informed them that they can eat their fees because we are not paying!!! My seller didn't have to pay the fee.
It's interesting to see how different regions handle these "Transaction Fees." I've worked with 3 different brokerages in Washington State. Beyond the commission splits (everything from 50%-100%), each brokerage had transaction fees (fixed amount) and sometimes "professional services fees (usually an additional (3%-10% off the top before split). Transaction fees were always charged to the Real Estate Agent. I have always understood it to be another way Brokerages make money. Nobody questioned it at any of the offices I've worked with. In fact, at one Brokerage, I had to point out to fellow agents the "Professional Services Fee" the office was skimming off the top of our paychecks. They didn't even notice. These were not line-itemed to buyer/seller as a standard operating proceedure in our area.
Now, sometimes buyers' agency agreements stipulate an additional fee to be charged to the buyer for any number of reasons. It's up to the agent and their client to agree on that. I've seen that additional fee the buyers are supposed to pay passed on to the seller as additional closing costs. The question then went to escrow as to who is supposed to pay that. So far, I haven't seen any Escrow company step up to the plate to say that No, they shouldn't pay it, and so escrow sets up the charge to the sellers for the additional spiff for the buyer's agent. I don't know if this is 100% kosher and legal here, but it seems that this conversation should not only involve brokerages & attorneys, but escrow (for those of us that have escrow) as well. This is exactly the type of issue we have a neutral 3rd party there to facilitate.
Following up to your question, " if the buyer doesn't pay it (due to the lender disallowing it or the buyer just not being able to afford it), and you work for the buyer, then who pays it?"
If the buyer or seller can't/won't pay it., I do. Out of my commission. Not my favorite thing to do, but if that's what it takes to close a transaction, so be it.
What it comes down to, in my opinion, is that broker's can't run their business on what they make from their commission split. They make up their loss with fees. Geez, life used to seem so simple...
I also hate this fee. Our office implemented this about a year ago. Why? Because we were losing money every month. The "broker fee", believe it or not, was keeping us solvent. This fee generated $11,000 in revenue just last month. Our company charges far less than other companies in the area. Unfortunately, if consumers have to pay it, they may as well go with a company that charges less.
I used to charge a transaction fee and don't anymore to be competative. You should be able to charge one or not. Maybe a new company? Doesn't seem that management is listening as you & others feel so strongly about it.
I like the other fee to that selling agents charge on foreclosures now, $300 to close - buyers pay. End of story. That's not right either.
Wow, this one touches a nerve for a lot of us. I had an apples/oranges transaction like the one described with the seller paying the buyer's closing costs. Seller refused to pay the ($395) brokerage fee and so did the buyer. Of course, I paid it. It was a small transaction so it was a HUGE hit to my commission. But walking away from the table would not be the right thing to do....
I pay this for my client and I think my broker should be compensated for archiving the file for the next 7 years and having it available for the client. I would like to see it be more of a minimum fee to the Broker once I get to the 100% commission level each year. I never even thought of charging it to the Seller as part of my client's closing costs. Something I'll have to think about?
Hi Tina~ I used to work for a company that charges that fee. If my clients fussed about it, they didn't pay it. I did not make them! Their argument was, well then I'll pay less in commission then, but I won't do both! I never ever paid it if the buyer or seller refused.
The additional fee can be listed on the HUD and changed to the buyer or seller IF, AND ONLY IF the fee being charged is for someone else besides the normal scope of business and the additional fee has to be proven it was utilized for someone that was an extra expense.
We just went over this in an office meeting because one of our agents was extending the transaction fee to every buyer and seller. Since she wasn't providing a service for the transaction fee, it is a violation of RESPA and she is no longer able to change the additional line item fee.
Ours is a paperwork storage fee, explained that if the client ever needed copies of the paperwork, it would always be there. I thought I had an opinion when I first read the post, but after reading everyones comments, I'm not sure what I think. Well, I think I need some sleep.
I own my own company. I have never charged a transaction fee, and I never will.
Back when I sold cars, dealers had a service charge, a fee you were taught to say, it pays for prepping the car etc. Most folks did not pay it but you could not strike it on a buyers order, so you backed up the numbers to accomodate. Hedge and haw all you want, most folks are not going to pay. In Atlanta you must pay the mls for a transaction, it is $120.00 per every $100,000 of the sale, so, a $500,000 sale costs the agent $600.00! (selling & listing side!) Then there is an E&O charge in our company, as a broker, anymore charges an agent might have to absorb would be excessive.
All I can say is that I have never felt good about tacking a $350 fee onto what a buyer was already paying. I don't think it's fair and I don't think it is right. When it comes to listing agents and sellers, that is all on their side and whatever expenses they incur are theirs to pay. Not a buyers obligation. Now I do understand if they buyer is getting a sweet deal that they pay it without complaining but does that make it ok? I am thinking no on this one!
Hi Tina - I do personally charge a fee when taking a listing. However, I disclose the fee up front to my clients and the fee is addressed in the Listing Agreement. In almost 8 years in the business I have had maybe two or three clients object. In those cases I simply waived the fee. I'm surprised to hear that some Broker's force a fee to be charged. My Broker has never forced a Transaction Fee on a client. Infact, Every agent in our office has the ultimate ability to decide if they will charge a fee, Each agent also has the ability to waive the fee if necessary.
Best wishes,
Matt
I became my own broker to set my own rules, where available. I give the choice to my sellers between an up-front flat fee and my usual commission.
The Brokerage I work for does charge a transaction fee, if we don't collect it we pay it. I agree, it is a junk fee and should be eliminated.
I had a buyers agent one time, that tried to place that fee on my sellers side. When I looked over the HUd, I told the title company to take it off the sellers side, He and the agent tried to tell me, it was part of the fees my seller agreed to pay. After I told them both ,that a brokers fee, was not a closing cost, loan settlement fee, or a prepaid item, they had to agree with me. A real estate broker
fee is not part of a normal closing cost. at least not in my area. Great post, I will not be charging my seller any thing above the commission, If I cannot make a living then maybe I will just have to sell more to make up the difference, But the large company doing this, Know that most of there agents end up paying most of the time, So glad I do not have to put up with that crap anymore,
Tina: Thanks for bringing up this white elephant of a subject. I always get a creepy feeling about these.
Tina,
Great post. If Real Estate agents would act more like business people as opposed to sales people they would band together as one big group and fight back against what the "big agency" wants. I believe it is not only a RESPA violation but is actually a contractual violation. Annie Agent is paid by the Seller thus she is not allowed to actually be paid by the buyer as you can not represent both sides of a transaction regardless of "disclosure". Disclosure was not designed make a conflict of interest go away. I left the real estate industry 18 years ago because big business was taking over and in the process taking away my "liberty". That's right my right to choose. I was requested to use their title company, their mortgage company, their insurance provider, etc.
Brokers can't charge it on a VA loan purchase. At CB, they don't make us pay it in that case, (And I wouldn't). They do make us pay it any other time, when we can't get the buyer or seller to pay it. The way I see it, if it's acceptable to not charge it on a VA purchase, then how can they demand it on any other. That sounds like a lawsuit to me.
1. All commissions are negotiable.
2. The listing agent and seller negotiate the commission amongst themselves and agree how much to compensate buyer's agent. It is an offer of compensation and cannot be negotiated by the buyer's agent later. (yes there are agents around here who don't understand that)
3. If a buyer's agent wants to charge his buyer a FEE, a COMMISSION for his work, then that's his choice. He can set his fee and if the buyer won't pay it, then he can find another agent. It is his fee, his commission, and should not be named anything else.
4. THis fee needs to be on the HUD1 up in the 700s, not in the bottom. It is commission. Period.
I would never affiliate with a brokerage that required this BS. My relationship with my client - Seller OR Buyer - is just that... MY relationship. What I negotiate with them is between them and me. What I negotiate with my brokerage for fees or splits or whatever you want to call it, is separate from my client relationships. If we are independent contractors, we should learn how to run our own business. I have always thought the "transaction fee" or "admin fee" was wrong. If you need to charge more, call it what it IS - commission.
When everything is disclosed at the beginning of the relationship, rather than sprung on someone after they've committed to doing business with an agent, then there's not much to fuss about. I think the whole separate fees for transactions is weak. Ultimately, when we're chargining our clients several thousand to provide service and then making it 'several thousand plus $150', it seems pretty petty. Not disclosing that that fee is there, at the beginning, before the client has signed, is definitely PIG.
Try this scenario: Buyer's broker does not have reciprical agreement with sellers broker. Sellers broker offered 10 apples in commission in MLS. Sellers broker would receive 14 apples. Buyers broker makes up the difference by charging seller a transaction fee of 2 apples, disclosed only once HUD is complete. Seller's broker in essence had to split 50/50 without a reciprical agreement. He backdoored his way into that one. Ethical???
its a pig lets call it that
Quck question for those that hate that their brokerage charges this fee:
Why are you there? Why not find a broker that doesn't charge it?
Wow, I can't believe that brokerages charge this type of fee and that agents go along with it, grumbling along the way or not. That is no better than behaving like a used car salesman. (No offence to car salesmen)
I can't imagine trying to justify such a fee to my agents, let alone them having to justify it to a client.
I think our company and our agents reputation is worth more than charging some ridiculous money grubbing fee......
I worked for a franchised company that charged these fees. And, I got a lotta flak from sellers. One of my clients was a guy who gave me four homes to sell only to later find he had to pay these fees he knew nothing about because he didn't read the contract carefully. His fault....but, if he had - I would not have gotten the four. I sold three of them and promised that if he used my services again, I would make up for them.
If someone works for a broker that mandates that they charge fees they don't believe in, they should either change brokers or start their own firm. I started my own firm so I could call my own shots.
I am not going to claim I read all the comments, but I agree 100% with J. Philip; this is a great reason to change brokerages! That is the only way the fees are going to go away - when the agents take a stand for their clients.
Changing brokerages or starting your own company makes sense to me. It's an interesting concept to consider whether this scenario is in opposition to the listing agreement.
Well I guess I just eliminated a potential future broker due to the pompous post above. Wow.
I only read about half way thru the responses but I did read the blog twice to make sure I understood what she was explaining. First of all most responses I read missed the blog completely. The fee in question was not from the Listing Agreement but came from the buyer agent agreement with the buyer and brokerage, then this fee got added to the sellers closing cost as a buyers closing fee.
This is a gray area I believe and listing agents need to be very careful what they agree to on a purchase agreement. First off I think the commission should be what the listing agent offered in the MLS and not a penny more. A transaction fee should not be considered a buyer closing fee in regards to the HUD as this was an agreement between the buyer and their agent. Sounds like we are going to add another page to our purchase contracts. When will it stop.
United Realty - You are correct. I tired my best to explain it thoroughly, but I guess some people got it confused.
Mike - yeah - some folks need to learn their manners when it comes to commenting on blogs.
Christine - I don't think it really matters if it's in opposition to the listing agreement since that agreement is between the seller and listing Brokerage. The question is if it's in violation of COE and/or RESPA.
Vic & J. Philip - an agent changing companies still won't prevent the scenario addressed in the post from happening.
Leroy - promoting your brand as a comment on someone else's post is rude. Learn some manners.
Beckendorf - It's a shame when agents have to eat these fees just to keep clients.
Connective and Jay - but what do you think of the scenario posted? Is it a violation of COE?
John - thanks for reading and commenting.
Kathy - interesting....I vote "no"
Lynn - yes, I agree. But does it violate COE?
Pat - I agree with you. Call it what it is and stop trying to "back door" it.
Erica - #1-#4 - I agree with all!
Mike - I feel the same way.
Peter - the affiliations are getting WAY out of hand. I saw one for a "preferred" termite company the other day!
Aaron - you're welcome. The baby is adorable!
Darrel - it is crap, isn't it?
You go girl. I personally don't charge a Brokerage Fee because as mentioned previously, why should there be an additional fee for something that is not specfically defined in the Listing Agreement.
Just sorry for the rant... so I removed it. It's very frustrating to see what agents allow their brokers to do. I've been there, until the final straw. Please excuse my rant, it just brought back ugly memories of a past experience. LeRoy
If you have to ask whether or not it should be disclosed, it's always wiser to disclose. That avoids any issues after the fact.
If you have to ask whether or not it should be disclosed, it's always wiser to disclose. That avoids any issues after the fact.
Apples, Oranges......it just seems like this practice is truly BANANAS to me.
My company collects fruit too at the closing table.