Real Estate Firms Passing Hard Times to Consumers with Additional Fees
Call it a transaction fee, administration fee, or regulatory compliance fee, some San Diego real estate brokerages are passing these fees on to the consumer on top of commission. The fees can be from several hundred dollars or more.
While no one disagrees that times have been hard for many Real Estate Brokerages, adding additional fees to the Consumer in my personal opinion is an outrage.
You can dress up a PIG, but it is still a PIG!
Usually the charge is a result of the Brokerage not controlling costs and/or paying high splits to real estate agents. These fees are designed to go to the bottom line of the profit margin – the consumer looses! In a recent article in the Realty Times the California Association of REALTORS® (CAR) is concerned it also may be a RESPA violation.
What brought this all about is a ruling from a United States District Court for the Northern District of Alabama. The case involved a transaction in which a real estate firm (JRHBW Realty, Inc. doing business as Realty South) had charged its client an Administrative Brokerage Commission fee (the “ABC Fee”) of $149. The client, Vicki Busby purchased a home in Jefferson, Alabama in May of 2004. Ms. Busby had obtained a federally-related home loan, bringing the transaction within the scope of the Real Estate Settlement and Procedures Act (RESPA).
In September of 2004, Ms. Busby filed a suit on behalf of herself and all others similarly situated against Realty South alleging violations of RESPA. She contended that the ABC violated RESPA because it was a fee for which no service was performed. Section 8 of RESPA provides, among other things, “No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service … other than for services actually performed.” [my emphasis]
The article continues:
Laurie Janik, NAR general counsel, put it this way: “The court found that the ABC Fee represented an additional charge to the buyer to defray the overall costs of the brokerage services she received, including the broker’s overhead and administrative costs. However, because the ABC Fee was separately itemized on the settlement statement from the percentage brokerage commission, and not specifically justified as compensation for other discrete ‘real estate settlement services’ provided, the court viewed it as a duplication of the percentage commission charges, thereby rendering it an unearned fee in violation of RESPA.”
As profit margins have continued to shrink, it has become fairly common (though far from universal) practice for brokerages to add one or more flat-rate fees to the commission charged for brokerage services. Commonly, the broker’s reason for making this a separate fee is so that it will not be subject to the commission “split” due the agent. But, as the court found in the Busby case, often these fees do not represent compensation for a specific service rendered to the principal; they just go to general overhead.
In discussions of these issues at CAR it was pointed out that specific add-on fees needed to be demonstrably for the benefit of the principal. Arguably, for example, the use of a transaction coordinator provides primary benefit to the agent and the broker, not to the buyer or seller. Moreover, to be charged at closing, the fee must represent some activity that aided the closing process. For example, charging a fee to provide a buyer or seller with a CD containing all the transaction documents is not a fee for a settlement service. It may be a nice thing to do, but it is neither necessary nor helpful for bringing about a closing.
Some brokerages are trying to get around this by adding the fee as additional commission on the listing agreement – for instance a 5% listing with a $350.00 additional commission. Once again still pretty much looks like a pig to me – but that is again my personal opinion.
My advice, skip paying the fee or hire a Company that isn’t looking to fleece the consumer like the recent Property ID case.
Photo courtesy of Flickr
Any and all commissions are negotiable in California real estate transactions. Not all real estate agents are created equal and commissions are a function of the value provided and how well that is conveyed to the client. You do get what you pay for. You actually cannot “Call it a transaction fee, administration fee, or regulatory compliance fee…” in California either. It is either a Flat Fee Commission or and/or % based Commission. The point of the article sited is that additional fee must equal additional service. A commission is a commission if it is flat fee or percentage based or a combination thereof. My advice, work with a professional that is interested in making your goals and needs a priority.
Any and all commissions are negotiable in California real estate transactions. Not all real estate agents are created equal and commissions are a function of the value provided and how well that is conveyed to the client. You do get what you pay for. You actually cannot “Call it a transaction fee, administration fee, or regulatory compliance fee…” in California either. It is either a Flat Fee Commission or and/or % based Commission. The point of the article sited is that additional fee must equal additional service. A commission is a commission if it is flat fee or percentage based or a combination thereof. My advice, work with a professional that is interested in making your goals and needs a priority.
[...] This post was mentioned on Twitter by jeffreydouglass, Kats Pet+House Care. Kats Pet+House Care said: RT Real Estate Firms Passing Hard Times to Consumers with Additional Fees http://bit.ly/7yg4Q7 [...]
[...] commission – as opposed to an unearned “fee” outlined in an earlier article on San Diego Lifestyle. These fees have been called “admin, transaction, document compliance, [...]