HUD Issues Letter Regarding Real Estate Administration Fees

General Council of HUD issues letter of clarification

Helen Kanovsky, HUD’s General Council, recently issued a letter regarding real estate brokers commission fee may be determined by using a percentage of the purchase price, a flat fee, or a combination of both.  The letter clarifies the distinction between using a formula to calculate a legitimate 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, etc.”

The new HUD-1 simplifies the reporting of the broker’s commission since it is now reported in the 700-series as a dollar amount rather than previously a percentage.  The amount reported on the HUD-1 should be consistent to the commission agreed upon in the listing agreement or buyer’s broker agreement.   If they are not, then HUD may review whether the additional services were provided for the excess amount charged.

An example would be an “administrative” fee charged absent any contractual relationship between the listing broker and buyer may be evidence of a RESPA violation.

The HUD letter was issued to provide REALTORS® with some guidance after the recent federal district court in Alabama invalidated a $149.00 administrative fee last year in the case of Busby vs. JRHBW Realty, Inc.

Again, in my personal opinion why would you use a brokerage charging such a fee on top of commissions?

Here is a related story in the LA Times.

Source: San Diego Association of REALTORS® newsletter – March 2010

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