The house that roared
By Matt Carter, Wednesday, May 27, 2009.
It may look like your typical American home, but when this property in Trussville, Ala., changed hands for $187,000 in 2004, the stage was set for a legal battle that could have implications for every real estate brokerage's business model.
The buyer, Vicki Busby, was charged a $149 "ABC fee" (administrative brokerage commission) on top of the $4,675 commission she paid her agent (the agent's split of the 5 percent commission on the sale -- see the HUD-1). Busby's agent didn't see any of the ABC fee -- it all went to the brokerage, RealtySouth, which is now facing a class action lawsuit alleging it violated RESPA by charging an unearned fee.
Such fees are becoming increasingly common in some markets, and often they're even bigger. In a three-part series beginning today, Inman News looks at the legal, ethical and competitive issues involved in charging such fees.
Defenders of the fees say brokerages have instituted them in order to cope with the rising cost of providing services and smaller commission splits with agents. As long as they're properly disclosed, they are both legal and ethical, they say.
But brokerages that decide to charge the fees seem to be running the risk not only of lawsuits by consumers, but of alienating their own agents, many of whom see them as "junk fees" (see Part I).
The particulars of the Busby case will be discussed in Part II of the series tomorrow. For a taste of what's in store in Part III -- which details the backlash by consumers and agents -- check out this Q&A that RealtySouth prepared in 2003, in hopes of defusing the protests it expected from agents when it implemented an ABC fee. Questions addressed included:
Wasn't Realty South "being greedy by imposing such a fee?" Would competitors use the fee against the company? What if a potential client decides to look for a company that doesn't charge the fee? "Why do you keep putting these roadblocks in the way of of my doing business?"
Agents continue to voice similar concerns today, as the fees become more common and larger.
Incidentally, Busby's home is back on the market. It's listed for $169,900 -- less than it sold for in 2004 and 2001. Needless to say, the listing is with another brokerage.
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Submitted by Becky Washam on May 28, 2009 - 3:54am.
I don't see anything "ethically" wrong with as long as clients are briefed up front before they have any vested time with the agents. Of course, no agents will do that and if they did most clients would walk.. I'm sure in this case it wasn't alluded too until a contract was in the works (or worse at closing). Too many brokers/agents try to be sneaky and make the rest of us look bad.
Denton Real Estate
Frisco Homes for Sale
Submitted by Joe Loomer on May 28, 2009 - 7:33am.
The agents have a choice to work at this firm or move on to other brokerages that do not charge this fee.
I suspect in light of the class action lawsuit, many are probably chosing to leave.
Apparently, the firm knew there'd be a feces tempest way back in 2003 and had to rationalize it with their Q & A list.
Augusta GA Homes
Joe Loomer (USN Ret.)
Associate Leadership Council, Growth Chair
Keller Williams Realty Augusta Partners
www.augustalistingexpert.com
jloomer@kw.com
direct: 706-627-2650
Submitted by Lenn Harley on May 31, 2009 - 5:48am.
If the agent working with a buyer has a buyer's agency agreement to represent the buyer, these fees must be disclosed.
However, fact is, most "buyers agents" work without an agreement to represent and simply sell. Buyers are largely under the impression that their agent is paid by the seller and free to themselves.
If a broker is charging the fee, it MUST be disclosed with a buyer's agency agreement or not. An agent who shows homes, provides real estate information, writes offers, etc. is doing so under the agency of their broker. If the broker charges such a fee, the agent MUST disclosed before a buyer makes the choice to work with an agent.
Hiding fees doesn't make them go away. I also know that there is a lot of inconsistency in disclosure from state to state and from agent to agent.
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com
Submitted by Colleen Lane on May 31, 2009 - 8:32am.
There is nothing morally wrong with charging these fees as long as the fees are stated up front. However, I think charging fees on top of a commission is in poor taste.
Colleen Lane
Realtor®, Broker
Kennewick Homes
www.joelane.com
509.545.5311
Submitted by Pat Clark on June 2, 2009 - 2:11am.
These fees are as bogus as all these admin fees by car dealers. As an agent, we are compensating rather well I would say. I would personally feel wrong doing it but I know of other agents who would probably do it if they could get away with it. I guess it's what you can live with about yourself.
Pat Clark
Realtor Assistant
www.DougProcter.com
Submitted by John Ford on June 3, 2009 - 9:10am.
It's sad when some agents "accidentally/on purpose" charge fees that the client may or may not know about. All fees must be disclosed clearly at the beginning of the relationship and hopefully all this trouble can be avoided.
John Ford
Boston Real Estate
Submitted by Steve Trang on June 3, 2009 - 11:27pm.
Although it may be inconvenient for the agent, the agent does have the right to leave the brokerage. The brokerage is there to assist the agent, not disrupt the agent. In the end, we are all our own corporations, and it is up to us to do what's best for our business.
Tempe Real Estate and Homes for Sale
Submitted by Sean I on June 7, 2009 - 11:45pm.
Prior to the buying of the real estate, the buyer and agent must have a clear understanding about the brokerage fee.
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Submitted by Ki Gray on June 8, 2009 - 3:44am.
Personally I don't like extra fees. Even if the agent tries to explain it I think there is always going to be alot of confusion and anger at the closing table. And at the end of the day consumer anger is not good for our industry.
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Submitted by Geoffrey Schiering on June 9, 2009 - 12:12am.
These ABC fees just aren't worth it. The administrative cost of running a real estate business is part of the business model. I don't see a need to nickel and dime our clients for additional transaction fees. That being said, I also believe that agents should be able to charge their clients for these fees if they get an agreement from the client in advance.
San Diego Luxury Homes | La Jolla Homes | Rancho Santa Fe Estates
Submitted by Lyn Sims on June 9, 2009 - 1:51pm.
It used to be very popular business practice some years ago. Our company will not charge the seller unless it is specified on the listing agreement. No surprise fees should be charged above the commission.
Lyn Sims
Broker Associate
RE/MAX Suburban
Schaumburg IL
www.LynSims.net
Submitted by Sean Lee on June 11, 2009 - 1:54pm.
I am very impressed that the market has been back to almost 80% of the peak season's. I really don't feel economy is really great nowadays.
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Submitted by Travis Bohling on June 12, 2009 - 3:37pm.
Brewer Caldwell has had to institue similar fees in our own brokerage to deal with rising costs.
Submitted by Christine Donovan - Costa Mesa Real Estate on June 15, 2009 - 9:24pm.
This is not something I've chosen to use at this time though I've thought about doing so.
It seems to me that as long as it's disclosed, it shouldn't be a problem.
christine@donovanblatt.com
www.donovanblatt.com
www.livingcostamesa.com
Submitted by Doug Francis on June 17, 2009 - 2:31pm.
Heck, everyone else is "nickel and diming"... like those new, pricier appraisals.
Maybe the broker just needs to add .25% extra to the commission and then it would not be itemized on it's own line of the HUD-1.
Buyer agents simply collect a "non-refundable retainer fee" up front when clients sign the buyer agency agreement... it will help pay your gas bills!
And by the way, after I paid an extra last minute $200 admin fee at a car dealership, I was so mad that I will never buy another car there. It was a "short-sighted" incident in a seem-less process that burned any and all goodwill.
I have seen agents shovel s... at closing when clients ask, "what's this $295 fee?"
Is that really the last impression you want to give a referral source?
Doug Francis, ABR
RE/MAX Presidential in Fairfax, Virginia
http://www.DougFrancis.com
Submitted by Michael Taylor on June 19, 2009 - 4:46am.
While I don't see anything ethically wrong it, Doug brings up a great point about leaving that as the last impression for you clients. Legally, I think they would have been fine if a) it was dislcosed and b) it was called something different and actually went towards a cost associated with the transaction.
Mike Taylor
Indianapolis Real Estate | Geist Real Estate | Fishers Real Estate
Submitted by Jolynne Ash on June 19, 2009 - 7:18am.
Jolynne Ash, Broker/Owner
DreamStreet Real Estate
www.jolynne.com
As a firm I would never pass a fee along to the Buyer or Seller over and above the commission.
No doubt times are tough, but this is just bad business. Passing it along to Agents could be an answer if Agents know in advance what ALL the fees associated with working for a particular Brokerage are in advance. Adding more fees along the way does nothing but anger Agents.
In my experience charging one fee or commission split to Agents without any kind of additional fees (including E&O) works best. If you are loosing money, then look at reducing your overhead. Many Brokerages are scaling back on the size of their offices and seeing real savings. My Agents work from home and only come into the Office when necessary. So this past Winter when I reduced our square footage in lieu of raising fees, they were not only supportive but very pleased.
Submitted by Rich Johnson on June 19, 2009 - 5:06pm.
Give me a break - if a company feels the need to charge fees over & beyond their listing fees, there must be something wrong with their business model. A quick look of the expence side of the ledger would tell the tale.
Rich Johnson
360-319-3267
http://www.johnsonteamrealestate.com
http://www.johnsonteamrealestate.com/blog/
http://www.twitter.com/richjohnson1944
Submitted by Nicole Page on June 19, 2009 - 9:31pm.
I agree with Doug here. Don't expect to get repeat business and referrals if you insist on doing this.
MN Homes
Submitted by Esko Kiuru on June 21, 2009 - 2:24pm.
If any fee is charged it should be disclosed up front. This goes for real estate agents, mortgage lenders, banks etc. Everybody. Whether it is justified or not is another argument. Questionable fees tend to cast companies in unfavorable light.
Esko Kiuru
Mortgage Consultant
www.eskokiuru.com
Submitted by Brian Hunt on June 21, 2009 - 8:46pm.
I personally think that you should be upfront with your client. An "administration fee" is nothing more than hidden expense. Why try to nickel and dime your clients? If ABC needs to charge a higher percentage then they should do so.
Brian Hunt
Broker in the Columbia Midlands
http://www.HuntLLC.com
http://www.twitter.com/Blythewood
Submitted by Andrew Brentan on June 23, 2009 - 2:15pm.
Andrew Brentan
Team Aguilar Real Estate
San Diego Real Estate | Real Estate Blog
Is there anything worse than fees that no one can understand? ABC fee? Give me a break. Disclose the necessary fees, be forthright, and you'll have clients coming back. Otherwise it's a miracle if you get a referral or repeat client.
Submitted by Mark Jacobs on June 29, 2009 - 2:52pm.
Times are tough, but this is just bad business. Many firms are doing what ever it take to just stay alive. They need to look at their business model and make the adjustments to ensure they do not have to charge JUNK fees. BAD BUSINESS...
http://www.markjacobsrealtor.com
Submitted by Terrence Askew on July 1, 2009 - 7:03am.
Excellent post! Will this lead to more regulation for the real estate industry? Something similar to the mortgage industry?
mortgage TN
Submitted by sonia bane on July 1, 2009 - 10:13pm.
Market getting recovery in true words now but still economy not seems that much good, sure wanted to follow regulation after all it been good for all.
Real estate PA Real estate Agent Phoenixville Phoenixville Homes
Submitted by Susie Blackmon on July 1, 2009 - 10:53pm.
Ridiculous. Was any money given back to the clients during the years RE was hot and agencies were rolling in the dough? Ha! NOT. Adding on these fees is just another reason realtors, in general, aren't respected.
Susie Blackmon
http://www.google.com/profiles/Susie28751#about
Submitted by Becky Washam on July 2, 2009 - 5:11am.
If there was any more regulation I would hope it was just about making fees like this more upfront and transparent.
San Antonio Real Estate
Flower Mound Homes for Sale
Frisco Real Estate
Submitted by Harry Ridge on July 2, 2009 - 2:50pm.
Unfortunately, most buyers agents work without a written agreement. Buyers are generally under the impression that their agent is paid by the seller.
If a Dallas Real Estate
broker is charging a fee, it must be disclosed with a buyer's agency agreement.
Harry Ridge
Member, Broker
Submitted by Samuel Anderson on July 6, 2009 - 12:40am.
The unwanted taxes always hampered the confidence of buyers and investors. In times of recession this phenomenon need to be curtailed.
Real Estate Software | Property
management Software | Real estate CRM
Submitted by Mac Christin on July 9, 2009 - 3:32am.
Really bad, some agents are charging fees very high to their client and i think unwanted taxes reduce and help to market grow.
South Tampa Homes | Tampa Real Estate Agents
Submitted by Sergei Schelkunov on July 10, 2009 - 8:37am.
I think companies and brokers who have hidden fees don't have the future. They make their black money today but they can't make money tomorrow, because of their black reputation!
Regards from Chisinau apartments
Submitted by Rachelle Anselmi on July 13, 2009 - 6:59am.
I personally would not want to pay junk fees and therefore can't see charging for them.
Submitted by Larry Hotz on July 25, 2009 - 10:35am.
I have always found that these fees are clearly disclosed in even listing agreements or in the buyer broker contracts. Of course, a good agents can explain these fees in advance to avoid any misunderstandings of the closing table.
I've noticed that more and more lenders will not approve administration fees for FHA or VA loans. Lenders who are receiving a short pay off will also often decline to pay any administration fees.
Personally, I don't like the fees. I think brokers have moved to them in order to accommodate a week agents who cut their commissions. Perhaps the brokers should have exercised their right to establish a uniform minimum commission within the brokerage rather than having to resort to these junk fees.
Denver Real Estate | Denver Relocation
Submitted by james lee on July 28, 2009 - 7:44pm.
there are so many fees that are being added. This is so sad to see. Everybody is trying to make a dollar adding these fees. I know people are struggling and need the money. I do not like these fees.
boulder mortgage
colorado springs mortgage
denver mortgage
Submitted by Triple Check on August 4, 2009 - 9:29pm.
I don't know if that model works over here in California. I also think it is sad to see when they're slapping all those fees on. That's what gives brokers a bad wrap.
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Submitted by Aneek Alam on August 5, 2009 - 4:31am.
Wow…I hadn’t seen that about Coste. I’d been away from everything but the scores over the weekend. I really didn’t think they’d designate him like that. I’m also fairly sure he had an option left, so I’m surprised they didn’t go that route. They must’ve wanted to get him off of the 40-man roster and didn’t think anybody would grab him. Ed Wade was looking I guess.
I don’t really think it hurts the Phillies all that much, as I just don’t think he is in their future plans. Still a bit shocking to see. I hope he’ll be back on the team next year as a coach.
Veranstaltungstechnik
Submitted by Aneek Alam on August 13, 2009 - 10:22pm.
I've noticed that more and more lenders will not approve administration fees for FHA or VA loans. Lenders who are receiving a short pay off will also often decline to pay any administration fees.
Free Coupons
Submitted by Aneek Alam on August 17, 2009 - 6:52am.
I think companies and brokers who have hidden fees don't have the future. They make their black money today but they can't make money tomorrow, because of their black reputation.
Fotoservice
Submitted by Aneek Alam on August 19, 2009 - 8:36pm.
I don't know if that model works over here in California. I also think it is sad to see when they're slapping all those fees on. That's what gives brokers a bad wrap.
Herbal Fiberblend
Submitted by Sunil Sahal on August 20, 2009 - 3:27am.
Better the people ousting a hostile regime than us doing it for them.
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I can feel that you have put in hard efforts. Good job!!
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Submitted by Aneek Alam on August 25, 2009 - 10:39am.
Give me a break - if a company feels the need to charge fees over & beyond their listing fees, there must be something wrong with their business model. A quick look of the expence side of the ledger would tell the tale.
Travel Deals
Submitted by Aneek Alam on August 25, 2009 - 3:55pm.
While I don't see anything ethically wrong it, Doug brings up a great point about leaving that as the last impression for you clients. Legally, I think they would have been fine if a) it was dislcosed and b) it was called something different and actually went towards a cost associated with the transaction.
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Submitted by Aneek Alam on August 28, 2009 - 9:54am.
Is there anything worse than fees that no one can understand? ABC fee? Give me a break. Disclose the necessary fees, be forthright, and you'll have clients coming back. Otherwise it's a miracle if you get a referral or repeat client.
Patio Doors
Submitted by Aneek Alam on August 29, 2009 - 3:23am.
I think they would have been fine if a) it was dislcosed and b) it was called something different and actually went towards a cost associated with the transaction.
Zune Parts
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Junk Car Buyers company all tips old, junk and scrap cars we will give good price or Money for your cars Junk here also Buy Salvage Cars.
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