Calling out real estate 'junk fees'
Realtor Notebook
By Teresa Boardman, Thursday, May 14, 2009.
It is all over the Internet news. A court ruled that an "admin fee" that real estate brokers sometimes charge buyers or sellers may in some cases be a "junk fee."
"In a decision late last month that is sending shudders through the realty brokerage industry, U.S. District Judge Virginia Emerson Hopkins in Birmingham, Ala., ruled that when a realty firm charges clients an 'admin' fee, for which no specific settlement services are performed, the fee violates federal law," Washington Post columnist Kenneth R. Harney reported.
Here in Minnesota we have to call the fee a "broker commission." The fee ranges from $200 to $500; the buyer or seller is responsible for paying it; and it is in addition to any commissions paid by the buyer or seller -- the brokerage receives it in addition to any commission split or additional fees taken from the agent.
Last year I had a closing where the title company made several mistakes and failed to collect the $300 "broker commission." The closer, her manager and the regional vice president of the title company would not return my phone calls after the closing. When I got my commission check from my broker there was $300 dollars missing from it.
The broker's commission was taken from my commission check, which is a common business practice in my area. It is far easier to take money out of an agent's check than it is to collect it any other way, and most agents just let it go.
After a careful review of the contract signed by my buyer, I concluded that the buyer owed the brokerage $300 and had agreed to pay it. I cannot by law directly give or take money from a buyer or seller related to a real estate transaction outside of a closing.
I had never signed anything with the brokerage agreeing to pay the fee, but had agreed to charge each buyer and seller for it. It did not appear as though I owed anyone $300.
I decided to take the issue to small claims court. It is very inexpensive to take something to small claims court and the process is easy, and if I won I would get my money back and the small fee that the court charges for filing a claim.
If I lost, it would cost about $50 and take up a couple of hours of my time. I saw it as an opportunity and a learning experience. ...CONTINUED
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Submitted by Diane Cipa on May 14, 2009 - 1:01pm.
Hi, Teresa: These extra fees are charged by many brokerages in our market, but not all.
As a title agency, we try very hard to get agents to send us a clear concise commission statement before we prepare the HUD-1. In addition, we ask everyone to review the HUD prior to the closing. Not everyone does, and not knowing what happened in your case, I guess I would just ask all agents reading this comment to PLEASE check the HUD prior to closing to make certain the title agent understood your instructions.
Thanks!!
Submitted by Kathy Judy on May 14, 2009 - 1:12pm.
I agree with the court.
Submitted by Richard Caplan on May 14, 2009 - 1:14pm.
Teresa,
Were you taking your Broker, the Title company or your Buyer to small claims court?
Submitted by Jim McGee on May 14, 2009 - 1:27pm.
Everyone seems to accept the legimatacy of these junk fees; but I do not. We are paid a commission for services rendered and trying to nickel and dime the client on top of that is absolute crap. Lenders have been doing it for years; but they are always quick to point at someone else when a borrower can't refinance because of the transaction fees. Even title companies are getting into the act and charging "Document Preparation" fees on top of their regular closing fee. I have always understood that I have a cost of doing business. If I'm not making enough money, I'll raise my rates; but I will never charge junk fees. I especially will never do it surreptitiously - at the closing and on the settlement sheet - like most brokers/lenders/title companies. How many buyers and sellers will take issue with an unexpected charge at that time? Few if any. The consumer is the one being screwed here!
Submitted by Robert A. Hulme on May 14, 2009 - 1:40pm.
This particular fee should be eliminated. My company charges $250 on every transaction. I primarily work with First-Time Home Buyers and they are usually struggling to just come up with enough down payment, I find myself paying the $250 just so we can make the deal work. Anyway, I hope someone finds this illegal and that it is done away with.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.UtahCountyHomes.ws
www.UtahCountyRealEstate.us
Submitted by Ronald Ogden on May 14, 2009 - 1:57pm.
"Junk Fees" is the correct term. I have always refused to charge my clients these extra fees. In some cases, my broker has waived the fees and in others, I have had to pony-up the difference from my own commission.
I can't, in good conscience, charge my client a fee that I can't justify. My experience is that these fees are charged because, in the end, when you're dealing with hundreds of thousands of dollars on a home purchase, what's an additional $300, $400, or $500 to the buyer or seller? They don't even notice it--the fee just gets lost in rounding.
If the brokerage can't stay profitable without charging these fees, then the fees should be built into the standard brokerage fee percentage, not added on as a "transaction fee".
Ron Ogden
Associate Broker
REMAX Metro - Salt Lake City
www.DwellUtah.com
Submitted by Steve Beste on May 14, 2009 - 1:57pm.
Junk fees are what they are. Junk. It is unconscionable that any broker demand a 'document retention fee' after they have taken a substantial part of an agents commission, as well as a monthly fee, for shelter under a broker's license.
Agents will pay, because brokers write the commission checks. And if agents are trying to screw a buyer or seller out of a fee in addition to the 3% of the purchase price that they are collecting, shame on them.
It is not only your bottom line, it is a bottom line that we will all have to pay for.
So let's skip crazy fees, and get paid for the time effort and energy we expend.
Submitted by Tina Merritt on May 14, 2009 - 2:07pm.
Just yesterday, my seller got hit with a $250 "transaction fee" from the buyer's agent's company (my seller had agreed to pay a certain amount toward the buyer's closing costs and this "fee" was thrown into the mix). It's ludicrous! Did the buyer receive any extra services by the buyer's agent to warrant this $250? I'm 99.9% sure he didn't.
These fees just put another black eye on our industry.
Submitted by David Lyng on May 14, 2009 - 2:34pm.
No surprise the court ruled for the consumer on that one! Sales commissions in a full-service brokerage should cover all services for the consumer without having to resort to undefined junk fees. In addition to location, location, location - it's also disclosure, disclosure, disclosure. We need to find ways to add value to our service not hide fees...
Submitted by Jaret Ghent on May 14, 2009 - 2:35pm.
Teresa,
Great Post!
As I sit here in awe, preparing to open another real estate company I cannot believe that some Brokers do this. These JOKERS are dead wrong in my opinion!
What seemd just as crazy to me is agents continue to pay these ridiculous fees. There is a simple solution... move to a Broker who does not charge these "junk fees".
As a business owner I guess I look at it way different. Brokers are in business because of their agents... the agents are our clients as well as the buyers and sellers. Without clients we cannot be in business.
WARNING!!! Brokers that continue to charge their clients "junk fees", offer poor commission splits and little to NO SUPPORT will not be in business much longer!
Regards,
Jaret Ghent,
Submitted by Judy Orr on May 14, 2009 - 2:46pm.
In our area these "admin fees" are actually charged to the selling brokerages and are simply subtracted from their commission. We fought not to include this with my prior brokerage but everyone started doing it and they ended up charging a fee, too. They can range from around $50 - $200 and up.
My current brokerage charges $125.00 (again, to the selling brokerage - not our clients) and gives it back to us by providing free Showcase Realtor.com listings. I know, some of you are against that, but for free I'll take it and use it in my listing presentations. And I do get leads from it, so I can't complain.
Most brokerages don't give that fee back to their agents. They just keep it themselves for "administrative costs."
Judy Orr
Orland Park Homes For Sale
Classic Realty Group
708-536-8200
Submitted by Brian Bundesen on May 14, 2009 - 3:19pm.
I agree on getting rid of these fees. In my market, they are called "compliance" fees, and they have to be explained to every client, who feels they are being nickel and dimed. The fees range from $149 to $395. I had a buyer on a foreclosure, and the selling agent said he would not present my offer unless I wrote in the offer that my Buyer wanted to pay the selling broker a $395 fee. When the offer was submitted, the selling Brokers client crossed out the fee on our offer.
Submitted by RK Ruthman on May 14, 2009 - 3:27pm.
2003-Connecticut
http://www.ct.gov/ag/cwp/view.asp?A=1778&Q=283954
http://ct.gov/AG/cwp/view.asp?A=1778&Q=283956
Connecticut Attorney General's Office - Press Release 2005
"...Attorney General, Consumer Protection Commissioner Announce Settlement With William Raveis Real Estate CoThe settlement, filed in Hartford Superior Court is a result of an investigation of complaints made to the Attorney General and DCP regarding representations made by Raveis that suggested that the "compliance fee" was required or sanctioned by the government, and that the fee was equal to the cost for Raveis to comply with government regulations.
"This settlement – along with a similar settlement reached last year with Prudential – should send a clear message to the real estate industry that the State of Connecticut will be vigilant in ensuring that representations about supplemental fees are full, fair, and accurate," Blumenthal said. "Companies need facts to support the claims they make in connection with the fees they charge."
"We take our commitment to protect Connecticut consumers very seriously and are pleased to have reached this settlement with Raveis," said Acting Commissioner Rodriguez.
The settlement provides partial restitution of $30 to every consumer who paid the fee to Raveis between 1999 and 2002, when Raveis ceased charging the fee. The $30 reimbursement represents the amount of the fee consumers paid that was over and above the actual cost to Raveis to comply with government regulations. Because the conduct affected several thousand consumers, the total amount of restitution to which consumers may be entitled is estimated to be up to $175,000.
In addition to restitution, the settlement prohibits Raveis from engaging in a variety of future acts or practices, such as implying that a fee is required by law or regulation if such is not the case, and from representing that a fee is intended to reimburse Raveis for costs unless the company has prior substantiation that the fee it charges is relatively equal to the amount it charges consumers.
To settle the matter, Raveis will pay a total of $225,000, with $200,000 going to the State, and $25,000 to be contributed to the University of Connecticut's Center for Real Estate and Urban Economic Studies, in addition to the estimated $175,000 in restitution.
Persons entitled to restitution should receive notice of entitlement within the next few weeks, and may respond directly to John Davis of Raveis at 7 Trap Falls Road, Shelton, Connecticut 06484 in order to receive restitution."
On January 27, 2007, I mentioned the Admin Fee being charged to agents if they could not get their buyers and sellers to agree to it.
COMMISSION SPLITS: What's In Your Independent Contract Agreement May Be What's In Your Wallet
http://activerain.com/blogsview/38966/COMMISSION-SPLITS-What-s
Submitted by John Rakoci on May 14, 2009 - 3:28pm.
I would be embarrassed to be associated with any agency that charged such a fee. If they are in need of cash flow that bad maybe their business plan is in need of repair.
Submitted by Aileen Kane on May 14, 2009 - 3:42pm.
Thank goodness this is coming into the light. I work as an Exclusive Buyer's Agent and am constantly paying transaction "fees" as noted in the MLS from my commission for ..... ? My broker suggested I pass these fees onto my client, the buyer, but I just think that is completely unfair considering all of the other "fees" they get stuck with during a normal closing. Why can't we just work for our commission without the "transaction fee" strings attached? It seems to me that agents are already overloaded with charges subtracted from their splits, from franchise fees, advertising fees, administration fees, etc. Do other commission based occupations play the same game with their "independent" contractors? I would be surprised.
Submitted by Marian Gregor on May 14, 2009 - 4:06pm.
My previous Brokerage was trying to initiate this fee in the Ann Arbor area. My broker/manager at the time tried to dissuade the owner from charging this fee. She warned him that agents would leave. Perhaps he thought that it was a bluff. Anyway, he added the fee and over 40 of us just said "NO" and walked out. We opened a new office. It is agent/client centered, not owner centered. We DO NOT charge any junk fees!
Submitted by Jerry Long on May 14, 2009 - 4:15pm.
Unfortunately, brokers take on the responsibility (in some but not all cases) for advertising, E&O, liability legally with the RE commission, copiers, phone systems, supplies, forms, association and MLS memberships, graphic artists/designers, signage,leggal advice, sometimes-furniture, copiers, phone systems, staff, office space, etc. Broker must collect this from agents one way or the other - call it what you wish. The only agents I have ever known to complain about this fee are those who have not operated independently as their own company or owned any other business. Perhaps those of you complaining should simply open your own brokerage so you can "make more money" - you will be unpleasantly surprised.
Submitted by Teresa Boardman on May 14, 2009 - 4:30pm.
Ron - you are also entitled to make a profit.
Jerry I do run my own business and it takes a lot to keep it going and make a profit. I can't give a broker 300 dollars in addition to the cut they already take.
Submitted by Paul Howard on May 14, 2009 - 4:40pm.
Your company must be something special if the agents there routinely let their broker steal from them - and still stay.
Paul Howard, Broker
NJHomeBuyer.com Realty
Cherry Hill NJ 08002
Submitted by David Shott on May 14, 2009 - 5:05pm.
FINALLY THESE BOGUS “ADMINISTRATIVE /JUNK FEES” ARE coming to a head especially with the large regional (LONG & FOSTER REAL ESTATE) and National (COLDWELL BANKER RESIDENTIAL) firms are being called out.
Everyone seems to accept the legitimacy of these junk fees because we as REALTORS and CONSUMERS have no choice once they are engaged in a brokerage relationship. I soaked up plenty in my time. These firms nickel and dime the clients and agents and its absolutely a bunch of bull.
Lenders have been doing it for years; but they are always quick to point at someone else when a borrower can't refinance because of the transaction fees. Even title companies are getting into the act and charging "Document Preparation", "electronic filing fees", "notary fees" on top of their regular closing fee. I understood that there is a cost of doing business but not something that's total down right an illegitimate fee(s)—Its called GREED! Greed is what got our economy in this mess!
Questions—can us as Realtors go back in time to collect from our greedy brokers who took the “Administrative fee” or “ Junk Fee” out of our commission checks if we never signed a document making us responsible for those bogus fees that our clients never paid at settlement? Inquiring minds want to know and so does my wallet.
David Shott
USA
Submitted by joe spake on May 14, 2009 - 5:11pm.
I worked at a company that charged an admin fee, and then changed it to a "commission" to get it on another line of the HUD-1. Many agents paid the fee on behalf of clients so as not to offend them, or rather let it go unpaid to be deducted from their net commission.
There was never really a solid explanation of the fee: records retention, admin costs, etc, etc. Well what was the hefty portion of the gross commission they were keeping used for?
I think it is going to take agents like you and consumers who can't get a realistic explanation of charges pushing a little bit to get any changes.
Bravo to the Federal Judge who made the ruling.
Joe Spake
Memphis, TN
Submitted by Teresa Boardman on May 15, 2009 - 2:34am.
Paul - I left the brokerage and am very happy with where I am at right now
Submitted by Ken Lampton on May 15, 2009 - 6:29pm.
Some agents in Dallas charge transactions fees. But I'm surprised to hear there are brokers who make it mandatory. I'd have a real hard time working for a broker who collected such a fee from me even if I didn't collect it from my client.
Ken Lampton
RE/Max About Dallas
www.m-street-dallas.com
Submitted by Craig Cheatham on May 16, 2009 - 10:19am.
The judge in Alabama got it toally wrong.
This was a commission ... charged in part by a flat dollar amount and in part by a percentage.
Portraying this as some "fee" is incorrect handling of the facts by anyone discussing the Busby case.
Do not lump the Busby case in with discussions of various "fees."