Editorial: 'Junk' fees bad for consumers
Brokers' extra charges upset agents, too
By Inman News, Wednesday, June 24, 2009.
Flickr photo by Tetsumo.The Inman News three-part series, "Broker fees divide Industry," written by staff writer Matt Carter, generated mounds of feedback, demonstrating that the industry is indeed divided on the issue of brokers charging a "transaction fee" -- which sometimes goes by other names -- that can add several hundred dollars to the percentage-based commission that consumers typically pay for real estate services.
We know the real estate industry -- as are most industries in this ailing economy -- are hurting, but consumers are hurting, too. Let's not sully the industry's reputation by sneaking in extra fees.
Brokers: If you can't justify these fees to your own agents, they are rightly dubbed "junk" fees.
Add it up: If a buyer or a seller in every real estate transaction got hit with a $200 broker transaction fee, that could amount to more than $1 billion, based on Fannie Mae's projection of 5.1 million new and resale home sales in 2009.
The home-buying process is already laden with dubious taxes, service charges and fees, and the brokerage industry often questions junk fees in the mortgage area -- why not clean out the one closest to home?
There is not sufficient rationale for charging these fees to consumers on top of a commission rate.
These fees are supposed to be disclosed upfront to consumers when they enter into a contract with a listing broker, but there may be a disconnect in receiving yet another disclosure form versus thoroughly reviewing and understanding the fees and which service or services they represent and do not represent.
Some companies have charged the fees for years, and the legality of the fees has been questioned. Birmingham, Ala.-based RealtySouth was hit with a class-action lawsuit in 2004 that claimed the brokerage violated the U.S. Real Estate Settlement Procedures Act (RESPA) in charging a fee for which "no service is rendered," or a "duplicate fee for services already rendered."
That lawsuit is ongoing -- U.S. District Court Judge Virginia Hopkins, in an April 20 opinion, declined to throw the case out.
Brokers have sought lawyer-advised wordsmithery to find "proper" ways to disclose these fees on the HUD-1 form, though this is not just a legal issue -- consumer perception can be far more powerful than any legal decision.
If these extra fees passed along to consumers by brokers are a difficult sell among agents -- the Inman News series points to one case in which the broker's fees caused a group agents to leave the company -- then they aren't a good idea for consumers, either.
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Submitted by Michael Taylor on June 24, 2009 - 2:51am.
While I do think it is in bad taste to the consumer, I can't really say I think it "bad" for the consumer. Look at the mortgage industry, it is accepted to handle fees like this. They charge an origination fee (commission) then also throw all sorts of "processing fees" "underwriting fees" etc. etc.
Michael Taylor
Indianapolis Real Estate | Fishers Real Estate | Geist Homes
Submitted by Teresa Boardman on June 24, 2009 - 3:31am.
Part of the problem is that these fees are so entrenched in our industry that few will question them. They have become a tradition and an institution. In some cases Realtors are very supportive of the fees and 'sell' the idea to their clients. There are other ways for brokerages to get money. More transparent and above board ways than charging the junk fees.
Submitted by Robert A. Hulme on June 24, 2009 - 5:18am.
These fees are totally unnecessary, just another way to try and help the Broker of yesterday find a way to survive. Most traditional Brokers are having a hard time justifying the percentage that they charge already.
What these Brokers should be doing, is trying to lower their operating costs rather than passing on Junk Fees to try and make a profit.
www.AmericanForkHomeForSale.com
www.CedarHillsUtHomes.com
Submitted by Jay Thompson on June 24, 2009 - 5:25am.
If a brokerage needs to charge the consumer additional fees over and above the already not insignificant commission, then the brokerage needs to re-examine their business model.
Lower your overhead. Hire world-class agents. Quit pumping money into antiquated old-school methodology like print advertising. Stop spending time and money on the "hire anyone with a pulse and a license" business model.
It's really not that difficult.
And saying it's not bad because the mortgage industry does it is a weak argument. Used car dealers do it to. Our reputation in the minds of many consumers is quite poor. Things like the "everyone else is doing it" mentality, going after other agents because of their business model and practices, and all of the other things we as a collective tend to do sure doesn't help that perception.
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
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Submitted by Paula Henry on June 24, 2009 - 7:36am.
I remember the first time I encountered a brokerage who charged such a fee - it was deemed a "transaction management fee". My question was then and still is today; What happens if you have no such fee, does the transaction not get managed? It is a service our clients expect and they shouldn't be charged for a service which is a fundamental part of getting the transaction to closing.
Our license and COE demands we manage a transaction and if your brokerage won't do it without a fee, find a new broker.
Submitted by Shirley Fisher on June 24, 2009 - 8:13am.
I thing the consumer is being hit with too many "fees"...Mortgage...Escrow...Lawyers... You name it and you will find that each time a staff member touches or produces anything that needs to go to the consumer for signature... there is a fee attached. I have not seen that much in the Real Estate industry in our area. Yes, some agencies charge a transaction fee, but they charge it against the agent to help pay for the TC who is handling all the paperwork on a transaction. Personally I would prefer to see a "fee" set - up front, for a service and have it include all those "handling fees". That way the consumer know what they are getting into and can more fairly compare the services of one Company to another!
Submitted by Mike McCutcheon on June 24, 2009 - 10:29am.
Mike McCutcheon
We don't charge any extra fees. It's enough that our government (state and national) can't function without nickel and diming the citizenry to death. Many escrow and loan fees are also suspect. In a perfect world, all costs would be up front and truly TRANSPARENT. As opposed to Scotch Guard on thr leather upholstery in my new car.
Submitted by Ronald Ogden on June 24, 2009 - 10:51am.
I am not against charging transaction fees if they are associated with legitimate services and are properly and honestly--check the honesty meter when you're explaining to your client the purpose of the fee--disclosed to the client. But tacking on an added fee just because I can, just doesn't seem ethical to me. And so I don't.
Ron Ogden, Associate Broker
RE/MAX Metro - Salt Lake City, Utah
www.DwellUtah.com
Dwell Utah Real Estate Blog
Submitted by Tony Farwell on June 24, 2009 - 12:58pm.
The debate over “junk fees” or administrative charges by brokers raises the larger issues of transparency and consumer control over the expenses they will pay at the closing table.
For many buyers, especially first-time buyers, the closing experience is like going to a restaurant and being billed for dishes that you didn’t order, don’t like, may not be able to afford and don’t remember eating.
The closing table experience today is an unsettling experience for many consumers, but it need not be. In fact, there is no reason that it should not showcase real estate professionals working together for consumers who understand and participate in the process. That’s our goal with the launch of Closing.com.
In a transaction where agents and consumers use our Web site to estimate their closing costs, brokerage
administrative fees will be shown very early in the process and consumers who want an explanation will have time to get one before they have to pay.
www.closing.com
Tony Farwell
CEO, ClosingCorp
Submitted by Craig Cheatham on June 27, 2009 - 4:34pm.
It is convenient to depict this as the straw man of "junk fees," but that misses the real point.
If your firm can negotiate with customers, clients and/or cooperative brokers to be paid solely by a percentage, it should be allowed to do so. If your firm can negotiate to be paid solely by a flat dollar amount, it should be allowed to do so. If your firm can negotiate its pay as the sum of a formula -- part set amount and part percentage, it should be allowed to do so. If it chooses to get paid in M&Ms and can negotiate that, why should the courts interfere?
No judge should get involved at this level.
Whether your firm negotiates its pay the way RealtySouth does or not, you should support the RealtySouth position in this case unless you want regulators and/or judges to determine how you get paid.
The explanation of the compensation to the public and to licensees is important, but is simply a part of the details, not the larger issue.
The real estate industry should press HUD to do its job and clarify finally every major question it has been dodging for years. For now only the lawyers are the winners.
Submitted by Susan Carter on August 26, 2009 - 3:02pm.
Thanks to internet websites such as Inman, brokers and consumers can keep up with current practices. Thanks for the information -- as prospective sellers we know that the traditional flat percentage charge may not be the only cost we need to ask about when choosing a broker.