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Compliance and Processing Fees...Michigan Legal Council Answers

Michigan Association of Realtors offers a free legal hotline for Realtors in the State of Michigan to use. We can call in with questions to get a clarification on Michigan law or situations to get advice.

Every month in our MAR updates, a legal question is proposed to McClelland and Anderson the attorney's for MAR. The question was interesting this month as I recently had a buyer agent encounter this exact situation.

Situation: A home is listed by ABC Realty, a buyer agent brings an offer to the listing agent. When reading the remarks in the MLS information it states, buyer must pay a transaction fee in the amount of $295, to ABC Realty at closing.

The agents are asking MAR ?

Is this legal?

The answer is No.

Basically it is permissible for the listing broker to ask, however, he can not require the buyer to pay as the buyer is not under a contractual relationship with the listing brokerage.

•1) ABC Realty has a relationship with the seller in regards to the listing contract.

•2) ABC Realty can not create an enforceable obligation against the buyer through the MLS.

•3) The only time it would be permissible is if the transaction fee was between the buyer and seller noted in the sales contract.

***I guess brokers are desperate to ask the buyers to pay a transaction fee. ***

My team does charge our buyers a processing or compliance fee. It is not profit. It goes towards the holding and storage of documents to be compliant with state and federal rules for holding documents for 7 years.

My buyer agents are also encouraged to charge a Buyer Agency fee to their buyers for fees not covered in the commission.

Do you do this in your area? Is this a common practice in your area? I know some companies require their agents to charge a compliance fee. Some call it a transaction fee.

Just curious, as I had only recently seen where the listing office was asking the buyers to pay a transaction fee.

Posted by Missy Caulk-Ann Arbor- Realtor(R)- Ann Arbor Real Estate on 06/24/2008 06:01 PM

Comments (29)

michigan association of realtors, mar, processing fees, compliance fees

Post is included in group: Michigan Realtors
Post is included in group: ETHICS and the REALTOR
Post is included in group: Real Estate Risk Managment
Post is included in group: Michigan Real Estate

29 Comments on Compliance and Processing Fees...Michigan Legal Council Answers

JUN

2008

It's common in our area. I don't charge it. No way a seller's broker would collect such a fee from one of my buyers.

Brokers are in heavy competition to recruit agents and are giving up more and more. So, they charge the "admin" fee which goes directly to the broker. Many agents pay it because they're embarrassed to ask their sellers to pay.

It's just like a lender's junk fee.

I have not heard of this in TC. However, buyers are commonly adding within the Offer to Purchase that the seller shall pay closing costs. Interesting and good to know this information. We may have this come about at some point.

Missy: This is totally bizarre. The listing broker printing in the MLS that the "buyer" must pay a $295 transaction fee payable to ABC Realty at closing. Honesly, if they tried that here in Texas... they would either be tarred and feathered, or laughed out of town.

If anything... I'd request that the seller pay the silly fee on behalf of the buyer... and/or include it in a request that the seller pay whatever amount of the buyer's costs the buyer requests in the original offer to purchase.

Yep Missy, Karen is right about that here in Texas. No can do that.

Thanks for the update. I didn't read that in the MAR update. Good to know . Have a great day Missy!

Missy,

We only see those fees charged by 100% commission shops or desk fee operations...Independents don't usually charge that fee!!! That's in our area of PA of course! Thanks, Fran

Hi Missy...We do not charge any fees. It is commission only which is fine with me as I receive 100% and pay a monthly desk fee.

I'm curious about the Buyer Agency fee. Wouldn't that just be another cost of doing business like other expenses?

Kathleen

Missy

Compliance fees are very common here. They usually happen between an office and their client. It is very common to see foreclosure specialists try to charge the buyer. The REO world won't pay them so they try to see how much the buyer's agent will allow. I have always written in PA that buyer will not pay it and they ahve all backed down. Where is McClelland's response in writing at ?

Missy - in my area, I always see reo listing agents put on the MLS buyer to pay xxx processing/compliance fee.

My company does charge a compliance fee, but it's to our sellers/buyers. We don't charge a fee to the buyer/buyers agency on one of our listings

Thanks for the info.

Missy- My first Broker told us to charge this fee, but I never did. I figured they were paying enough, and it could just come out of my commission.

I charge the Agents a Transaction Fee, no desk fees.

It is quite common in our area and the buyers agent charges the buyer and the seller pays the listing broker.

Hi Missy, These are the sorts of gimmicks that when exposed bring us so much distrust from consumers. We had these going around here on the listing side and it was still ridiculous. A few got burned and deservedly so.

On the Buyers side, there will be a test on legality and you may see a court case that sets case law for your state sometime soon. It will not be pretty but is probably legal if disclosed. Not an issue if under compensation clause of Buyer's Brokerage contract, if agent not under contract, expect some serious challenges to it's practice.

JUN

2008

Missy - Here's it's typically $295 (haven't seen topping $300) and one company started it and now everyone does it.

My Dad recently bought a property in Florida and when the agent said there was this processing fee he asked "aren t' you getting a commission?" - I always enjoy hearing what others are doing and he thoughts behind it.

Missy, In my office in Idaho we ask the sellers to pay a transaction fee, but not the buyers.

Jeff, in the MAR update letter, we get it monthly.

Hi Missy, nice post as always!.

I absorb these fees as part of my administrative costs. This keeps it simpe for buyers and sellers. They are real costs however, and maybe I should look at whether i need to charge them in addition to commission.

I don't charge a transaction fee to either buyer or seller. Some listing agents charge one to the buyers agent though...they list the co-op commission as __% - $250 (or some other amount).

Hi Missy - In 22 years I have never come across a transaction fee charged to a buyer here in MASS. Different states have different nuances I guess :)

Missy,

Thanks for posting this, I saw a listing like that recently also.

A couple notes:

1. Remember the hotline is one attorney's opinion of how the laws would be interpreted by a judge.

2. The same law firm is responsible for many of the typos and mistakes in the Michigan Association of REALTORs documents and postings.

3. The firm is a fiduciary of the Michigan Association of REALTORs and is is not an objective view on real estate questions. They certainly don't represent a consumer's viewpoint.

Missy,
You state that "My buyer agents are also encouraged to charge a Buyer Agency fee to their buyers for fees not covered in the commission." Just what expenses, or "fees", do you consider "not covered in the commission?" An "admin fee" or a "transaction fee" or a "buyer agency fee" are all the same; an increase in the commission charges to the parties to the transaction. All of these add-on fees that some Realtors charge only adds to the impression that we are only in it for the money; that ethics things is just a subterfuge.

Hi Missy! I have never charged a fee of any kind to buyer or seller. In CA some firms did but here in NC I haven't seen any. I appreciate you sharing this legal insight with us!

Missy, I just recently saw an MLS comment like that in my area, but it was listed by a Team out of your area. They stated that the buyer is to pay a $299.00 processing fee to the listing broker at close. I too wondered how they could make a buyer pay them, glad to hear they can't. Agents are just trying all kinds of different ways to make up for this down market I guess.

As far as your other question about whether we charge our own buyers any fees, we haven't done that as of yet. We are just so happy to have buyers, we would probably pay them :) If any buyers of mine are reading this, that was only a joke, don't get any wild ideas.

I don't like compliance/transaction/processing fees... It is a revenue stream - pure and simple.

Jon, thanks for stopping by. Yes MAR is for us, as Realtors we are all members of MAR in Michigan. The attorneys are there for us and our questions, not the consumers. Consumers should have their own attorneys to advocate for them. Consumers don't pay MAR or NAR dues we do. I am actually glad they provide us this service.

It is common in my area to have a Conveyancing Fee whether on Buy or Sell side - but never to the 'other' side! The fee ranges from $250-$395, our office is $275. It goes towards the conveyancing of ordering payoffs, tax certs, U & O, etc.

JUN

2008

I'm glad to report this practice hasn't taken hold here... yet. We have one national brokerage that charges a 'processing fee' and every now and again the agent will slip it onto the other side in an offer or counter. It never works but they try it.

Our buyers don't pay any fees. They sign a buyer agency agreement, and they get our services.
We cannot accept payment for anything, from anyone but the Brokerage.

The only money the buyer will pay, or the only expenses they will have, will be the legal fees to close the transaction. It is a hefty amount that buyers pay on closing. It involves a land transfer tax (the Province/City charges this every time a house is sold and the buyer pays for it). There are also the legal fees, and disbursement fees, which can include conveyancer fees, title insurance, photocopies, etc. The legals can add up to about $1,400 (+ the land transfer tax could be approx $2,000 for a home worth about $225K ... (it goes up as the value of the house goes up ... and if you live in the TORONTO area, you pay a double tax - City and Province both take a cut).

So, a buyer needs about $5,000-$7,000 on closing, for a very modest home, just to pay the City and the lawyer.

When we get our commission, the Brokerage's transaction fees are deducted first (and we pay a monthly fee as well) ...(it is illegal for us to receive money from anyone else but our Brokerage).

JUN

2008

Missy, how outrageous! No, I can't believe that anyone would have the gaul to do that. As far as transaction fees, it is up to the agent as to whether or not they have their clients pay for this. There was some discussion several years ago about how transaction fees were a red flag and could come back to bit th agent. Receipts and proof of expenses of course take care of that objection.

JUN

Missy - Thanks for this blog! I just had this come up and am glad to hear it isn't something my buyer has to pay!

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