About a year ago, I wrote a post for the Virginia Association of Realtor's blog, VAR Buzz, about these real estate "fees". I got in a lot of hot water over my "opinion" and toned it down a bit. But, today, I heard something that made my blood boil.
One of the largest real estate companies in the United States recently hired an outside consulting firm to conduct a compensation study with their agents. Know what the #1 complaint among the agents was? It wasn't the agent split nor the outdated office equipment; it was the company forcing the agents to charge the clients and customers a "transaction fee". Know what the CEO said? "Tough. It's not going away".
It's been about 10 years since as an agent, I was instructed by upper management to charge this "fee". Over the years, the name of the fee has changed, the amount of the fee has increased, new policies have come out about how to "address" the fee with the consumer and the penalty the agent faces for not collecting the fee. And after 10 years, I still feel like a heel when I charge my clients the fee.
At this point, most all of us know about Busby v. JRHBW Realty, Inc. d/b/a Realty South, Case No. 06-15308, 11th Cir. January 17, 2008. In basic terms, this case was about Busby seeking class action status for a claim that the Brokerage fee charged was unearned and in violation of RESPA Section 8(b). After this case, many brokerages began calling the "fee" a "flat fee commission".
Well, I'm not the CEO of a brokerage nor am I an attorney. I understand that these "fees", by whatever they are called, generate quite a bit of revenue for the real estate companies. I also understand that in 10 years, I have never once witnessed consumer A, who pays the fee, getting more real estate services than consumer B, who doesn't pay the fee.
But, all that being off my chest now, here's where my thoughts have brought me today:
Annie Agent represents Buyer Bonnie in the purchase of a home. Annie looks at the MLS and finds a home she would like to show Bonnie that is listed by Listing Agent Leroy. Listing Agent Leroy has negotiated a commission with Seller Susie and made an offer of compensation to cooperating brokers of 10 apples. Annie Agent is a good, responsible agent and has disclosed to Buyer Bonnie in a buyer brokerage agreement that she will be paid 10 apples plus an orange (i.e. commission + flat fee/transaction fee or whatever you call it) for her real estate services.
Annie Agent, in writing the purchase agreement for the home Buyer Bonnie wishes to purchase, requests Seller Susie to pay all of Buyer Bonnie's settlement expenses. Seller Susie agrees and the transaction proceeds to closing.
At closing, Seller Susie is surprised to see that along with Buyer Bonnie's lender and title charges, she is also being asked to pay for an orange for Annie Agent on behalf of Buyer Bonnie. Seller Susie and Listing Agent Leroy are upset because when Annie Agent showed the listing, that is an agreement to accept the co-brokerage commission offered of 10 apples. The brokerage fee agreement signed between Listing Agent Leroy and Annie Agent also states that Annie Agent is to receive 10 apples (not 10 apples plus an orange) from the negotiated commission between Listing Agent Leroy and Seller Susie.
Is Annie Agent's additional charge of an orange, which Seller Susie is being asked to pay, an interference in the commission agreement between Seller Susie and Listing Agent Leroy? If so, is that not in violation of the Realtor Code of Ethics:
"Standard of Practice 16-16: REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker's offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker's agreement to modify the offer of compensation. (Amended 1/04)"
What are your thoughts on this?
A few interesting points that have now come up....
1. If the Brokerage is now required to call the "admin fee" a "flat fee commission", does it now fall under "commissions earned" by the agent? Has the Brokerage amended their agreement with their agents to address this additional commission as earned revenue which should be based off the agent's split?
2. Again, since the "admin fee" is now a "flat fee commission", then the ONLY place it should be permitted on the HUD-1 would be line 701 or 702 (Total Real Estate Broker Fees). Many agents have said they are still seeing the fee on lines 1301-1305 (Additional settlement charges).