The Real Estate Admin/Transaction/Whatchamacallit Fee. Let's Just Call a Pig a Pig Shall We?

By
Real Estate Agent with Nest Realty

picture of jack daniels the pigAbout 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  It wasn't the agent split nor the outdated office equipment; it was the company forcing the agents to charge the clients and customers a "transaction fee".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?

 

Footnotes:

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).  

  

Posted by

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realtor technology spotlight awardTina Merritt and her Associates. can be reached at email:  tina@nestrealtygroup.com or 757-287-6338.

Our Network consists of both buyer and listing specialists helping buyers and sellers in Southeast Virginia, Hampton Roads, Virginia Beach, Chesapeake, Norfolk, Portsmouth, Suffolk, Isle of Wight County, Hampton, Newport News and Poquoson, Virginia.  In Southwest Virginia, the New River Valley, Blacksburg, Christiansburg, Radford, Pulaski, Dublin, Floyd, Narrows, Pembroke, Pearisburg, Glen Lyn, Rich Creek, Check, Hiwassee, Indian Valley, Parrott, Newport, Shawsville, Pilot, McCoy, Long Shop, Fairlawn, Wythe, Draper, Willis, Sowers, Elliston, Eggleston, Ironto, Riner, Auburn, Rogers, Giles County, Montgomery County, Floyd County, Pulaski County.

Visit our website:  NestRealtyGroup.com

 

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Comments (94)

Anonymous
Peter Buchsbaum

Tina,

Great post. If Real Estate agents would act more like business people as opposed to sales people they would band together as one big group and fight back against what the "big agency" wants. I believe it is not only a RESPA violation but is actually a contractual violation. Annie Agent is paid by the Seller thus she is not allowed to actually be paid by the buyer as you can not represent both sides of a transaction regardless of "disclosure". Disclosure was not designed make a conflict of interest go away. I left the real estate industry 18 years ago because big business was taking over and in the process taking away my "liberty". That's right my right to choose. I was requested to use their title company, their mortgage company, their insurance provider, etc.

May 28, 2010 11:49 PM
#77
Pat, Ben and Martin Mullikin
M3 Realty - Brookfield, WI

I would never affiliate with a brokerage that required this BS. My relationship with my client - Seller OR Buyer - is just that... MY relationship. What I negotiate with them is between them and me. What I negotiate with my brokerage for fees or splits or whatever you want to call it, is separate from my client relationships. If we are independent contractors, we should learn how to run our own business. I have always thought the "transaction fee" or "admin fee" was wrong. If you need to charge more, call it what it IS - commission.

May 29, 2010 04:01 AM
Lynn Krogseng
Keller Williams Premier Partners - Vancouver, WA

When everything is disclosed at the beginning of the relationship, rather than sprung on someone after they've committed to doing business with an agent, then there's not much to fuss about.  I think the whole separate fees for transactions is weak.  Ultimately, when we're chargining our clients several thousand to provide service and then making it 'several thousand plus $150', it seems pretty petty.  Not disclosing that that fee is there, at the beginning, before the client has signed, is definitely PIG.

May 29, 2010 04:52 AM
Kathy Batterton
RE/MAX Infinity CDPE, E-PRO, GRI - Pace, FL
TeamWork makes the Dream Work!

Try this scenario:  Buyer's broker does not have reciprical agreement with sellers broker.  Sellers broker offered 10 apples in commission in MLS.  Sellers broker would receive 14 apples.  Buyers broker makes up the difference by charging seller a transaction fee of 2 apples, disclosed only once HUD is complete.  Seller's broker in essence had to split 50/50 without a reciprical agreement.  He backdoored his way into that one.  Ethical???

May 29, 2010 04:54 AM
John Sinclair
Windermere Realty CdA - Coeur d'Alene, ID

its a pig  lets call it that

May 29, 2010 05:21 AM
Jay Thompson
Zillow - Seattle, WA

Quck question for those that hate that their brokerage charges this fee:

Why are you there? Why not find a broker that doesn't charge it?

May 29, 2010 05:45 AM
Jody Keating
Jody Keating Connective Realty,LLC, Bryan/College Station,TX - Bryan, TX
Broker/MM/Realtor, Bryan / College Station, TX

Wow, I can't believe that brokerages charge this type of fee and that agents go along with it, grumbling along the way or not. That is no better than behaving like a used car salesman. (No offence to car salesmen)

I can't imagine trying to justify such a fee to my agents, let alone them having to justify it to a client.

I think our company and our agents reputation is worth more than charging some ridiculous money grubbing fee......

May 29, 2010 06:20 AM
Frank Beckendorf
Beckendorf Realty Group - Abilene, TX

I worked for a franchised company that charged these fees. And, I got a lotta flak from sellers. One of my clients was a guy who gave me four homes to sell only to later find he had to pay these fees he knew nothing about because he didn't read the contract carefully. His fault....but, if he had - I would not have gotten the four. I sold three of them and promised that if he used my services again, I would make up for them.

May 29, 2010 08:51 AM
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

If someone works for a broker that mandates that they charge fees they don't believe in, they should either change brokers or start their own firm. I started my own firm so I could call my own shots. 

May 29, 2010 09:43 AM
Vic Steele
Vic Steele, Broker CA BRE 01349863 - Anaheim Hills, CA
Broker/Consultant

I am not going to claim I read all the comments, but I agree 100% with J. Philip; this is a great reason to change brokerages!  That is the only way the fees are going to go away - when the agents take a stand for their clients.

May 29, 2010 05:09 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Changing brokerages or starting your own company makes sense to me.  It's an interesting concept to consider whether this scenario is in opposition to the listing agreement.

May 29, 2010 07:25 PM
Tony Hager
United Realty Texas - Denton, TX
Broker

I only read about half way thru the responses but I did read the blog twice to make sure I understood what she was explaining.  First of all most responses I read missed the blog completely. The fee in question was not from the Listing Agreement but came from the buyer agent agreement with the buyer and brokerage, then this fee got added to the sellers closing cost as a buyers closing fee. 

This is a gray area I believe and listing agents need to be very careful what they agree to on a purchase agreement. First off I think the commission should be what the listing agent offered in the MLS and not a penny more. A transaction fee should not be considered a buyer closing fee in regards to the HUD as this was an agreement between the buyer and their agent. Sounds like we are going to add another page to our purchase contracts.  When will it stop.

May 30, 2010 04:01 AM
Tina Merritt
Nest Realty - Blacksburg, VA
Virginia Real Estate

United Realty - You are correct.  I tired my best to explain it thoroughly, but I guess some people got it confused.

Mike - yeah - some folks need to learn their manners when it comes to commenting on blogs.

Christine - I don't think it really matters if it's in opposition to the listing agreement since that agreement is between the seller and listing Brokerage.  The question is if it's in violation of COE and/or RESPA.

Vic & J. Philip - an agent changing companies still won't prevent the scenario addressed in the post from happening.

Leroy - promoting your brand as a comment on someone else's post is rude.  Learn some manners.

Beckendorf - It's a shame when agents have to eat these fees just to keep clients.

Connective and Jay - but what do you think of the scenario posted?  Is it a violation of COE?

 

May 31, 2010 11:46 AM
Tina Merritt
Nest Realty - Blacksburg, VA
Virginia Real Estate

John - thanks for reading and commenting.

Kathy - interesting....I vote "no"

Lynn - yes, I agree.  But does it violate COE?

Pat - I agree with you.  Call it what it is and stop trying to "back door" it.

Erica - #1-#4 - I agree with all!

Mike - I feel the same way.

Peter - the affiliations are getting WAY out of hand.  I saw one for a "preferred" termite company the other day!

Aaron - you're welcome.  The baby is adorable!

Darrel - it is crap, isn't it?

May 31, 2010 11:55 AM
Jerry Hill
Hill Realty - Bryant, AR

You go girl.  I personally don't charge a Brokerage Fee because as mentioned previously, why should there be an additional fee for something that is not specfically defined in the Listing Agreement.

Jun 02, 2010 10:09 AM
LeRoy Pilant
EXIT Real Estate Valley - Spokane, WA

Just sorry for the rant... so I removed it. It's very frustrating to see what agents allow their brokers to do. I've been there, until the final straw. Please excuse my rant, it just brought back ugly memories of a past experience. LeRoy

Jun 06, 2010 06:35 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

If you have to ask whether or not it should be disclosed, it's always wiser to disclose.  That avoids any issues after the fact.

Jul 19, 2010 12:06 PM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

If you have to ask whether or not it should be disclosed, it's always wiser to disclose.  That avoids any issues after the fact.

Jul 19, 2010 12:06 PM
Craig Alexander
Coldwell Banker Premier Properties - Front Royal, VA
Associate Broker in Virginia

Apples, Oranges......it just seems like this practice is truly BANANAS to me. 

My company collects fruit too at the closing table. 

 

Jul 21, 2010 07:32 AM
Tony Morganti
RE/MAX Crossroads in Cuyahoga Falls and Stow, Ohio - Cuyahoga Falls, OH
CRS, ABR, SRES - Cuyahoga Falls, Stow

The simple truth of the matter is that in many brokerages this transaction, or administrative fee or whatever they choose to call it is the only place the brokerage can make any profit.  When a large franchise company I was previously with first began to charge this fee around 12 years ago there was a report out that detailed how most brokerages at that time were making a profit of a mere $100.00 per transaction because of high commission splits and overhead.  The administrative fee was their way to remain profitable.  For a company averaging two sales per day charging a fee of $175.00 per transaction........well you can easily do the math on that for one year.  Since then I have seen this fee with various firms climb to as high as $345.00 and with the exception of one individual agent who now has his own shop, I have never been aware of any additional service that gets delivered. It's just a matter of time on this.

Jan 02, 2011 01:10 AM