Should Realtors Charge Transaction or Admin Fees

At a recent closing with my buyers, I noticed on the settlement statement that the listing agent charged the seller a $495 “Transaction Fee”. Good grief. I know agents who do this, and it’s not that uncommon to see a transaction fee of $195 to $495 billed to either the buyer or seller at closing, but Sylvia and I have discussed it and we simply don’t think it’s a good business practice.

Whenever I’ve asked agents about this, they justify it in various way, often saying that it pays for a transaction coordinator to keep the deal running smooth, which benefits the client. Uh, that’s my job, I think, and it’s part of what we do for the commission. Sylvia and I do use “contract to close” admin help when we get busy, but we pay for that out of pocket, just as we do for stagers, professional photographer, virtual tour, etc.

Other agents explain that each listing costs them $500 to $1,000 out of pocket, just to get the listing set up and the marketing started, and that the fee offsets those costs. I understand the arguments, and don’t completely disagree, but I can’t personally justify telling a client that I’m charging a transaction fee, or admin fee, or whatever important name we’d give. It would be a junk fee, and I hate junk fees. Bottom line, if I were a consumer hiring an agent, I wouldn’t pay it, and I can’t sell something I myself wouldn’t buy. I just can’t.

Now the courts agree with me.

From my Realtor email newsletter is this:

Court Says No Administrative Fees at Closing
Administrative fees tacked onto settlement charges violate a federal real estate settlement statutory ban against “unearned” fees, a U.S. District Court Judge in Birmingham, Ala., ruled recently.

The case involved RealtySouth, a unit of HomeServices of America Inc., the second-largest realty firm in the U.S. A buyer sued the company over a $149 administrative brokerage commission. The court found no evidence that the brokerage company performed any services beyond those covered by the commission and thus, violated the federal statutory ban.

And there we have it. Come on Realtors! We have enough of a time trying to justify how we earn a living. Tacking on these admin fees hurts our industry and makes us all look bad. Also, one veteran agent I know told me that she use to charge the fee but stopped doing it after talking with past clients who used someone else the next time. Turns out even though they didn’t complain about the fee at the time, they silently resented it, and thus didn’t call the agent back next time they needed help. So she doesn’t charge it anymore because she thinks it cost her more in lost repeat business and referrals than she gained with the fee.

The article goes on:

The case achieved class-action status, and the class could include as many as 30,000 home buyers. But this ruling doesn’t necessarily settle the issue for good, as other federal courts have interpreted the statutory language differently.

To avoid getting caught in similar disputes, Laurie Janik of the NATIONAL ASSOCIATION OF REALTORS® says brokers may want to consider using a flat-fee-plus-commission compensation structure that is disclosed to all clients upfront.

Flat fee plus commission won’t work unless the fixed part it’s collected up front. Consumers have rejected that model. We’re sticking with what we’ve always done, which is a commission that covers everything we do.

Posted by Steve
7 years ago

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Michael @ The Stage Coach - 7 years ago

hi, Steve:
Two comments: Would you believe I know a Stager who is also a REALTOR. And she charges a fee for her services to herself as part of her marketing costs. This sounds underhanded and non-professional to me. That’s like me charging to take photographs – I’m going to take them anyways.

Second – my New Year’s resolution for 2008 was to no longer pay Admin fees. If they won’t waive it, I find a new vendor. Examples of people who expect a fee so that you can be their client: Ballet/Dance schools. Karate schools. Self-Storage. Almost anything involving kids. This is all that’s coming to mind – but I was about 50%-50% for 2008 with getting them waived. [true story: Ballet school wanted $25 admin fee for $50/month class. I asked, “What do we get for the $25?” “We process your application and file it.” “How about I keep my $25 and I’ll find the “F’s” filing cabinet and file it for you?” Silence on the other end of the phone…”Or for $25, I can dictate the information and you can fill in the form for me? She hung up on me…]

My view: if I started charging an admin fee, it’s like saying, you can pay me so that I may provide a service to you, for which you will then pay me for. If the company you are dealing with wants an admin fee, they need to reassess their business plan and raise their rates if they are not able to make ends meet.

Admin fees should be illegal.

thanks for sharing this info.
Michael @ The Stage Coach

lenny - 7 years ago

we charge administration fees for the transaction fees that cover the processing fees for the closing fess

its a free world…

we bring value to the closing table…

scott - 7 years ago

hey michael, admin fees are illegal. marketing fees are not. be careful with labels, they can be very tricky if not justified!

arz - 7 years ago

I think fee for service should be ok as long as the entire service is fee based. Otherwise, how do you explain that 3% is all about? A bonus?

RealEstateJoe - 7 years ago

When I worked in the printing business many years ago, I would always have a customer call and complain about a line-item: “Delivery Fees”. She was very upset that she was being charged delivery charges for her printed materials.

The reality of the situation was that the cost was a part of her project, and the expense would have to be paid for in the billing one way or another. If we did in fact “bury” the cost in the printing charges, she would that have to pay state sales taxes on the delivery expense, as delivery charges were tax exempt.

The point being: there is a cost of doing business which has to be recovered in the payment, whatever you decide to call it. If you are trying to get additional income by creating additional line items is one thing, if there is an out of pocket expense that should be paid above and beyond the commission structure, then it needs to be articulated in the contract.

Brent - 7 years ago

Admin fees? ARE YOU KIDDING ME??? The friggin 6% to sell a house isn’t enough money for nothing?? Now you want an admin fee? No wonder everyone is selling on their own.

kristina wise - 7 years ago

What is the difference between a lender’s “processing fee”, “closing fee”, “admin fee”, etc. on top of the “orgination fee percentage” compared to a real estate professional’s “admin fee” that is paid toward expert help of producing a successful closing? Most Realtors collect the 3% listing fee and try to do it all themselves and ultimately produce series of breakdowns. In fact, I have to pay my staff extra in most cases to successful close both sides of the transaction b/c of incompent agents trying to close the file on their own. The public would be better served to pay an extra few hundred bucks towards detailed expert closers and let the agent do what they do best — show, sell and negotiate.

RealEstateJoe - 7 years ago

Both sides have a point. There are always additional expenses, especially in the current market, for marketing a property. Even if someone tries to sell a house themselves, there are attorney’s fees,. listing fees, printing fees, etc.etc. etc. Normally the seller expects that to come out of the agent’s pocket. But when expenses increase, property values are low, and it take more effort to sell a home, all of those incurred expenses come right out of the agent’s pocket.

As anyone in the business knows, for sale by owners has a whole series of pitfalls and legal considerations that will cost $$ on top of trying to reinvent the marketing wheel.

Jim Weix - last year

You can simply refuse to pay those junk fees. In most cases, the Agent will either dismiss it or pay it out of their commission.
If neither happens, tell the Agent that they are fired and just go to another real estate firm. These fees are all bogus and reputable firms don’t charge them.
If you feel like the Agent tried to trick you into paying them, file a complaint against the Agent and real estate firm with the local Board of Realtors.

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