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.