Kenneth Harney wrote a story in The Washington Post on Friday about a recent court challenge to a real estate broker’s "add-on" fee.
Call them what you will: "admin fee", "add-on fee", etc…….they’re basically junk fees. There, I said it. I used the "J" word.
In the past 5-10 years, it had become a rather common practice for real estate brokers to charge a separate fee, in addition to the commission, at closing. These fees generally run anywhere from $150-$450 and are charged to a buyer or seller or both.
The Real Estate Settlement Practices Act of 1974, which governs home purchases, includes provisions designed to prevent junk fees. The law dictates that fees can only be collected for services actually provided. That means junk fees levied simply for the heck of it are not allowed.
In a recent court decision, "U.S. District Judge Virginia Emerson Hopkins in Birmingham, Ala., ruled that when a real estate firm charges clients an "admin" fee, for which no specific settlement services are performed, the fee violates the law.
(I’m not an attorney: You might want to call one for some advice in light of this ruling)
Some brokers call the fees "a cost of doing business". In my experience, real estate agents, for the most part, cringe when the fees are mentioned. Why? Because the majority of agents must pay the fees out of their own pocket if they do not collect them from their clients. Also, there are all of the "exclusions": banks are usually not charged the fees due to the volume of business they provide, ditto for relocation companies. Some mortgage programs will not permit a buyer to pay an administrative fee so it is waived. So is it "fair" to charge the fee to some and not all?
As an agent, I despise these fees. Even after all these years, I am still embarrassed to have to explain this fee to my clients. Why? Because I truly do not see any value in service for these fees. The clients will receive the same service, the same marketing, the same quality whether they pay the fee or not.
So, what is NAR’s take on all of this? According to NAR, they support brokers’ ability to charge legitimate fees for real services provided. "To the extent the administrative brokerage commission is stated separately from the real estate broker commission, the broker should ensure that the fee is disclosed, that real services are being provided to the client in exchange for the fee, that the services are documented and, again, that the fees are reasonable in relation to the services being provided."
While this ruling sheds light on the legality of these fees, the ultimate test is that of the consumer. In the free market economy, what is the consumer willing to pay for real estate services? I have often heard the argument that many other companies tack on "fees" – such as airlines charging a fee for a reservation placed over the phone rather than online, or hotels charging a "resort" fee, or pizza companies charging a delivery "fee". The difference with these examples though, is that as a consumer, I have a choice in the matter. I can physically see what the actual service is that I am being charged the "fee" for and make a decision on whether or not I want to pay that fee. I can choose to make my airline reservation online to avoid the phone fee, I can pick up my pizza to avoid the delivery fee.
With these real estate administrative fees, it seems the only choice the consumer has is to pay it, or go to another company. That’s not good business.
Moral of the story? In order to stay on the right side of this ruling, brokers who add these fees to the transaction better be able to demonstrate what the fees are for. Again, consult an attorney.