The Administrative Fee. It’s Just Not Good Business.

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.

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11 Responses to The Administrative Fee. It’s Just Not Good Business.

  1. Pingback: Are “Admin Fees” Legal? | Fredericksburg REALTORS®

  2. Matt Wilkins says:

    IMO “Admin Fees” are a joke. From what i’ve seen in the biz its mostly a way for agents to reduce their cost to their broker by shoving it off onto the consumer. Want proof: look at all the HUD-1s where agents end up crediting the cost of the “admin fee” from their commission.

  3. Brian Block says:

    Although our brokerage does collect an administrative fee for each transaction from the agents, I’ve made it a practice not to pass this fee on to my clients. I actually go out of my way to explain to them at our initial meeting that I do not charge an administrative fee.

    I think many other agents who have sat across from me at the closing table subsequently are embarrassed when their $295, $395, what have you, fee appears on the HUD-1 and they have to explain to their clients why they have a fee when I didn’t charge one on my side of the deal.

    From a brokerage perspective I certainly understand the reason for admin fees, but from an agent and consumer perspective, I’ve always been leery of them.

  4. Tina Merritt says:

    Brian – I too have been at that closing table and experienced what you mentioned. Even worse, when the buyer and seller are represented by the same brokerage, but different agents, and one client is charged the admin fee while the other is not. Awkward!!!!

  5. These fees your talking about sound like a bunch of $@$@. I have to say as a consumer I would be questioning the fees as well.

  6. Jeremy Hart says:

    Any New River Valley agents know why we DON’T have these fees? I’ve never seen a HUD-1 with these fees applied. Any agents know the history here?

  7. Scott Brunner, CEO says:

    Folks, for the record, VAR has NO position on such admin fees, and recognizes the right and current practice of our member firms to charge them. Lots of strong opinions have been expressed here, so I wanted to be clear that such fees, if administered correctly (for actual services rendered), are absolutely legal and within the discretion of any company to charge.

  8. I agree with Scott.

    Well maybe, I dunno, just wanted to start with that, thought it would be fun to say! ;-)

    Anyhow, I gave Mr. Harney a ton of ammo for that story. He found my blog post on the topic http://blog.franklyrealty.com/2007/02/395.html (Google Realtor admin fees).

    What I said in the article holds true. The broker is not the only person to blame. I assure you, if you offered the broker a 3% worse split (ie worse for yourself) they would be ok without charging the admin fees. I think these fees came up as a result of agents demanding better splits from their brokers (and why shouldn’t they?).

    But as a result, to keep the lights on, they said “ok I’ll give you 100% (or something higher then it was), but your client has to pay us $250” and the agent’s answer “Great! I get to keep more, and I’ll just blame my broker in the end.”

    So I maintain that the agent is equally responsible for those admin fees, as the agent is indirectly benefiting from them by getting a better split.

    Anybody taking kickbacks on HMS Warranties? Did you know you can just send in $60 less and your client gets your “admin fee.”

    Frank

  9. Scott Brunner, CEO says:

    It’s rare that I’m agreed-with, so I’ll take what I can get. I thought you did a great job in the Harney article, Frank. Your example was compelling.

  10. Tina Merritt says:

    Teresa Boardman wrote an interesting article about admin. fees for Inman today.

    http://www.inman.com/buyers-sellers/columnists/teresa-boardman/calling-out-real-estate-junk-fees

  11. William J. Wyllie says:

    When are real estate Brokers, the NAR, the VAR going to understand that agents are not in the business to pay for the Broker’s overhead? The NAR in most cases panders to the “big dog” constituents and anything NAR says is tainted in that regard. The Broker is unimportant; the client is the only reason for being. If Brokers had this thought in mind ie the client, administrative fees would never have been an issue in the first place.

    Admin fees are another example of the organization mindset of the profession. A mind set unless changed will render brokers and agents history.

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