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Is it Necessary to Pay a Real Estate Transaction Fee?

If you are reading my info-article for the first time you will quickly understand that my goal is to educate home buyers and sellers about the nuances of the real estate business. If you are a consistent reader you know I tell it like it is (or how I believe it is).

This week I want to shed light on the infamous transaction fee (also known as an administrative or broker service fee). Whatever it is called by different real estate brokerages I will refer to it as the FEE.

Several years ago real estate brokers faced with higher costs of doing business look for ways to supplement their income. Many decided to charge ancillary fees in addition to the real estate commission. The fee is usually in the $200 to $500 range and purports to cover costs for increased overhead and costs incurred for complying with the myriad of federal and state laws affecting the sale of residential real estate. The fee is not limited to the home seller but is often charged to the buyer as well.

The Real Estate Settlement Procedures Act (“RESPA”) governs the conduct of real estate brokers on the federal level. Federal courts and district courts have not found these administrative fees to be in violation of RESPA, but the U.S. Department of Housing and Urban Development (“HUD”) has maintained that fees charged for nominal or duplicative work violate the Act. On October 18, 2001, HUD issued a Statement of Policy, adding unearned or excessive fees to the list of RESPA violations.

To further complicate matters In a decision that could have significant impacts on the fees that consumers pay in real estate transactions, in 2012 the U.S. Supreme Court ruled that “unearned” fees charged by lenders and other service providers do not violate federal law as long as they are not split with anyone else LOOPHOLE: (commission is customarily split with another broker, service fees are not). The court’s unanimous decision effectively reopens the door to controversial “administrative” fees levied by real estate brokers and could encourage the practice of “marking up” of fees by mortgage lenders, settlement agents and others that had been banned by federal regulators for the past decade.

The fees, if any, need to be disclosed to the parties that will be responsible for paying them up front. The Listing Contract and Business Relationship Agreement we use in Pennsylvania outline the additional fee to be charged right in the respective document. It is normally not something most agents go out of their way to explain to their prospective customers. Read the contracts!

Here is the rub between HUD and the Fee. Prior to 1999, the job of a real estate broker and the licensee was to find a ready, willing and able buyer and seller for a property. After November 25, 1999 Act 112 of the Real Estate Licensing and Registration Act (“RELRA”) was amended and signed into law by Governor Ridge. The Amendment to the Act expanded the duties of agents. The most important of these duties are the obligations: 1) to advise the consumer to seek expert advice beyond the licensee’s expertise, i.e., to seek the advice of an attorney, 2) to keep the consumer advised regarding the status of the transaction, i.e., beyond simply finding a buyer and seller, the agent must now continue to provide service until an agreement of sale is settled, and 3) to advise of the tasks to be completed to satisfy an agreement or condition for settlement, provide assistance with document preparation and advise the consumer regarding compliance with laws pertaining to real estate transactions. The duties mentioned have normally been implied (expected) as part of the agency relationship between the customer and agent, they are now statutory (mandatory under the Act).

No wonder many attorneys have a problem with their clients being charged an additional transaction fee for duties that are already the statutory responsibility of the agent. Sounds to me like the duties necessary to complete the transaction happen whether the customer pays the fee or not.

Cutting through the legal garble, the whole thing customarily works like this…The real estate agent is charged a transaction fee of around $200 to $300 by the broker they are licensed under. The agents turn around and pass the charge to the customer along with a healthy increase of $50 to $300. This elevated amount covers the broker cost to the agent and creates more income for them as well. Not all agents do this so be diligent and ask when you are shopping for an agent to represent you.

Weichert Realtors® Neighborhood One will NOT charge a transaction or administrative fee to any of our customers. But since so many real estate customers have paid, and continue to pay the additional fee to their brokerage and/or agent, our agents have come up with a better way to spend your money….If you list your home with us or have our company represent you as a buyer agent in a home purchase, we will give you the opportunity to pay an administrative fee of up to $125.00. This fee is not mandatory but if you do pay it Weichert Realtors® Neighborhood One will match the amount and send the funds to a charity known as the Wounded Warrior Project in your name. This seems like a better way of spending your money than charging you for a service we already do as part of the business relationship with our customers.

Knowledge is power!

Jeffrey C. Hogue