Real Estate and Reston, VA: Junk Fee or Legitimate Charge? What Do You Think?

I own my own small brokerage.  That provides me with a lot of flexibility, but also a lot of responsibility. I read a posting earlier today (and sorry, I can't find it now) about how the lower overhead can provide more flexibility with commission pricing. Given the widespread anti-trust fear mongering that goes on, I am not going to discuss that, but I read an article on Saturday about something related that I would like to discuss: the  Admin Fee or Transaction Fee.

Let me start out by saying that after years of being out of the business, when I came back, I was told that an admin fee was part of the commission  fee structure. I happily went out and sold that to my clients but I was careful to always disclose this in writing.  I was always a little 'fuzzy' about what it was for (of course, that is the rub--if we are 'fuzzy' how can our clients understand?). But that was before I went out on my own. Now that I am the boss, and the procedure manual is written by me, I have stopped charging this fee to my clients.  The fee did not go away; I pay a case manager a fee to handle the paperwork associated with keeping my contracts on file and up to date. I see no reason to charge this to the client. They did not set up this procedure and it is not their responsibility to maintain our paperwork.

In a Saturday, March 20, 2010 article in the Washington Post, Kenneth R. Harney discusses this practice in his article, 'Charging "admin" fees on top of commissions garners industry scrutiny.' I guess that HUD attorneys have been busy trying to determine if these fees are legitimate following a U.S. District court decision last year saying that they were a violation of Federal Law (as an aside, when this article was printed in hard copy in the Washington Post, it was titled, 'HUD clarifies the application of realty add-on fees').

In reviewing his article, my interpretation is that if these fees are disclosed and included in the listing or buyers agreement AND they do not exceed the total amount of commission that these agreements contain they will probably be okay (ie. the amount of each needs to be present in the agreement and the total on the HUD-1 must not exceed this). If, however, the commission that shows up on the HUD-1 exceeds the amount listed in the agreement then the burden of proof falls to the broker to prove that they are for specific and warranted work. Even then, they could be perceived as 'junk fees' and the brokerage could be taken to court.

My take on this is to just get rid of the fees!  I will pay for processing each transaction out of my commission; I am receiving a service for the money I pay and I am happy not to have to explain why it is in my agreement to start with. Of course, being the marketer that I am, I am always happy to point out that my clients will not see this fee if they go with me--because I know darn well that they see if from my competitors!