If you’ve bought or sold a home in the Twin Cities area in the past ten years, chances are you paid an administration fee to your real estate broker when you closed.  How can you find out?  Review your HUD-1 settlement statement/s and refer to the 700 numbered section, usually #704.  If the line item is blank, your broker did not charge you.  If not blank, you will know what you paid.  Now if you’ve arrived at wondering what the fee is all about, you’re not alone considering buyers and sellers in many states are organizing to ask the same question.

According to a recent United States District Court class action ruling against a real estate company in Alabama, a broker administration fee that does not account for a service provided at settlement is a violation of the Real Estate Settlement and Procedures Act (1974).

(RESPA) Section 8(b) states:   “No person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service… other than services actually performed.”

Similar action in several states has raised responses by National and State Associations of REALTORS. From the NAR website:

Laurie Janik, NAR general counsel, put it this way: “The court found that the ABC Fee represented an additional charge to the buyer to defray the overall costs of the brokerage services she received, including the broker’s overhead and administrative costs. However, because the ABC Fee was separately itemized on the settlement statement from the percentage brokerage commission, and not specifically justified as compensation for other discrete ‘real estate settlement services’ provided, the court viewed it as a duplication of the percentage commission charges, thereby rendering it an unearned fee in violation of RESPA.”

My office has never charged a broker admin fee although I’ve attended hundreds of closings where the fee was charged at the other end of the transaction. On the occasions when a buyer or seller spoke up during the closing and questioned or refused to pay the fee, the agent usually defended the fee as necessary to cover the costs related to maintaining records.  So the question I always wanted to ask is:  If maintaining records (the contracts, etc we’re required by law to maintain) equates to charging a fee in exchange for a real estate service provided at settlement, why don’t they just call the fee a commission (considering the same companies are still capable of convincing some people that a 7% commission is a good deal)?  

Anyway, if 7% still isn’t quite enough, why not promote the fee up front?

_Brian 17 AUG 2009