It is all over the Internet news. A court ruled that an "admin fee" that real estate brokers sometimes charge buyers or sellers may in some cases be a "junk fee."
"In a decision late last month that is sending shudders through the realty brokerage industry, U.S. District Judge Virginia Emerson Hopkins in Birmingham, Ala., ruled that when a realty firm charges clients an ‘admin’ fee, for which no specific settlement services are performed, the fee violates federal law," Washington Post columnist Kenneth R. Harney reported.
Here in Minnesota we have to call the fee a "broker commission." The fee ranges from $200 to $500; the buyer or seller is responsible for paying it; and it is in addition to any commissions paid by the buyer or seller — the brokerage receives it in addition to any commission split or additional fees taken from the agent.
Last year I had a closing where the title company made several mistakes and failed to collect the $300 "broker commission." The closer, her manager and the regional vice president of the title company would not return my phone calls after the closing. When I got my commission check from my broker there was $300 dollars missing from it.
The broker’s commission was taken from my commission check, which is a common business practice in my area. It is far easier to take money out of an agent’s check than it is to collect it any other way, and most agents just let it go.
After a careful review of the contract signed by my buyer, I concluded that the buyer owed the brokerage $300 and had agreed to pay it. I cannot by law directly give or take money from a buyer or seller related to a real estate transaction outside of a closing.
I had never signed anything with the brokerage agreeing to pay the fee, but had agreed to charge each buyer and seller for it. It did not appear as though I owed anyone $300.
I decided to take the issue to small claims court. It is very inexpensive to take something to small claims court and the process is easy, and if I won I would get my money back and the small fee that the court charges for filing a claim.
If I lost, it would cost about $50 and take up a couple of hours of my time. I saw it as an opportunity and a learning experience. …CONTINUED
The commission that I had earned from the transaction was unusually low to begin with, and the $300 was more than 10 percent of it, and was in addition to the 36 percent that the broker had already taken in splits and franchise fees.
In the end I did receive a check for $300 from my broker without having to use small claims court. It may have been because the commission was so small in the first place that the broker took pity on me.
My peers did not support me on this and the company formed a committee to draft a document to be signed by all agents making them responsible for paying the fee if their clients do not. It is a common business practice to take the fee out of the agent’s commission check if the money does not get collected from the consumer.
None of my Realtor friends like it, and one friend estimates that she lost a couple of grand that way last year.
She told me that before I took action — and I didn’t tell her that what she said is what made me take action (even though she spent at least 30 minutes trying to talk me out of it). The practice is so ingrained in our industry that no one wants to challenge it.
But just because a business practice is common does not mean that it is legal.
Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.
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