On Admin Fees and “Commission”

I HATE admin fees.  I hate them with a passion. My company also charges them, or at least they used to.  If you pay attention, you may have noticed a certain laswuit that dealt with this issue specifically last year.  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.

So, this means that admin fees may be illegal, and you may be sued for charging them.  I’m in complete agreement!  There’s no excuse for charging admin fees, at least none that satisfy me.  Here’s the rub:  Many companies, mine included, have stopped charging the “admin fee” and now claim that the commission is $x as a base plus x%.  It’s little more than moving a line item fee from the HUD-1 over to the commission line.

Why?

I understand that brokerages need to make a profit, and Frank Llosa did a great video cast on Inman News about who’s to blame for junk fees like this.  I don’t really care who’s “fault” it is that these fees exist, but I do care about the way in which it is now being handled.  As far as I’m concerned, any agent/brokerage that can’t make their numbers work without adding on an admin fee or additional flat commission fee needs to have their head examined.

As we know, there is no “standard” commission fee.  In the past, I’ve charged anywhere from 3.5% commission to 10% commission, and I’ve never supported the idea of an admin fee.  I’ll pay the cost out of my own pocket before I’d charge a client, I’ve done it before, and I’ll do it again.  What I don’t understand is that if I were to charge 5% on a $300,000 deal, the total commission would be $15,000.  Do that deal at 6%, and the commission jumps to $18,000.  Either way, I’m supposed to charge my client and additional $395!

Greed or Necessity?

To make matters even worse, some brokerages will charge this admin fee and then split the money with the agent, so it adds an additional payday to the transaction for the agent!  The reason for this is obvious:  It’s much easier to convince your agents to stick it to the client by giving them a slice of the pie.

I don’t want to vilify brokerages or agents who have some sort of admin fee, but my opinion is that it should be set up differently.  If the brokerage needs the extra money to remain profitable, fine.  Charge the fee to the agent making the money, not the client.  If the agent then wants to pass off the cost to their own client, so be it.  I find it distasteful, but agents are allowed to charge whatever they want; no “standard” commission, right?

I don’t see this as something that can/should be regulated away.  I do however find that as an agent, I can’t justify charging a commission of 5-6 figures and then add on an extra $200-$500 because I can.  It’s up to the agent and/or brokerage to determine what the “right” thing to do is. For a broker, it can be difficult to maintain profitability when your agents constantly demand higher splits and more services for less money.  In some cases, additional fees like this can be the tipping point between keeping the lights on and going out of business.

For my clients, they won’t be seeing this additional fee.  It’s a matter of personal principle.  I’m not the type to discount my fees; I firmly believe I’m worth every penny I charge, but I don’t believe in charging additional costs that have been put in place because agents like myself demand high commission splits.