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Ethics

On Admin Fees and “Commission”

moneyI 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.

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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.

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Written By

I'm a Realtor in Southern Maryland. I grew up surrounded by the RE business, spent time as an actor, worked as a theatrical designer and technician, and took the road less traveled before settling down in real estate. I run my own local market website at https://www.somdexpert.com and when I'm not at the office or meeting clients, I can usually be found doing volunteer work, playing with my 3 rescued shelter dogs (Help your local Humane Society!), or in the garage restoring antique cars.

23 Comments

23 Comments

  1. Jeffrey Douglass

    February 28, 2010 at 12:29 pm

    Jonathan, I could not agree with you more on the admin thing. I left a large franchise broker that did the same. Rather than deal with runaway costs and agents splits they decided to pass the inefficiently on to the Client.

    Last year I wrote a similar article which continues to be found in search results, clearly the consumer is not happy with the practice.

    https://www.sandiegolifestyle.info/2009/12/why-would-you-pay-a-real-estate-transaction-fee/

    Good for you for taking a stand.

  2. Duke Long

    February 28, 2010 at 12:30 pm

    Never have, Never will

  3. John Kalinowski

    February 28, 2010 at 12:34 pm

    Jonathan – This is a very timely story. The largest real estate company in the Cleveland area (over 2,000 agents in our MLS), Howard Hanna, is in the middle of a big class-action lawsuit revolving around these fees.

    You can see the video from WKYC TV here

    Not sure where their case will go, but could be a major game-changer in our market.

  4. John Kalinowski

    February 28, 2010 at 12:35 pm

    Note: When the previous video link loads, you may have to click the little sound icon to hear the audio.

  5. Russell Shaw

    February 28, 2010 at 12:50 pm

    Totally agree. I think they are awful and deceitful. Always have.

  6. Fred Glick

    February 28, 2010 at 3:00 pm

    Greed. And as an agent, why do you work for one of these companies?

    I will NEVER charge any junk fees for real estate or mortgages. Period.

  7. Frank LL0SA- Arlington Broker Blogger

    March 1, 2010 at 10:44 am

    You should switch firms.

    • Jonathan Benya

      March 1, 2010 at 4:25 pm

      To what end? I love the firm I work with, save for the admin fee thing. They offer me quite a bit of support, and it makes my life much easier. I cover admin fees myself, so my clients need not suffer. What do I stand to gain by switching companies, and does it outweigh the pain and agony of changing firms?

  8. BawldGuy

    March 3, 2010 at 6:30 pm

    Excuse an OldSchooler’s ignorance. What’s an admin fee? What does it cover? Thanks

  9. Missy Caulk

    March 3, 2010 at 6:37 pm

    Johnathan, our Michigan Association of Realtors did an opinion on this after the court case in Alabama.
    Bottom line without legalese: They are legal in Michigan IF disclosed upfront.
    And justifiable.

    Some firms use them routinely. Some the broker mandates them.

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