Broker has to actually do something to get extra fee

WASHINGTON – Just about anybody who bought a home or took out a mortgage in the last five years has run into them in some form: mysterious fees from realty brokers, lenders, builders and title agents that added $200 to $500 onto the bottom line. Administrative, processing, document preparation and regulatory compliance fees are among some of their opaque names.

Now a federal appellate court has weighed in with a decision in a case involving a realty firm’s $149 mandatory add-on fee and the home buyer who challenged it. The U.S. 11th Circuit Court of Appeals reversed a lower court’s denial of class-action standing in the suit by Vicki B. Busby of Jefferson, Ala. The class action is intended to cover all consumers forced to pay what the brokerage firm termed its ABC fee – an administrative brokerage commission.

Busby filed suit against RealtySouth, a large Birmingham-based broker, claiming that in addition to paying a substantial commission to the firm and its sales agent, she was required to pay the ABC fee. Busby said there was no evidence that the firm actually had performed any extra services above and beyond those compensated for by the commissions and therefore the ABC fee violated federal law.

The appeals court ruled that the lower court had erred in not considering the factual issue of whether any specific work was done to justify the extra charge when it made its decision. The case, which now goes back to the district court, is the latest in a long-running battle pitting realty, mortgage and title companies against consumers protesting so-called junk fees and add-ons.

The Department of Housing and Urban Development has ruled for years that any fee imposed in connection with a residential real estate transaction must be for services rendered. Some federal courts have disagreed with HUD’s interpretation of the Real Estate Settlement Procedures Act. Others have agreed.

In the Busby case, the appeals court “bolstered HUD’s interpretation that if a real estate broker cannot produce evidence of the services it performed for the administrative fees it charges, a violation may exist,” according to Washington attorney Phillip L. Schulman of K&L Gates, an authority on real estate settlement.

The court’s ruling is not the final word on the matter, Schulman said, but it “underscores the importance of performing actual services in exchange for” fees charged.

In other words, a brokerage firm cannot simply dream up fees and force them on their clients. Many brokers have imposed extra charges because their sales agents demanded higher splits of the listing and selling commission dollars.

Laurie Janik, general counsel for the National Assn. of Realtors, argues that brokers are fully within their legal rights to receive compensation “for the increasing costs they incur to run their businesses” – communications technology, taxes, lease payments, marketing, to name a few.

Janik recommended that brokers consider moving to a standardized, well-disclosed flat-fee-plus-commission approach to handle the problem. For example, listing and sales agreements could specify that a firm charges a base fee – say $500 – plus commissions of 4% to 6% of the selling price of the property, split between listing and selling agents.

Using that approach, according to Janik, consumers, agents and brokers “all know up front” where the fees will go. “If the sellers or buyers don’t like that arrangement, they can walk down the street to another broker.”

How should consumers handle the issue in light of recent court rulings? Always ask agents up front about the existence and size of administrative or processing add-ons beyond the commissions. Ask what specific services are rendered to earn them and who pockets the money.

If you don’t like what you hear, shop around. Remember, in real estate transactions, all compensation is negotiable. If you don’t push for lower fees, you’ll usually pay the max.

Comments can be sent to kenharney@earthlink.net.