Stop Calling them Transaction Fees

It has become a fairly widespread practice, both in Pennsylvania and nationwide, for brokers to charge a flat fee in addition to the overall commission. These flat fees have been designated as transaction fees, administrative fees, regulatory compliance fees…. In April 20, 2009 a federal judge from Alabama decided as a matter of law that the administrative brokerage commission that the broker charged to the buyer violated RESPA. A flat fee was charged in addition to the commission, and the chief financial officer for the brokerage testified about what costs that additional fee was covering. The court was not convinced.

It is important to understand that there is nothing in Pennsylvania law, the regulations or RESPA for that matter that prohibit brokers from charging blended fees (part commission, part flat fee). The PAR Exclusive Listing Contract and the PAR Business Relationship Agreement are both drafted to accommodate a blended fee structure. If this is the business model that you are following, it is important call the flat fee portion what it is – IT'S YOUR FEE!!!

Part of the problem with calling the flat fee something else – transaction fee, for example – is that designation suggests you are providing a service in addition to the regular services for which you charge a commission. Many times, this is not the case. The flat fee, in my experience, typically represents an increase in costs to the broker for doing business. All costs associated with doing business are on the rise, and the "flat fee" is seen as a way for brokers to offset the rising costs that will cost consumers less than increasing negotiated commissions. Additionally, in most instances the fee is remitted directly to the broker; it is not shared with the salesperson. It really is part of the fee that the broker charges to represent a consumer in a transaction.

There may be instances in which a separate fee is appropriate. These instances occur when a broker (or agent) offers additional services for an additional fee. Not all consumers have to partake of the service, and those who do not will not pay the cost. A prime example is home staging. You may want to offer your seller-clients an additional service of having their home "staged" so that its appeal is greater for showings or for open houses. For those consumers who opt for the home staging service, the cost would be reflected as a separate charge on the HUD-1. To the contrary, you cannot charge an additional amount for acts or services that you perform in each and every transaction and that are presumed to be part of the underlying fee. These could include preparing the documents necessary to the transaction, storing transaction files in accordance with the Rules and Regulations, or coordinating settlement with the title agent.

So what is your fee? Do you just charge a negotiated percentage commission? Or do you charge a flat fee in addition to the negotiated commission rate? Both business models are acceptable… Just be sure to call it what it is!

Copyright © Brett M. Woodburn, Esquire, CALDWELL & KEARNS, P.C., 2009
All Rights Reserved

Brett Woodburn is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.