Who’s Paying? Disclosing Broker Transaction Fees

Almost every brokerage has a set transaction fee they contractually charge to both their sellers and buyers. The brokerage fee is designed to offset the cost of the overhead such as office supply expenses and the costs of the salary/hourly non-licensed employees. The broker transaction fee is a set fee, and, on average, they range from anywhere between $250.00 to $495.00, again, depending upon the brokerage and geographical location. It is a charge that reflects the price of doing business in today’s market.

Here is the issue; there are agents who are increasing the broker transaction fee in their contracts and not disclosing it to their clients. For example, let’s say the broker transaction fee is set at $250.00 but the agent’s listing agreement or purchase agreement states the transaction fee is $495.00. At the close of the transaction, the broker will get the mandated $250.00 and the remaining $245.00 goes into the agent’s wallet. Is that disclosed on either the listing agreement or the purchase agreement? No, and, until recently, the general public has been none the wiser.

One of an agent’s fiduciary duties to their client is accounting. The agent is required to tell their client where every penny of the transaction is going to go, which includes the inflated price of the broker transaction fees. If agents are going to require additional funds, then they should not be hiding it under the guise of, “That’s what my broker charges.” Rather, there should be an additional line in their contract that states, “This amount of the transaction fee is going to the broker and this amount of the transaction fee is going to the agent.” Might that put the agent in an uncomfortable situation? Yes, but the increased broker transaction fee is their choice so let them explain to their client why they require the extra funds.

Article 9 of the Canon Of Ethics states,

“The licensee, for the protection of all parties, should see that financial obligations and commitments regarding real estate transactions are in writing, expressing the exact agreement of the parties…”

Agents who are not disclosing their decision to increase the broker transaction fee are in violation of this article. The definition of real estate fraud is,

“A deceptive action intended for the perpetrator’s personal financial gain and typically at the expense of the victim.”

Does padding the broker transaction fees and not disclosing it constitute fraud? The very definition of real estate fraud says yes.

Make sure, when listing or selling a property, that you tell your clients the exact amount of the broker transaction fee. If you have inflated that cost, then you must own up to it. After all, the client can always call your brokerage and ask the price of the broker transaction fees. If it’s different from what is on your contract, well, you’re going to have some explaining to do.

Speaking of fees, does your referral fee violate RESPA? Kristin Rosan has the answer.