This is one idea that will create a lot of hot tempers on both sides of the issue. As the guy that invented the 8% listing presentation, and that believes in agents making a good living, you might find my position on this interesting, and maybe different from what you might expect.
I’m in favor of agents doing a great job, and I’m also in favor of us getting paid well — in other words paid commensurate to that great job. Frankly, some agents today aren’t worth paying a dime, but there are many who are out there quietly doing a great job, making or saving their clients thousands of dollars, and for those agents, I am very much in favor of great pay. Those agents, in my humble opinion, are grossly underpaid.
Unfortunately, for those who are grossly underpaid (and you know who you are), if you are working for buyer clients then you are at the mercy of the commissions being offered by listing agents. That commission, nationally, is now only 2.6% on average, down from over 3% just a decade ago.
The reason commissions are down is in large part because listing agents today are ill-prepared to articulate their true value and therefore have to compete on the lowest of all common denominators — commission. What a shame. Those agents, in my opinion, should just work with buyers, or if they must work with sellers, learn what they are doing.
If you are such a listing agent, and you provide spectacular services, you should be getting paid what you’re worth. I suggest reading my series entitled The Ultimate Listing Presentation or better yet, buying the e-book that goes into even greater detail. In it I show you step-by-step how to list for several points above your market average commission, every time. I personally listed 119 individual homes for 8% or more in a market that was typically 6% and less, in a single year using this approach.
If you are primarily a buyer’s agent, and are at the mercy of the lousy commissions being offered by many listing agents today, I would suggest you add an admin fee to your buyer’s agency agreement and then, ultimately, to the HUD-1. I realize that this is not a brand new idea, but it is something worth exploring if you aren’t currently doing it, and worth looking at again if you are doing it. Here’s why:
Recently, a US District Court decision set a bad precedent as to charging admin fees. A judge said add-on fees violate federal law when there are no specific services performed to justify the extra cost to consumers. Helen Kanovsky, general counsel at the US Department of Housing and Urban Development (HUD), whose job it is to enforce RESPA (Real Estate Settlement Procedures Act), clarified the government’s position on controversial add-on fees in a recent letter to industry lawyers.
Here’s essentially what she said: Federal law does not govern how much real estate brokers can charge their clients, but it can and does regulate how brokers and agents disclose their compensation to consumers. You may either charge a flat fee, a percentage of the sales price, or a combination of the two. The revised HUD-1 settlement form in use nationwide since January 1st of this year has item lines where the commission charges and splits can be listed.
Kanovsky went on to say that if the total charges exceed the amount of the commission for listing and selling the home that are reflected in the real estate broker’s or agent’s listing agreement or agency agreement, then HUD has the legal power to review the extra charge to determine whether additional services were provided to justify the add-on.
If little or no services are performed, HUD would treat this as a violation of the Real Estate Settlement Procedures Act. And that’s coming straight from the horse’s mouth, as it were. So in other words, what many brokerages are doing today, is problematic and could cost you a fine, a loss of license, or worse.
Here is my suggestion. Get you buyer clients to agree to an administrative fee as part of your buyer’s agency agreement. Insert language to this effect, when it comes to fees: “Buyer agrees to compensate broker as follows: 1) Broker to receive the entire commission, bonus, or other incentive, whether monetary or otherwise, as offered by the seller, but at no time less than X% of the gross sale price. 2) In addition to the commission as offered by seller (see #1 above), buyer agrees to pay broker an administrative fee in the amount of $X., payable at closing.”
Don’t get me wrong, agents can legally charge whatever they want to charge. The problem is with undisclosed fees. If they are not agreed to up front, then simply putting them on the HUD-1 after the fact doesn’t work. But that doesn’t mean that you have to walk away from getting paid fairly for your hard work. I say that if you are a buyer’s agent, charge an admin fee, disclose it up-front on your agency contract, get the seller to pay for it during negotiations, and always put it on the HUD-1.
That will cover you legally, and that will help you get paid for the hard work you do and the value you bring to the transaction. Certainly, if you feel at any time as though you are being over-compensated, you are free to give any of that money back to either principal at closing, so long as it is fully disclosed on the HUD-1.
I say, don’t walk away from getting paid what you’re worth simply because you are afraid you might upset someone. If you provide great service, you deserve to get paid well. Charge an admin fee on every deal. And that’s Max-Bang!