Add an Admin Fee!



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!

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Matt

I give away about 99% of all my technology and digital training content, completely free of charge, because I want to see other agents have the same kind of success that I've had. But one thing I charge for is my Ultimate Website technology. This is the web technology I created for myself that turned my real estate practice around overnight, and now I license it agents everywhere. But right now it's too popular and is currently waitlisted. Click here to get on the website as soon as possible and I'll notify you as soon as new invitations become available.

Comments 23

  1. author Harriman Real Estate posted June 14th 2010. 3:32 pm Reply

    I respect your view on this, but have to respectfully disagree. If an agent is working his business efficiently, there should be no need to further tax your clients by adding an admin fee. I firmly believe that you should be able to run your business on the commissions you earn. If you can’t, then you need to re-evaluate your business plan and adjust it accordingly so that you can. Get out and close one more transaction, that will negate your need to charge any fees. We’ve worked for brokerages that charge these fees and we can categorically state that clients were not happy with them. We opened our own brokerage recently partly so we would not have to charge these fees and we have never regretted it. This is a highly charged issue that has been bandied back and forth in multiple forums and we know there are differing opinions, so thanks for providing one more opportunity for discussion!

    • author Matt Jones posted June 14th 2010. 3:58 pm Reply

      Thanks for reading and for your comment. I actually agree with you. I CAN run my practice on the commissions I CHARGE my clients. Here is the problem, however: When working with buyers, you are at the mercy of listing agents who can’t seem to hold the line on brokerage fees (commissions have dropped almost 15% in a decade, while expenses have all risen). Charging a fee allows you to add to your gross income where the listing agent hasn’t properly done his job. An alternative would be to not show any listings with sub-standard commissions. That would open another can of worms.

      If you charged your buyer a flat-fee of say 4%, that would leave a deficiency in most cases, and by law we can’t insert the commission into the negotiations. Another and more palatable alternative, is to include an administrative fee, document fee, escrow management fee, or whatever you want to call it. Include it on your agency contract and the HUD-1. The advantage of doing it that way is that you can often get the seller to pay it as a reimbursement of the buyer’s closing cost. Of course any agent who lists cheaply, has no right to demand more when on the receiving end. At the end of the day, the client is only upset about unexpected fees, so take the time to explain them all and you won’t have a problem.

  2. author Susan Keiser posted June 17th 2010. 11:35 am Reply

    Thanks Matt! I appreciate the idea. S

  3. author Tom Branch posted June 18th 2010. 2:24 pm Reply

    Matt,

    As a heavy listing broker (87 listings in 2009) I have to disagree with the concept of charging an extra fee to your clients. I thought I read about recent litigation that went against a brokerage charging such fees but I could be wrong.

    If I decide to reduce the overall commission I charge to the seller, I usually do not let that impact the coop commission paid to buyer’s agents.

    Tom


    Tom Branch, CDPE, SFR
    Broker Associate – RE/MAX Dallas Suburbs

    • author Matt Jones posted June 19th 2010. 9:11 pm Reply

      Hi Tom,

      Thanks for reading and for your comment. I think if you read my Ultimate Listing Presentation you will change your mind. My clients net on average 6-8% more money at closing as a result of paying a higher commission and they sell their properties in half the average DOM. They all get the option of using a traditional (Price) approach, or my Traffic approach and choose my approach. Let me know what you think after you’ve had a chance to read my approach. Thanks again for reading!

  4. author Ken Smith posted June 18th 2010. 5:09 pm Reply

    I completely disagree as well. First of all, it is high commissions that entice too many people to become Realtors. If 90% of all agents quit tomorrow, there would still be too many of them. I make a good living at 3% per side. When representing a buyer, I would NEVER accept a bonus. If I take a listing at less than 6%, I always offer 3% to the other guy and take the cut on my side. I’d rather work in a world with LOWER commissions (per deal), and way way fewer agents. I am quite happy, however, to have such greedy mentality out there trying to compete with me!

    • author Matt Jones posted June 19th 2010. 9:08 pm Reply

      Thanks for posting, and for feeling comfortable enough to disagree. That means a lot to me. Ken, I’m okay with agents who want to work for less, but funny thing is, I have never had any refuse the extra 1-2% I paid them on all of my listings. Not a one. I can tell you that by raising my co-broke commissions and paying more, my listing showed more than most and on average sold in half the DOM. The fact is, there are very few agents who are making more than $30,000 and that is a shame. Most can’t afford to stay long enough to acquire the skills that come only from experience. Thanks again for reading and for your comment.

  5. author Gary Long posted June 19th 2010. 9:40 am Reply

    I had an agent one time that only got paid 1% representing a buyer because the buyer really wanted the house and the agent did what was best for the client and ignored the Cooperating Compensation advertised on the MLS.

    A couple of other agents I know of routinely offer only 1.6% commission for all of their listings. They might be doing this to keep other agents from showing their properties until they can double-end the transaction. Regardless of the reason; the buyers’ agents get screwed.

    I have never been in favor of additional fees but if I can get the seller to pay for it with the closing costs then I will have to re-think this whole issue. That’s probably the only way you are going to get the seller of a greedy agent to pay their fair share for you bringing them a buyer.

    But, how many of your clients have balked at paying the admin fee if you can’t get the seller to pay for it?

    • author Matt Jones posted June 19th 2010. 9:00 pm Reply

      Thanks for reading and posting Gary. I guess I’m just hard-hearted. I will not show properties that pay a sub-standard commission unless my buyer specifically asks me to, and in that case I make it clear that my fee is 3%, and that I’ll recover as much from the seller’s agent as possible, but any short-fall will be his responsibility. Often they lose interest in the property. Same goes for FSBOs. Check out my Ultimate Listing Presentation. I think you’ll really like it. Thanks again for reading.

  6. author Jon Boyd Ann Arbor real estate Exclusive Buyer Agent posted June 19th 2010. 11:08 am Reply

    Matt,

    What law are you referring to when you say “by law we can’t insert the commission into the negotiations”?

    There is certainly no law in Michigan like that. Unless you try to re-negotiate the listing broker’s commission, there is no legal/ethical/REALTOR reason to not put the fee the buyer’s broker has earned as a closing cost paid by the seller, in the purchase contract.

    In fact it makes more sense than having the buyer’s broker paid by the listing broker. It is just like asking the seller to pay for a termite report or a point toward the loan costs.

    Buyer’s brokers have been doing this for twenty years. It just needs to be with the buyer’s direction and paid by the seller. Not the listing brokerage.

    In our market the listing brokers don’t charge the seller the full fees if the seller is paying our office directly. That makes sense also.

    • author Matt Jones posted June 19th 2010. 8:56 pm Reply

      Hi Jon,

      Thanks for reading and for posting a comment. In NC (and most states) we are prohibited from inserting our commission in the negotiations between the buyer and seller (principals). As a buyer’s agent (the reference I was making) we are not paid by the buyer, but rather buy the listing broker. He charges his principal whatever he charges him and offers to pay us a co-broke commission for bringing a buyer. By law, any dispute relating to commissions is a dispute between the brokers and not to interfere with the buyer and seller. It is probably that way in MI too… I probably just didn’t explain it well. Sorry. Thanks again for reading and for your commet.

  7. author Eve Alexander posted June 19th 2010. 12:24 pm Reply

    Good point, but you forgot to mention that the listing agent cannot charge “this fee” to the buyer, as many in Florida are trying to do.

    If I am representing a buyer, the listing agent cannot do that because:

    1, They have no relationship with the buyer, so cannot charge them
    2. Respa would really look at this as an unearned fee.

    I have a problem with agents cutting their commission at all. Whenever a 10-cent dispute between a buyer and seller come up, listing agents start digging in their pocket and expect me to go along….not so.
    In my 20 years as an Exclusive Buyers Agent, I have never lost a deal over not cutting my commission…”No” is an easy word.

    Eve in Orlando

    • author Matt Jones posted June 19th 2010. 8:51 pm Reply

      Hi Eve,

      Thank you for reading and for your comment. I’m with you 1000%. I think you misunderstood me. If I’m working with a BUYER and I added an admin fee to my buyer’s agency agreement, then during the negotiations we can ask for (and typically get) the seller to reimburse buyer for closing costs, up to a certain amount as negotiated. That way I can get the admin fee without my principal having to foot the bill. It is rare that we can’t get a seller concession with an otherwise fair offer. Thanks again for reading and I am with you totally as to giving up money. I never do. No is very easy to say.

  8. author Frank Massari posted June 19th 2010. 11:20 pm Reply

    I do not nessessarily disagree with what I have seen in your approach and perspective, however I do wonder if you are not on the boarder of anti trust. Just a heads up. Bend Oregon

    • author Matt Jones posted June 20th 2010. 7:35 am Reply

      Thanks for reading and for weighing in. As an industry, I fear we are at a critical place. The licensing schools, following government mandated curriculum, teach our new recruits “what NOT to do” and assume (wrongly, I’m afraid) that upon getting their licenses, their brokers will teach them “what TO do”. We have all been scared into thinking that agents talking about commissions in any way constitutes a violation of the Sherman Anti-trust Act. The fact is we could talk about commissions all day long, every day, and never violate the act UNLESS we started conspiring to raise commissions. No worries with this discussion. There has been no suggestion of what to charge, or strategies to get all of our agents in every to participate. I’ve simply thrown out an idea that will help an agent compensate for the brokerage fees many of his fellow agents seem intent on throwing away. Thanks again for reading, and for trying to keep me safe. I look forward to many more comments!

  9. author Alyse Sands posted June 20th 2010. 12:23 pm Reply

    I’m all for what my office calls “retainer” fees. This is a great way to find out if your buyer is serious or is wasting your time. For too long we’ve allowed buyers to take advantage of our time, gas, wear and tear on our cars and, possibly free lunches. We’ve set a precedent and now it’s time to set a new one. If we all get on board, across the board, the standard will change and buyers will not flinch at the probability of paying a small fee to compensate us for what we put in up front. Seriously, what’s another $100-$200 to a buyer who is going to spend $300,000 on a home?

    • author Matt Jones posted June 20th 2010. 12:29 pm Reply

      Thanks for reading, Alyse, and thanks for your comment. I am with you completely! I haven’t seen very many agents (and I talk to thousands) who are over paid! I am for us adding great value to the transaction and getting paid for the value we bring. Thanks again for your great comment!

  10. author Troy Ottwell posted June 20th 2010. 10:44 pm Reply

    Hi from somewhat inexperienced agent in Texas..

    You seem…to me..to quickly glide pass the issue of how to get the other agents client to agree to your administration fee…suggestions?

    I suspect the other agent..ie..the guy selling the house and paying everyones fee does not care about the points you bring up in the Ultimate Listing presentation….he just wants to get his house sold and does not care if we as buyers agents are adequately paid..

    I like your flow of data and ideas..keep it up…best wishes this fathers day..

    Almost broke in Texas but hope springs eternal…Troy

    • author Matt Jones posted June 21st 2010. 4:59 am Reply

      Hi Troy. Thanks for reading and for posting. Great point… I always assume I am clear, and then I realize that I have left parts confusing. Sorry about that. Here is what I meant:

      The only person I get to agree to the admin fee is my client, in the buyer’s agency contract. BUT… after he agrees to the fee, that now becomes a buyer’s closing cost to him, just like his origination fee, document fees, pre-paid taxes and insurance, and so forth. (Think page 2, upper left column on HUD-1.)

      It is common practice, during negotiations with the seller, through his agent, to ask for a seller contribution to the buyer’s closing cost. Depending on the condition of the market and the level of housing inventory, that request is granted. In today’s market conditions it is very common because of extended DOM and high levels of inventory.

      In other words, I was suggesting asking for buyer closing costs in a general way, and not specifically asking for the admin fee. In the contract it might say, “Seller to pay $5,000 toward buyer’s closing costs.” I hope that makes it clear. Thanks again for reading and for your post.

  11. author Dan Pinson posted June 21st 2010. 1:43 pm Reply

    Good post Matt. I always get a Buyer-Broker agreement that states that I receive 3% minimum. As the designated broker and owner, I also insist that my agents do the same. I prefer to just do it this way rather than tack on a separate fee. But the point is the same – those of us that do a superior job deserve to be fairly compensated.

    • author Matt Jones posted June 21st 2010. 5:16 pm Reply

      Dan, Thanks for reading and for your comment. I like the fee only because it gives you the option of getting the seller to step up, if his agent permitted a sub-standard listing fee. But I also like putting my minimum on my Buyer’s Agency contract. I’m with you. Thanks again.

  12. author Bob Mulder posted June 21st 2010. 1:46 pm Reply

    I would not consider charging a buyer a administrative fee under any circumstances. To me that constitutes churning the buyer. I am already well compensated as a buyer’s agent. My job as a buyer’s agent is to get the the lowest price possible under whatever the market circumstances happen to be. My commission comes second. My job as a seller’s agent is to provide them with excellent, full service as well as making a commission for myself. However, I believe that sellers are entitled to as much of their equity as possible, and I therefore offer competitive listing fees.

    I make great money being an agent with the fees I charge or receive. An 8% listing fee is simply outrageously high. If I as an agent had to hire another agent to list my house, I know that my house could be sold without any problems with a commission set much lower than 8%.

    • author Matt Jones posted June 21st 2010. 5:21 pm Reply

      Hi Bob, Thanks for your post, even if you disagree! I’m not sure what you mean by “churning” the buyer, particularly as in my example he agreed to it at the outset and is likely going to have it paid for him by the seller. Don’t get me wrong, I’d much prefer agents use a listing approach like mine and pay out a decent co-broke, but I prefer the admin fee to not being paid enough. If you took the time to read my listing approach you would understand that my clients netted roughly 6% more money and sold their homes in half the time using it. You would also know that they chose that option over the traditional approach, both of which were offered to them. Thanks again for the spirited debate and for reading! It means a lot to me.

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