Real Estate Commission Fees

I’ve ranted before about the challenges real estate industry insiders are having trying to keep up with flurry of legislative changes and most recently with the new and improved HUD.

For example, in 2009 what were commonly referred to as add-on or transaction fees charged by a real estate brokerage could no longer be imposed unless they were associated with a specific service that justified the charge. This became federal law and what it meant was that Realtors could no longer charge a “transaction” or “processing” fee on the closing statement unless they paid a third party directly to do exactly that…process the transaction for the Realtor.

The federal law under the Real Estate Settlement Procedure Act (RESPA) states that on the revised HUD-1 settlement statement it is now mandatory that commissions be reported as true dollar amounts, not percentages.
Dollar Amount vs. Percentage

However, at the end of last month, HUD clarified this U.S. District Court decision. SO NOW…the federal law under the Real Estate Settlement Procedure Act (RESPA) states that on the revised HUD-1 settlement statement it is now mandatory that commissions be reported as true dollar amounts, not percentages.

Therefore….if the total charges exceed the commission amount in the original listing or buyer agreement, then HUD has license to evaluate the charges and assess whether or not there was a true exchange of services commensurate with the monies charged.

If they determine that insignificant or no services were received by the consumer for these charges or that there is a double-dip afoot — it will most certainly be tagged as a RESPA violation.  To HUD, if you just charge a fee and still do the same things you would do if you did not charge a fee, then they consider it a RESPA violation.

In theory, I’ve been in agreement with most of “this new stuff” imposed on industry professionals to keep them professional. But it would just be counterproductive if some crazy ramifications come out of this that don’t really address the issue but create another one. At the risk of going to the dark place, let’s not forget how HVCC became a four letter word.

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2 thoughts on “Real Estate Commission Fees”

  1. My interpretation of your informative post is that our charging a transaction fee for 3rd party professional closing coordinator services is still a grey area. Now for the rant ….

    What HUD doesn’t understand is that the buyer or seller receives IMPROVED services when we hire an outside coordinator. The details get attended to and closings are much more likely to happen and happen on time. In fact, it will likely save the buyer $, as our coordinator shops for multiple insurance quotes as an extra service – something we certainly don’t have time to do.
    .-= Julia Fishel´s last blog ..Autumn Woods Palm Harbor 3,618sf 4BR 3BA on 1/2+ Acre =-.

  2. Hey Julia and thanks for stopping by! Actually, when you employ a third party closer and charge for that service, HUD is fine with that. It’s when you charge a fee and no extra service was provided is where HUD will have a problem. In their eyes, if you did not hire a closing coordinator and actually performed the closing duties yourself, then you performed no extra services and you cannot charge extra. If you charge a closing fee and did the closing work yourself, HUD views that as work already paid for in the commission.