If little or no services are performed, HUD would treat this as a violation of the Real Estate Settlement Procedures Act, subject to significant penalties. Kanovsky also warned about fees charged when there is no contract or agreement permitting the agent or broker to impose those charges. For example, if a listing broker charged the buyer an administrative fee of $250 but there was no contractual language sanctioning the charge, HUD might treat that add-on as an illegal fee.
What's the likely practical effect of HUD's clarifications? According to Steve Murray, a consultant to real estate brokers and editor of Real Trends, an industry journal, many of the largest firms tightened up their procedures on commission rates and fees in the wake of last year's district court decision.
But some smaller and midsize firms "probably haven't gotten the word yet," Murray says, and are still quoting fees in ways that could -- if consumers filed complaints with HUD -- put agents and brokers in legal jeopardy. Still other firms have agents who tack on and pocket their own extra fees on top of the broker's commission and administrative fees -- a practice that Murray considers vulnerable to legal challenge.
Brokers who quote admin fees separately on top of their commissions insist that they constitute an integral part of their compensation package and are fully justified by the work provided to clients. For example, Chris Heller of Heller Real Estate Group of Encinitas, Calif., says his standard charge is 6 percent plus a $695 "transaction" or admin fee.
The fee pays for the work of the "administrative people" who assist on all transactions, according to Heller. Only two out of 10 clients even ask about the charge or its purpose, he said, "and maybe one out of 10 takes issue with it."
Northern Virginia broker Frank Borges Llosa, who runs Frankly Realty Inc., is critical of add-on fees, calling them "sneaky" and "bogus." He says he welcomes HUD's clarification on the issue, and believes that when all compensation is quoted as "the commission, it's a lot clearer" to consumers, and "it's more open to negotiation" upfront.
Bottom line: Ask about all compensation and fees in any transaction. If you're asked to pay fees you never heard of, or that come with vague justifications, don't roll over. Just say no.