Transparency needs a new definition.
In a January 22nd letter to RESPRO hired gun Jay Varon, HUD now says real estate firms may collect both percentage-based commissions and flat fees on line 700 of the new HUD-1 Settlement Statement, thereby allowing real estate firms to characterize their “administrative” fees as part of a commission arrangement with the buyer/seller IF the flat administrative fee was spelled out in the broker’s listing agreement or buyer’s broker agreement.
Mr. Varon, who represents real estate firms and “one-stop” shops across the United States, says that HUD’s clarification should encourage firms to avoid lawsuits by making clear that the “administrative” fees are actually part of the brokerages’ overall commission, and not a separate fee for specific activities like record-keeping, operating a Web site, or administrative services.
Trouble is, many of the real estate firms have been using the “record-keeping” excuse as the sole reason for the “administrative” charge. In fact, the WKYC-NBC Cleveland report on bogus administrative fees used a hidden camera on one such local firm and the broker representative admitted as much.
How do you change the nature of the charge if it was already — allegedly — junk to begin with?
Further, if you put an alleged junk fee into the commission, what does that say about the commission?
The other problem with HUD’s position and Mr. Varon’s apparent solution is that it seems to give patronage to the very problem the new regs were supposed to prevent — the lack of transparency in the real estate settlement process.
If the flat fees now known as “administrative fees” and soon to be known as “commissions” were actually true commissions, why — after the class action blitz — should anyone feel comfortable calling these fees commissions? If the flat fee is really a commission shouldn’t the real estate firms just raise their commission percentages to accommodate the charge?
There’s something not right about this.
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NOTE TO CONSUMERS: You are under no obligation to sign a broker listing agreement or broker’s buyer agreement that contains a flat fee addition to the customary commission. There are many real estate firms that do not require the fee and would be happy to do just as much for you as the real estate firm that wants you to agree to the fee.