$395 Realty Firm's "Admin Fee": Junk or Legit? (Update: Now called “Additional Commission”)

Update 3/2011: Admin fees are now being called “Additional Commissions” after a few lost class action suits against “admin fees.”

Somebody must be reading this (actually 60 people a day) since this GREAT question came in.

Q. My listing agent is taking commission plus a $395 administrative fee. What is the administrative fee all about?

Great question! Why didn’t I think of that?
First of all I don’t know what you mean by “taking.” If you are telling me that you signed a listing agreement for a certain percentage and the $395 was NOT mentioned in there, and suddenly you are expected to pay it at the closing, I think your exact words should be “over my dead body.”

Shameless plug: FranklyRealty.com has never charged an Administrative fee. I just never understood what it was. It is a junk fee, but allowed if you agree to it.

What is an administrative fee?

It is a fee that is supposed to cover “the cost of paper and tools, etc.” Um, but don’t they also get a BIG chunk of the commission too? Yes, so it is a fluff fee to increase revenue. A fee that is easy to slip past the client that might not know better, so why not charge it?

Thank God you have this Blog to get the inside scoop.
Shameless plug #2 If you are smart, you’ll sign up for future blogs to be emailed to you (at the bottom). I apologize for all these plugs on this particular blog, and I know blogs aren’t supposed to be self promotional, but when 70% of the competition does shady stuff like this, I just can’t contain myself.)

How do they get away with this fee 70% of the time?

While everyone knows there is competition for which agent you pick, there is another round of competition that you might not know about. It is the competition amongst brokerage firms to get the top producing agents to work for them. Different firms have different split structures. Some start with 50% going to the firm and 50% going to the agent (and they need an admin on top of that, give me a break!). And this 50/50 split is for deals that the agent finds on their own! It drops even more if the firm gave them the deals. And it cuts in HALF for the first couple of deals since a mentor gets a portion. Yes, a new agent can get as low as 20% of the commission, I saw it in real life. A friend/new Realtor walked out with a $2,100 check on a $10,000 commission that she brought to the firm. And you all thought we had it easy!!

So one way firms lure agents in is with more competitive splits. Some firms recruit newbies at 50% splits, and some take experienced agents and only charge 5%, plus “desk fees.” But wait. They have to make money somehow.

So many firms started with “admin” fees to subsidize the brokers (because the agents wanted higher splits) and now they also do it with ABA’s (see Blog: “Affiliated Business” or Illegal Kickbacks?) So one could say that the brokerages didn’t need to charge that if the agent split was lower and more profitable. So while the agent pitches it as “oh the broker charges that, I can’t do anything about it,” they in the meantime are charged less by the broker. So indirectly that admin fee goes to the agent, in the form of lower fees to them. Have I confused you yet?

Here is how the conversation probably started:

Agent: Dear Broker, I need a better split.
Broker: But I’m not making enough money at this rate.
Agent: Do better or I will leave.
Broker: Hold on, I’ll give you a better split but you will have to pass on a $395 fee to your clients that would go directly to us.
Agent: Deal! Where do I sign?
Agent to Client: Oh, that Admin fee is for the broker to cover costs of doing business.
Client: Um, ok.
Client’s friend: You should have read Blog.FranklyRealty.com

How common is the Admin Fee and where should I look for it?

I spoke to 2 closing companies. Both agreed that the range was from $195 to $395 and they were on 70% of closings, and they were on both the listing side AND the buying side. I had never seen them on the buying agent side, news to me. Heck, maybe I should start charging this!

What can you do?

Net everything out. If your listing agent is charging x% plus $395, add it up. And question it to see their recorded pitch.
If you never signed anything allowing that fee, make the agent eat it. This is like a lender giving you a good faith estimate and suddenly adding an admin fee.
It is up to you if you wish to ask for the fee to be waived if it WAS disclosed. I go back and forth on the ethics behind this since you DID agree to it. But maybe you were tricked into it? One closing company told me that 10% of agents eat this fee since some are embarrassed by the fee and sometimes because a customer won’t pay it.
Pick a firm that doesn’t nickel and dime you. If they are pulling this fast one on you, what else are they pulling?

Again, they might say, “it is for the cost of paper and tools, etc.” Your response is, “Out of this $10,000 commission, don’t they already get a large portion? I won’t pay that fee.”

Good luck and let me know how it goes!

- Written by Frank Borges LL0SA- Broker/Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don’t like looking stupid. If you like this post, sign up for new blogs daily.

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