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Commission add-ons

Real estate companies, long above the fray, are beginning to charge their own fees to cover the cost of paperwork.

By TERESA BURNEY

© St. Petersburg Times, published January 2, 1999


Eleanor Armstrong is no home-buying rookie. She has bought and sold several houses in her lifetime. So she figures she knows price-gouging when she sees it, especially on her own closing statement.

That is why all her internal bells and whistles went off when she noticed that her real estate agent was charging an extra $125 on top of a commission for handling the paperwork on her purchase of a retirement apartment.

"I think it's a scheme," Armstrong said. "It's a way to charge people extra."

While lenders, mortgage brokers and even title companies have been known for tacking extra "junk" fees onto real estate transactions for years, real estate sales companies stood above the fray, surviving on the traditional split of the 6 percent or 7 percent commission on sales.

But lately, it is becoming increasingly common for real estate companies to add extra fees of their own to closing costs charged to both buyers and sellers.

The fees show up on listing and sale contracts under a variety of names: transaction fee, regulatory compliance fee or paperwork-retention fee.

Whatever your real estate agent calls them, you don't have to pay them. They are negotiable, agents say. Or, you can choose to hire a real estate company that doesn't charge the fee.

Armstrong ended up paying the fee, even though she thought it was out of line. Her real estate agent said she would have to pay her real estate broker the fee out of her share of the commission if Armstrong refused to pay it. Real estate agents work under the license of a real estate broker. They customarily split the commission on a sale.

"We didn't want to foul up the closing," Armstrong said. "She is a very nice person, and we didn't want her to take it out of her commission."

Real estate agents say the fees are necessary to pay the costs of processing the ever-increasing number of documents necessary to close a real estate deal.

"Definitely, the work is a lot more tedious and intensive," said Vincent Arcuri of ERA Dennis Realty in Tampa. "Technically I could do it myself, but I would cut my personal salary in half."

Arcuri said his realty company has a special department to process documents. The $350 to $385 in fees go toward paying the salaries of the employees in that department.

Occasionally, Arcuri has had a client object to the fee. In those cases, he pays it, out of his commission.

"If people put up a big enough fight, I'll waive the fee," he said. "I would never lose a deal out of it."

But Arcuri sees a difference between companies like his, which have have a paper-processing department, and others that just charge the fee.

"Any time you are charging a fee for something that you are not providing a service for . . ." he said.

Arvida Realty Services, which was known as Prudential Florida Realty, was recently sued for doing just that. A Clearwater couple accused the company of charging them $110 extra for services that should have been covered by the commission. In that transaction, ReMax First Class of Clearwater also collected an extra $110 from the seller of the house, but was not sued.

Arvida's attorney would not comment on the lawsuit, because it is pending.

State regulators have maintained that the fees are legal, if they are disclosed up-front to both buyers and sellers. Home sellers should watch for them to show up on listing agreements. They can ask agents whether they charge the fees when they interview them about selling their house.

Buyers can expect to notice the extra fees when they contract to buy a house. Or, even before they ask a real estate agent to show them a house, they can ask whether that agent's company charges the extra fee. That will avoid the sticky situation of falling in love with a house, then feeling compelled to stay with the agent who shows it even if the fees are out of line.

While more and more companies appear to be charging the extra fee, not every one does.

Keller Williams, a national chain of real estate companies, doesn't charge the fee, said Pinellas broker Jack Bowman.

"Our agents just think that those fees are unconscionable," he said. "Quite honestly, if you are selling a $300,000 house, and you get a 3 percent commission, that's $9,000, then to add a couple hundred dollars on it for paper processing? Really."

Fred C. Segesman, a licensed real estate instructor and mortgage broker in the Oldsmar area, also holds a dim view of the fees.

"My opinion is that it is a total ripoff," said Segesman, who is also president of East Lake Mortgage and Systems Realty Group.

Too often, buyers and sellers don't notice the charges, or assume they are customary and unnegotiable. He has seen fees as high as $495 being charged.

Segesman finds himself in an uneasy position when he notices the fees on closing statements coming through his mortgage company.

"As a mortgage company, we represent the borrower," he said. "We have a fiduciary duty to our client."

On the other hand, he doesn't want to irritate the real estate agents involved in the deal, because they might stop bringing him business.

"We point it out to the borrower," he said. "At the same time, we don't want it to become a war. We tell them, "You have already agreed to it (by signing the sales contract). I hope you knew it.' "

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