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Supreme Court Provides Clarity on Brokerages’ Administrative Fees

The U.S. Supreme Court last week provided real estate brokers a lot of clarity about administrative fees charged by brokerages when it ruled in favor of Quicken Loans in a lawsuit over unearned fees in the Real Estate Settlement Procedures Act (RESPA).

At issue was whether fees the lender charged, known variously as a loan processing or a loan discount fee, violated federal settlement laws. The plaintiffs in the lawsuits argued that the fees violated settlement laws because they weren’t tied to a specific service. But Quicken argued that the prohibition, in RESPA, only applied to fees that are split with another settlement service provider. Since it wasn’t split with anyone else, Quicken’s loan processing fee couldn’t constitute a RESPA violation. NAR, siding with Quicken, filed an amicus brief with the Court supporting the lender’s argument.

Short message on the case from NAR President Moe Veissi.

The Supreme Court agreed with Quicken and NAR, saying the RESPA provision very clearly applies only to fees that are split with another provider, therefore it affirmed the appeals court decision in favor of the lender.

“In order to establish a violation of [of the RESPA provision], a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons,” the court said in its ruling. “Because petitioners do not contend that respondent split the challenged charges with anyone else, summary judgment was properly granted in favor of respondent. We therefore affirm the judgment of the Court of Appeals.”

The case is important for real estate brokerages, because although the defendant was a lender, many brokers charge their own version of an administrative fee, on top of the sales commissions, and in some previous cases, courts have ruled that the fees violated RESPA. With this case, therefore, the Supreme Court has made it clear that the fees are okay, so long as the fees are not split with a third party who provides no services in exchange for the fee.

Read an analysis of the case by NAR Legal Affairs.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. Junk fee is a junk fee no matter who charges for it.

  2. This is a great win, but Iam also concerned with whats going on with Banks buying up pre-foreclosures, renting them back to owners (something we have been told we cant do), and then alsi managing those properties. Somewhere in this is a conflict of interest and Im wonderin if anyone is bringing it to the table. I was told by a BOFA FC agent that they’ve been doing it for 2 yrs under the radar. Somehow I think its aBIG conflict when your home goesn into FC process and now a banc can OWN it, RENT IT, and MANAGE IT…where is the Banks interest in helping them keep their homes then? They make more doing this and flipping it later.

  3. This story concerns me about the true intentions of NAR. This is not a win for the consumer. A company winning a court case that reinforces the fact that we are allowed to charge fees for nothing is a loss for the consumer. NAR likes to promote that it is a pro consumer advocate group but stories like this one show the exact opposite. Why should NAR be pleased that any company can legally charge consumers for nonsense charges on the HUD? There should be more legislation or disclosure on these types of fees, no matter whether or not they are split or have anything to do with RESPA.

    Where is the sense in that seriously? This is the kind of idiocy that helped create the the fallout of 2008.

  4. Robin Cotton

    Just because it is legal does not mean it is ethical.

  5. Jeanette

    Jeanette,
    Awesome victory for brokerage fees.

  6. Adam

    So it’s OK to add an unearned junk fee so long as it’s not split up between parties?

  7. Frankly I am disappointed in the decision. I have long felt that the only reason many brokerages charge transaction fees is that they can get away with it. With all the numbers on a HUD-1, seldom does a principal to a transaction question a fee of several hundred dollars.

    If the fee is questioned, it is often justified as the cost of doing the transaction paperwork or storing the documents. Are you kidding me? How would you feel if you went to the store and in addition to paying for an item (including the merchants profit) they wanted to charge you for ringing the product up? Yes, car dealers do charge such a fee. Is that who we wish to emulate?

    I am proud to say the brokerage with which I am affiliated does not charge transaction fees.

  8. Lerome Dixon

    How does this clarification of the law applies to lead generation companies that charges fees to realtors in exchange for clients name that they can pursue to conduct and/or establish a real estate relation which leads to a closing of real estate transactions. In comparison, I would like to know what is the difference in a realtors demonstrating their appreciate to a referring customer in giving them a portion of their already preset commission which is identified on settlement statement. It has been established in the industry, that because of RESPA we can not advertise or acknowledge giving referrals compensation to another person who refers a potential client.

  9. Lerome Dixon

    Should Realtors be allowed to charge Administrative Fees: Gas. time, and wear and tear on their vehicles. Just being a tax deduction does not help the cost of gas in that goes into the vehicle, neither the replacement of tires on the car, or the maintenance of the vehicle requires to continue to function properly. Oh yes, lets consider the time lost from possibly reaching other clients that are more serious about purchasing real estate.

  10. Mary Zingerman

    ARE YOU KIDDING ME????? Really??? It’s a good thing that now lenders can charge ridiculous fees to the public and because they aren’t split with a third party, it’s OKAY???? Okay for who???? Rich banks and brokers who really don’t need the money? What about our clients? The people who make our jobs possible? The one’s we are supposed to be fighting for? This is NOT a win in my opinion. It’s just another example of how banks, brokers and politicians make sure they read the law carefully enough to be able to benefit themselves and not care how is affects the people who, in my opinion, really matter!

  11. Dr. A. Montazer

    I still think the Admin Fees charged by real estate brokers on top of 6-7% commissions are unfair and can not be justified by any Supreme Court decisions.

  12. JC

    The question now is what is your understanding of: “a third party who provides no services in exchange for the fee”? My experience is every time there is a ruling on one law it opens up discussion to create another. It will come to the point soon we will not be able to operate without having to write up 20 disclosures to cover one condition on each transaction. I already use the minimum required forms – contract, disclosures, & addenda attached to my listings which come up to about 13 different attachments (for a SFH w/HOA). That alone has buyer’s agents calling me asking “why so many attachments on a listing – it scares buyers and they do not want to bother placing offers”…

  13. Pat Chrysler

    Would this ruling allow for Home Warranty Companies to pay a fee to real estate brokers when the agents order home warranties for their sellers and buyers as part of a real estate purchase/sale?

  14. Myra Ingley, Broker

    TC Fees, Archive Fees, Admin Fees, they’re all junk fees, we all know it, and it is a shame that NAR would be a proponent on this issue. Loan processing fees I agree are a charge for the loan based on the pricing strategies consumers are requiring, but not the junk fees. NAR has not won any battle with junk fees, they have robbed from the consumer and I am embarassed. I will aways believe that RESPA’s intent is to protect the consumer from the junk fees that are not a direct fee in completing the transaction. If an agent cannot handle their own files and needs a TC, then the fee should come from the commission. If an escrow company needs to charge an archive fee for their storage, it should come from their escrow fee. And the lender admin fees are the same….. The consumer lost in this decision Shame on NAR for putting junk fees in the same category as the loan processing fee and shame on the brokers who will start charging more fees.

  15. Patricia Anglin

    I personally have never approved of such fees in my profession, and in fact have lost both sellers and buyers over this practice. I never appreciated being required to charge the fee, particularly to sellers who are already paying a commission that the brokerage company gets a portion of. Sellers in particular resent paying fees over and above the commission that they will be paying already. It pleased me when our broker decided it was a good idea to put a halt to the fees, but now that it’s been ruled that administrative fees are not a violation of Respa, I suspect we’ll be required to charge them again. It’s been my experience that customers are of the mindset that the commission being paid should be sufficient to cover those expenses. In cases when the seller pays the commission, from an agent’s standpoint (or mine, anyway), I feel that if anyone should be required to pay the additional administrative fee, it should be the buyer. I’m actually working with a customer now, who told me she was previously intending to work with a different REALTOR, but when he informed her that his office charges an administrative fee, she decided to find an agent affiliated with a company who did not. If it means less business to me, I’m against charging it, but good for Quicken Loans for their victory.

  16. Kelvin

    I am a Real Estate Broker myself, but I disagree that the Real Estate Brokerage allow to charge a Administrative fee along with the commission. What next? Broker surcharge fee? Electric fee? etc. Don’t be too greedy. Sooner or later, the consumers will revoke and the industry will be in the dump because of a few greedy brokers.

  17. Steven Royal

    Yet another anti-consumer ruling by the Supreme Court. Yea for Realtors!

  18. mary seibert

    Thanks for working to keep REALTORS and their companies in a position to get paid. We work very hard and many times do not receive a red cent after having spent many days and hours and monies with a client. . We may have to go like the attorney and other services ie plumbers and get paid by the hour. We would have better professionals in the business for the salesperson could then afford to stay in as a professional for years. Right now they come in and go out like a swinging door. I have been in the business for over 40 years and have seen hundreds come and go. mss

  19. Business as Usual!
    We are seemingly never going to learn.
    To me it is plain and simple – lenders should have to make their money on the interest charged – not on fees – Once again, the only folks benefitting from RESPA are attorneys.
    The public is just as scewed as ever

  20. Mark

    Another good ruling by the court. Ridiculous comments about business as usual must be opposing consumer advocats bent on destroying commerce. Anybody who is actually in real estate who would be against this ruling should turn in their license immediately

  21. Lew

    I can not believe NAR is supporting such legislation! How can this possibly be “fair” to the consumer, who eventually pays our bills? Ever wonder why “realtors” get a bad name with the public? What if Dillards added an “extra” fee to your bill. I mean, after all, that fee is not “shared” with anyone except “Dillards”? Does that sound fair to you? Not me!!!!!!

  22. Mary

    A Processing/Underwriting fee is charged to pay for the expense of the Underwriters and Processors. Do you really want that fee to go away and the interest rate to be higher to absorb the cost of doing business? Anyone can ask for the fee to be a lender paid fee through premium pricing the interest rate. Which means they absorb that fee (cost of doing business) with a higher interest rate therefore getting paid at time of delivery of the loan. I think it is important we keep the government from regulating our industries any more than they already have. We as consumers need to be responsible for our own choices. With technology today we really don’t have any excuses to not take our time, and make sound decisions, on the biggest purchase we will probably ever make.

  23. Rita Lindsey

    Very disappointed with the ruling. I have worked for 3 agencies that charge various “fixed commissions” on top of the stated commission and in two of those agencies, it was at the discretion of each agent to charge the fee and if we chose not to charge the client, part of our commission was reduced by a lesser amount and that was fine with me. The agency I recently left, which sells million dollar homes in Boca Raton, Florida had the highest fee and charged the agents the full amount if we did not collect it. (I did not choose this agency, they bought out the agency I worked for). If they had both sides of the transaction, they received the fee from both sides. Not one dime was split with the agents as compensation in any of those 3 agencies. Greed is all it is, and I worked in a satelite office with no receptionist or incoming phone line and we downloaded all our files on the computer and that is how they are stored. I am happy to say that I have found an agency that does not charge these bogus fees!! And that was my first question when I was interviewing new agencies. It is a big deal to me and I can not justify charging it to my clients. It does not matter if the buyers can afford it or not, wrong is wrong.
    As far as the concerns of the previous posters regarding car expenses, the 58 cents per mile the IRS allows me to deduct more than covers my car expenses, gas, oil, tires… That is why it is .58 per mile, the other expenses are built in to that amount. If your car is not getting over 7 miles per gallon, you are in the wrong car for this kind of work.
    I too thought that we were advocates for home owners, I know I am, but it seems many agents are their own advocates and are best at that. I think my next advertisement will be stating that I do not charge additional fees to be your Realtor! Woot-Woot!!

  24. Grant

    Some of us remember when RPAC decided to rule in favor of allowing “Due on Sale” clauses to be enforceable by the Banks. The Supreme Court was then persuaded that if the Real Estate pac that represented the Realtors was for this it must be OK. This was an even bigger sellout of the interest of the consumers. The only benefitted parties for not allowing owner financing was the lenders. A shameful thing and I will never give another dime to repac for selling out the Realtors and the Consumers to benefit the lenders.

  25. Steven Eddington

    While we can agree or disagree about “junk fees”, we must remember that the Supreme Court does not pass laws! They just interpret the laws (RESPA) already passed by congress. The Supreme Court did its job by clarifying the letter of the law. If you do not agree with the current law; then talk to your congressman about changing the law.

  26. Stephen

    In a free market JUNK fees as many of you call them are a choice to pay not a requirement. When disclosed before hand and not sprung on a client they can choose not to pay them and go to another firm. This is the type of law we should be writing. The more we tie the hands of educated consumers the more our clients distrust us. We need to stop lowering the bar for what level of knowledge we expect from consumers. Buying and selling anything has risk we can not remove by blocking fees but by educating consumers. Why do we mandate education to drive cars but not before buying them? A renter with no roll model will never truely understand what they are getting into with home ownership if there is not a class given by licensed educators to inform them. I will always believe an educated consumer is best friend.

  27. Moses Fridlich

    Not happy with this one at all!!!

  28. Jim

    Remember that many firms are subject to so much regulation and competitve pressures that they need a fee like this (typically not shared with agents) to remain profitable. Say what you will, but services provided to consumers are valuable, and without profitability, they will disappear. I applaud the court’s decision. Let the free market dictate what folks charge, how they charge and if they suceed.

  29. I am a Broker Associate and don’t see a victory in this decision for anyone. When consumers lose, we all lose, one way or the other, sooner or later. This decision accomplished nothing other than to legalize greed, in my opinion. We all need to get back to the basics in this country, and follow the “golden rule”. When a society values wealth more than honor, dignity and integrity, it eventually self destructs. Read the history of the Romans. I am very disappointed by the outcome of this case and the legal precedence it sets However, I am encouraged to see that other RE professionals see it for what it is….a loss for everyone and a gain for no one.

  30. Cher Varnum-Glenn

    I agree with most that a junk fee is a junk fee. If the “admin” fee that broker’s charge had to be paid upfront to cover the cost of advertising etc. on a listing I could almost understand it. But it is not. It is collected at closing. If the property doesn’t sell, there is no charge. So how can that be justified? And the either 5.5% – 7% commission on a closed listing doesn’t cover those costs? Just another way to add to their bottom line at the expense of a client.
    I realize the fee in question regards a bank (Quicken Loans) and not a broker. But the precedence has been set to keep litigation away from the broker’s admin fee charges. It is a good bet that is why NAR supports it since the BoD is made up of brokers. Not in the buyer or seller’s interest at all; self-serving. One of the problems with the economy and other ills facing this country at this time; everything is self-serving. Such a pity.

  31. Gordon N. Mitchell

    Congress wrote the law. The Supreme Court is merely restating the law that Congress wrote. Complain to Congress!

  32. John Wogan

    Whether you agree or not that a real estate brokerage should charge these fees is besides the point. It should not be up to the government to decide. It should be between the real estate office and the consumer. If the consumer doesn’t like the fee, they can go to another office. Either you believe in free markets or you don’t. If you don’t, let’s just become a Soviet style, inefficient, bureaucratic state where everybody is poor except the ruling class.

  33. Scott

    What a bunch of uninformed comments. Fees by business are the cost of doing business…What about the cost to interpret this fee through our court system. Consumers have a choice where to do business. We are losing our perspective over the government and the labyrinth of rules and the cost of interpreting and implementing them. Give me a break you whiners!

  34. Tonia Vickery

    While the Supreme Court ruled in favor of the lender that does not limit a consumer from using a lender or brokerage that doesn’t charge administration fees. No one is forcing the consumer to use this lender. If you don’t agree with the fees then find a business that doesn’t charge them. That is the concept of free-enterprise. We have free will and choice.

  35. JM

    Great job NAR!!

  36. Arlene

    What everyone should be worrying about is when the sellers have to pay the 3.8% tax on selling their house in 2013. Think, maybe all the commissions are going to be cut down to offset the tax the seller has to pay. If I were a seller the commissions will be cut to 2% total to offset the tax.

  37. While I think that negotiating a up front disclosed fee with your client is between the two, what I am seeing is listing agents who try to charge homebuyers buyers who have they have no relationship with a fee.

    That is not only an “unearned fee”, it is interference in my agency relationship with the buyer. They need to butt out…

    That is like the prosecutor charging the defendant for lunch.
    Eve

  38. Johnnie Cardwell

    Well, if it is legal, then it is legal, but ethical, it is not. I am a Broker and do not charge such a fee. I believe that Broker compensation should come from commissions only and no fees should be charged above the traditionally negotiated commissions. If a Seller or Buyer is charged administrative fees, then they should look for a Broker who does not charge such fees. On a past transaction, I have had a listing Broker attempt to charge my buyer and his seller such a fee to be disbursed to his office only-a double whammy. I politely asked that it be removed from my buyer’s cost. Both sellers and buyers have a bottom line to consider too. I first consider their needs and never attempt to satisfy my bottom line at their expense.

  39. Robert Freedman

    Thanks for everyone’s comments on the decision. To clarify, NAR does not take a position for or against the type of fees that were the subject of the case. That’s a decision that each brokerage makes. NAR’s amicus brief only addressed whether the specific language in RESPA prohibited such fees, and based on the plain language of the provision, it was NAR’s view, and the court agreed, that the RESPA language did not prohibit the fees, so long as they weren’t split with a third party that provided no service in exchange for a share of the fee. So, to emphasize the point, for NAR the issue wasn’t about the fees per se but about the interpretation of the RESPA language. Importantly, although the court said the fees are okay if they’re not split, brokers still must be aware of their state law and abide by that. The administrative fees, if they’re not clearly tied to a service, whether or not they’re split, could come under some state unfair and deceptive trade practices laws. I’m just sharing my layman’s view on this. Any matter having to do with these fees you should talk to your attorney about, because only they are in a position to talk authoritatively about these legal matters. Best, Robert Freedman

  40. George Zavala

    What ever happened to the old fashion Bank adage: We earned it.

  41. In reply to Arlene’s comments on 6/5/12 about the 3.8% tax, (or so-called Medicare tax) some misleading info has been circulated. As I understand it, this is not a tax on all real estate sales or a “transfer tax”. It will only be imposed on sellers with more than $200,000 Adjusted Gross Income (AGI) or $250K on a joint return. Also, it does not eliminate the $250K/$500K exclusion on the sale of a principal residence. So only the amount of gain above those amounts could be subject to the tax. Clearly this tax will not be imposed on all real estate transactions, a common misconception.

  42. spike

    Hello! Anyone ever hear of capitalism. That’s what America is all about. Remember, there are no Federal wage and price controls on at this time that I know of and havent been since the Nixon administration. I started in the Real Estate business in 1968 and no one has ever told me what I must or must not charge for my services. The consumer also has the right not to do business with me,if they so choose.Don’t bite the hand that is helping to feed you, the NAR, Just work hard,charge more,achieve success and your customers will love you. No need to work cheap and fail, because no one will love you.

  43. Vivianne Rutkowski

    This is a great free-market decision.
    It is entirely up to the individual lender or brokerage how they want to conduct their business. This is NOT necessarily “free” money because unless the company is worth the fee, they will lose clients.

    The only reason most real estate agents do not like the fee is because they need to provide a top-notch service to justify the fee to their client or pay themselves.
    However, the admin fee has MANY benefits for agents as well. For one, it weeds out NOT serious buyers and sellers. It weeds out buyers who want to “look” at homes and decide later, or buyers who cheat by attempting to purchase directly from the listing agent behind their buyer agent back – while the broker in the meantime carries all the LEGAL LIABILITY and needs to be available to answer any questions the buyer might have and YES, the broker must store any client-broker agreements and documents even IF the transaction does NOT close.

    The admin fee is justified in real estate.

  44. If an Agent wants to charge an extra fee that is fine…..AS LONG AS THE CLIENT KNOWS IT UP FRONT. I never have done it. I have charged minimal reimburesment fees for early termination on Listings but those fees were for actual out of pocket expenses and my Client was always aware of it. Most of the time when I have seen it on other Agents transactions the consumer wasn’t aware of it. It was a surprise. That’s why I call them “Sneaky” Transaction fees. I have always seen my position as a Real Estate Agent as a loyal fiduciary and as an educator to the public. Not someone that is a “Salesman”. Therefore I am not a Super Producer. But I do sleep well at night.
    NAR is becoming more and more irrelevant as a Cosumer Protector and as a representative of honest and ethical licensees. I am a Realtor in Texas and I am seeing NAR as less and less beneficial to me. Why would any Agent want to make a commission on their Client’s electric bill, alarm contract, Home Warranty or any other service that the Client may use that has nothing to do with our position as a real estate agent????

  45. Gerald T.

    I notice that every time real estate or mortgage brokers charge an “excess” fee, we are the devil incarnate. But what about the many times we work for free for months, only to have the client go elsewhere? The consumer can not have it both ways. If you want the freedom to walk away from a broker after weeks or months of work, then you have to pay it back somewhere else. If the consumer only wants to pay fees that are “earned” then they have to pay ALL “earned” fees. When we work for weeks for nothing, that was also “earned”
    I used to think our fees were excessive, but over the years I realized how we all like the freedom to walk away from a commitment at someone else’s expense.

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