HUD clarifies realty add-on fees or transaction fees
WASHINGTON – March 26, 2010 – A 2009 U.S. District Court decision indicated that add-on fees – commonly known as transaction fees – not accompanied by specific services violate federal law. As a result, many large real estate brokers altered their commission rate and fee procedures.
The Department of Housing and Urban Development (HUD) recently clarified the government’s position on add-on fees. General counsel Helen Kanovsky emphasized that federal law under the Real Estate Settlement Procedure Act (RESPA) regulates how the commission should be disclosed – but it does not prescribe how a real estate agent or broker determines the charge for his/her services.
The commission may be disclosed as a flat fee, a percentage of the sales price, or a combination of the two.
On the revised HUD-1 settlement sheet, commissions are now reported as dollar amounts rather than percentages in the 700 series. If the total charges disclosed in the 700-series exceed the amount of commission in the listing or buyer brokerage agreement, then HUD can review those charges to determine whether additional services were provided for the excess amount charged.
Any charge for which no, or nominal, services were performed, or that duplicates other fees, violates RESPA.
Experts say small and midsize brokerages unaware of the court decision should review their commission policies now to avoid legal trouble.
Still have questions? Call Florida Realtors Legal Hotline at (407)-438-1409. The hotline is an included member benefit, except for the cost of a long-distance call.
© 2010 Florida Realtors®