Do Agents Inflate the Cost of Buying or Selling a Home with ‘Junk Fees’?

This week’s topic is inspired by an article I read on last week with the catchy headline, “Real estate agents are tacking ludicrous ‘junk fees’ on to every home purchase.

The article acknowledges that there are many legitimate fees — including title insurance, which is absolutely necessary to protect both the buyer and seller of a home. In Colorado, unlike some states, it’s common for title insurance (the second largest expense after agent commissions) to be deducted from the seller’s proceeds rather than added to the buyer’s costs.

Other necessary expenses paid at closing and not levied by the buyer’s or seller’s brokerage include, for the seller, the fee to record the release of lien for any paid-off mortgage, HOA transfer fees, escrow for the final water bill, half the settlement fee to the title company (typically $300-400), and property taxes for the current year pro-rated to the date of closing.

For the buyer, fees are levied for the buyer’s half of the settlement fee mentioned above, and for recording documents with the county clerk. If the buyer financed the purchase with a loan, there are fees levied by the lender, such as processing & document preparation fees, origination fee (“points”), pre-paid interest from the date of closing through the end of that month, and appraisal (if not paid earlier). In addition, the buyer will be debited at closing for their homeowner’s insurance policy plus 3 months’ escrow of same, and 3 months’ escrow of property taxes.

All of the above are not junk fees, but necessary fees to close on the sale or purchase of a home.  It should be noted that the contract to buy and sell could include provisions moving some of these fees to one side or the other of the transaction. For example, the buyer might offer, in order to win a bidding war, to pay the HOA transfer fees, the full settlement fee, and/or the cost of title insurance. Once I saw a buyer offer to pay the property taxes for the full first year of ownership instead of the seller crediting the buyer with his/her pro-rated share.

So, if all those are necessary fees, what are those “junk fees” complained about in the article? It’s a single fee which some agents began charging their clients years ago. It’s shown on the settlement statement as an “administrative fee.” 

Basically, it’s a transaction fee which larger brokerages in particular began charging their agents to bolster their profits. It could be a flat fee like $300 or it could be a small percentage of the sale price. This fee is deducted from the agent’s share of the commission, but agents are allowed to pass that fee on to their clients, which many have chosen to do. That’s what the article was complaining about, not multiple “junk fees.”

Of course, buyers and sellers, upon signing a listing or buyer agency agreement with their agents, could negotiate not to pay this fee, just as they could negotiate a lower listing commission. But, as you can imagine, this fee slips through without most clients noticing or objecting to it. Myself, I never propose charging my clients for this fee. Call my broker associates or me if you don’t want to pay any junk fees for buying or selling a home.  You can reach any of them on their cell phones by calling 303-302-3636.