Is it healthy for Brokers to charge Upfront Fees?

*Email received from staff in the Bureau of Consumer Protection:
The FTC’s stay means that the mars rule does not prohibit real estate professionals who assist consumers in obtaining short sales from charging advance fees. However, the mars rule does not preempt state law. This, in turn, means that if a state law bars such advance fees, real estate professionals who operate in that state continue to be prohibited from charging them.

The basic premises of the debate amongst Realtors are:

  • There are realtors who believe charging an upfront fee to sellers who are already struggling financially is unethical and even unlawful in their respective states. It exposes homeowners to realtors who are not experienced in short sales but are hungry enough to take on the transaction knowing there is a considerable chance of failure. If the short sale transaction falls through, the homeowners will be put in a position worse than where they started.
  • On the other hand, there are numerous brokers who are experts in the field of short sales having successfully closed hundreds under their belt that advocate charging an upfront fee is fair because of their many hours put into the transaction.  If the seller simply decides to walk, the brokers do not receive any compensation for all their efforts put into the deal.  Remember, we are not talking about inexperienced, unsuccessful Realtors. The “stay applies only to real estate professionals who: 1) are licensed and in good standing under state licensing requirements; 2) comply with state laws governing the practices of real estate professionals; and 3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes.”

Is it wrong for them to charge a small upfront fee for their legitimate services? Some realtors claim that they had sellers who were excited for the upfront fees and hired them because of it. The upfront fee establishes a commitment in a transaction that is a prolonged process and requires many hours of effort dealing with banks/servicers, sellers, and buyers.

What is your opinion on this matter? Do you believe upfront fees are justified and even beneficial for the short sale or is it unethical for Realtors to charge prior to closing a short sale because of the detriment it may have on the homeowner in case of failure. Opinions are greatly encouraged.

Peter

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Comment by JP Ott on August 2, 2011 at 2:11pm
I talk to people almost daily who have been charged upfront fees for short sales or loan mods.  They usually all have had a bad experience.  I think if you screen your seller good enough and verify that they have a hardship, you will get your commission at closing.  We look at it just like any other real estate transaction, if it doesn't close, we don't get paid.  Hope this helps!
Comment by Gretta Alvarez on August 2, 2011 at 11:11am
Speaking as a lic. agent who is a full time SS negotiator, I do not think it would be fair to necessarily charge an upfront "fee", our clients are already in a state of major debt, confusion and in most cases outright embarrassment. However... there is one fee that I sometimes can not get around, the estoppel, in order to get a valid HOA or COA balance... when the seller claims to have no info on the subject (ie; head in sand syndrome). I have never charged a client for these fees, though we have many times had to "eat" them when a deal tanks, so I have considered having them write that check, jury is still out.
Comment by Peter J Kim on July 27, 2011 at 12:10am

Hello Joseph,

Do you mind if I ask why? I am not standing on one side or the other. I am just curious on what the cons are to charging upfront fees.

Comment by Joseph C. Alfe on July 26, 2011 at 11:21pm

no one should be charging sellers up front fees, that's rediculous.

 

Comment by Chris B Johnson CDPE,SFR,HAFA on July 26, 2011 at 12:09pm
I am in California, where it is illegal to charge up front fees for Mortgage Modification/Short Sale. Therefore we still get paid the old fashioned way, at the close. We do vary the compensation though. as Listing Agents we split 3.5% LA, 2.5% SA.

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