My opinion: a transaction fee is a bullsh*t fee and you shouldn’t pay it. Find out right away if your agent has a transaction fee, how much it is, and if you’re not in agreement with it get out before you sign anything.
Unfortunately, in most cases it isn’t the agent’s fault but a company that is forcing them to charge the fee.
Transaction fees came in when the real estate market was hot. Even though homes were flying off the shelf and cash flow was higher than it had ever been in history, the real estate companies decided that they needed more money. So they invented the transaction fee. To be fair, there was a downward pressure on commissions during that time, however, as I mentioned, sales and cash flow had never been higher. These companies were a bunch of greedy pigs.
So a transaction fee is basically a fee they charge you for doing business with them.
If you are a seller you should be livid. Paying a commission to an agent is simply paying them for the job. The transaction fee is a way their company tries to take an extra cut for no work done whatsoever.
If you are a buyer an agent’s work is typically free…they get paid by the seller via commission and only get paid if the home closes. So if you like the job they did the fee may not seem so onerous. But understand the agent doesn’t see dollar one of that transaction fee.
There are other times you will see transaction fees. There are some companies that charge the agent a transaction fee in lieu of a percentage of the commission: sometimes the agent will try and pass it on to you. Or when you are buying a foreclosure, the contract that you have to sign (it’s a bank/lender generated contract) requires the buyer to pay a transaction fee. This foreclosure transaction fee is tricky to get out of, but I’ve seen it done with a good attorney.
Just in case you think I’m crazy, here’s what some Realtors around the country recently said in an online forum about transaction fees:
“Simple tell [the Realtor] you are not paying that fee or any admin fee or any other fee. All fees are negotiable and they are already getting 3%+ from you. If you are going to pay above and beyond that they better have a damn good reason why, and ‘it our company policy’ isn’t a good reason,” said Dan Kingsley of Rochester, Minnesota.
Said Larry Tollen of Durham, North Carolina: “From my perspective it’s a fee that simply goes to the bottom line of the company (typically a large franchise firm) that charges it. There’s no reason anyone should be charging it or clients paying it. It’s nonsense and I’d ask anyone who charges it, ‘What do you do for this fee that you weren’t doing a year or two ago before you started charging it?’”
So when you sign a listing agreement to sell a home, or when you go to buy a home, look at the paperwork carefully and make sure there aren’t any hidden fees added in anywhere. It can be on the sales/listing contract, it may be on the company’sown paperwork, and for a seller it may be called a “brokerage only commission.”
In any case, if there is no work being done for a fee, don’t pay for it.