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Legal Issues‘Blended fees’ do not violate RESPA
A debate has emerged among agents and brokers across the country about whether “blended fees” – a combination of the traditional percentage-based commission and a flat fee — are legal and, if so, how they have to be disclosed to consumers. HUD last month confirmed in a letter that blended fees do not violate RESPA.
Must the fees disclosed on the HUD equal the fees disclosed in the contract between the consumer and the real estate broker? If the fees on the HUD exceed the fees identified in the contract between broker and consumer, then the excess amount may be subject to review under Section 8 of RESPA.
The revised HUD-1 Settlement Sheet facilitates the disclosure because line 700 requires the total amount to be paid to be disclosed. Lines 701 and 702 are the lines on which the sharing of fees (and which consumer will be paying the fee) is to be disclosed.
HUD is not interested in how the earned fees are split between brokers and their agents, so individual internal accounting for earned broker’s fees does not need to be shared with the consumer or disclosed on the HUD-1.
HUD also said in its letter, “Charges by a real estate broker or agent that are in addition to the commission may be found to be a violation of RESPA if those charges are for no or nominal services or are duplicative.” In other words, don’t put the flat fee on a different line on the HUD-1 than the percentage-based commission. When the 700-series are to be prepared by the title company or settlement officer, the agent will know the total amount of the percentage-based fee and the flat fee that is also being charged. One number should appear on line 700: that number should be what the consumer agreed to pay.
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About Brett: Brett Woodburn, Esq. is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. |
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HUD does not require one form, that is convention. Through RESPA, HUD requires fees to be disclosed. Certainly separate forms for buyer and seller may be used provided each form is accurate.
Why is the HUD still showing both Buyer and Seller on one form? Back in the 70′s there were two forms: one for buyer and one for seller. Why should one know the business of the other. Plus it creates Realtor issues when they see what the Listing company charged versus what they are getting. Just because the Listing agent was able to get a greater fee does not mean the Buyer agent deserves half. When are we going to charge our Client for our services? The Listing Agent should charge the listing fee and the Buyer Agent charge what they feel their services are worth. Two forms for HUD is my recommendation. Where is the Clients privacy?
Brett,
Thanks for the update. I’ve been looking forward to hearing HUD’s decision on this.
Brian
Brett
Great post on a timely topic!