O'Conor, Piper & Flynn ERA, the largest real estate firm in the Baltimore metropolitan area, has begun to charge its buyers a $195 administrative fee.
The move follows the lead of its main competitor, Long & Foster Real Estate Inc., which instituted a fee of $149 to its Baltimore-area buyers last fall. Both companies have been charging their sellers an administrative fee for the past two years. The new fees come at a time when real estate companies have been enjoying some of their best years in sales.
Nevertheless, John Evans, president of OPF, said the fee, which began Feb. 1 and is collected only at settlement, was inevitable and has come about because of the increasing complexity of the transaction as well as additional governmental regulations put in place to protect consumers.
"We have had increasing costs, but much of it is related to many of the issues that you have heard before, which had to do with governmental costs," he said.
"Today, we can have contracts that are 20 and 30 pages long, and so much of it is governmental regulations that are there to protect the buyers and sellers," Evans said, adding, "It's not just the paperwork, but the retention of that paper and all the additional disclosure statements and all the paraphernalia and booklets that go along,"
The fees are in addition to the broker's commission, which usually is paid by the seller and typically is 6 percent or 7 percent of the selling price of the property. For example, in December the average sales price for an existing home in the Baltimore metropolitan area was $157,012. On a 7 percent commission charge, the seller would be paying $10,991.
According to Real Trends, an industry newsletter that comments on and ranks the nation's leading brokerages, OPF in 1999 reported it conducted 24,605 transactions where it represented the buyer or the seller. Based on those numbers - the latest available - the administrative fees now being charged by OPF would generate about $4.8 million to the company's bottom line.
"We are trying to find alternative solutions to the problem of where the revenues are going to come in order for us to maintain the high level of support for the agents and the buying and selling public," Evans said. "We are probably one of the last out there probably of the bigger firms to initiate this,"
According to Laurie Moore-Moore, publisher of Real Trends, adding fees is a trend that has been spreading nationwide.
"If you look at all the costs that brokerage companies have to assume, it is probably a natural evolution of the pricing process," she said.
According to their surveys of the top 500 national firms from 1994 to 1999, Moore-Moore said that brokers' profits have dropped 57 percent in that five-year time period. Of the commission income, Moore-Moore said, brokers retain 22 percent to 24 percent, and of that only 4 percent is profit. Simply, for every $1,000 that the consumer pays, the company's profit margin before taxes is $40. "So that is not very much," Moore-Moore said.
Nevertheless, the new OPF fee isn't sitting well with at least one veteran company agent.
"It has not been received well. The average producing agent is very much opposed to it," said the agent, who asked not to be identified. "The majority of [agents] are going to be picking [the fee] up themselves. If the buyer doesn't pay it, or you don't want to approach the buyer about it, you are going to pay it yourself.
"I've been doing this for 31 years, I am not against change. I have seen great revelations as far as being able to do the business more swiftly, more efficiently. This I am against because I do not have a good rationale that I can say to a buyer: `If we go to the settlement table, you will be charged $195 because you've worked with me.' I can't do it. I don't know any nice way to do this. I don't believe in it."
Doug Poole, vice president and manager of Re/Max American Dream in Hunt Valley, said his company discussed implementing a buyer's fee last fall, but decided against it.
"I think it is disgusting," Poole said. "But I think it is inevitable ... if everybody else does it, then why shouldn't we. But it is not any time in the near future."
Re/Max agents work under a different business model than agents from traditional brokerages such as OPF or Long & Foster. Re/Max agents retain 100 percent of the commission instead of splitting it with the broker. Instead, the agents pay a fee to the broker for office space, phones and supplies among other business costs. In return, they keep all the commission and can choose for themselves if they want to charge fees on top of commissions.
Poole, who still works with buyers and sellers, frowns upon the practice because "I didn't want to have to explain the rationale to a client," he said.
But Patricia Savani, a partner with Champion Realty Inc. in Anne Arundel County, said there is a rationale for both the fees and the commission.
"The commission is the cost of marketing a property," said Savani, whose company has no buyer's fee, but raised its seller's fee from $49.75 to $150 in December.
"When we bring buyers and sellers together, we are marketing a property, and there is certainly a cost that goes toward the marketing, whether it is advertising, Internet, virtual tours, magazines, periodicals, open houses ... all those things, plus the cost of the individual ... getting [it] to settlement.
"From the vantage point of the broker, an administrative brokerage cost [is] for the handling of the transaction and the documents and all the paperwork and the storing of those documents for seven years. Our company alone we have a couple of warehouses,"
Said OPF's Evans: "The cost of doing business today is much greater from both a competitive point of view and a service point of view."