Janik Cautions Brokers on Characterizing Admin Fee
Brokers Cautioned on How to Characterize Compensation
In light of a recent federal district court ruling against a brokerage's administrative fee as a RESPA violation, brokers should take precautions in how they characterize their compensation, NAR General Counsel Laurie Janik says in a memo on the court's decision. Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) prohibits charging a fee that's not tied specifically to a service. As interpreted by the court decision, an administrative fee to help offset operating and other costs is unearned because it connects to no specific service. NAR's position is that this misconstrues the RESPA provision and the association has asked HUD for clarification, but that clarification is still pending. Janik says the ruling is likely to be appealed once other proceedings in the case are completed. In the meantime, brokers should clearly indicate that any flat fee in addition to a percentage-based commission they charge represents payment for services provided by the brokerage. These combined amounts should be disclosed in the 700 section of the HUD-1 as the broker's compensation. NAR regulatory staff are also preparing an analysis of the court decision.
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