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Transaction Coordination Fees – The Ultimate Junk Fee

Sonya
Creative Commons License photo credit: joshuahoffmanphoto

If you are selling your home, you are probably painfully aware that you will most likely be paying not only your own agent’s commission at closing but the commission of the agent who represents your buyer. Who really pays is the subject for another day, a popular argument being that the agent fees are imputed in the price you ultimately accept and the buyer ultimately pays, so everyone is holding part of the bag. But there is no arguing that the agents’ commissions show up on the seller’s side of the balance sheet.

In addition to the agent fees, there are a lot of other transactional costs which taken independently tend to be rather benign; collectively, though, they add up very quickly. We call these “closing costs,” and whether you are a buyer or a seller in the transaction, a good rule of thumb is that your closing costs will total approximately 1% of the sale price. (Caveat emptor: If you are a buyer getting a loan, this figure does not include loan origination fees or points. If you are a seller, this number does not include any remedial work which you may be obligated to or agree to, such as home repairs and wood destroying pest repairs.)

OK, this is exciting. But, wait. It gets more riveting. Steve and I have long had a bee in our bonnets over another fee that is too often slapped on one or another principal’s balance sheet by the agent representing them: The Transaction Coordination (TC) fee. (Note to readers: Neither Steve nor I routinely wears bonnets, and on those rare occasions when bonnets are our fashion statement of choice, we are smart enough to keep the bees out. It’s a figure of speech.)

First let me say that we hold steadfast to our notion that anyone passing TC fees through to their clients should be forced to attend a Sarah Palin rally dressed as an Alaska State Trooper who was once married to her sister. For the uninitiated, I should first explain what transaction coordination is and how these fees find their ways to the client’s checkbook.

The real estate transaction today involves paperwork – boatloads of it. And with the passing of each grain of sand through the hourglass, we see this paperwork continue to multiply like bunnies. Each new or revised and lengthened contract exists because someone somewhere got sued. So, our lawyers work overtime, fighting a constant and unwinnable battle to protect us from each other – and ourselves. There are disclosures and more disclosures; there are purchase agreements and addenda, all of which involve obligations of both the principals and their agents. They involve deadlines and timeframes. As an agent, mess it up, and you could have a derailed escrow on your hands or worse; you could place your client or yourself in legal jeopardy. And because of the importance of those annoying contracts and statutory requirements, most agents do the only logical thing. They delegate responsibility to a third party, or a Transaction Coordinator (again, referred to as “TC” in agent lingo).

Now, TCs love their jobs, I am sure. Doesn’t everybody? But, they don’t love their jobs enough to do it for free, so they charge a “TC fee.” This fee can range from $300 to $500. So, an agent has three choices. They can use a TC and pay the fee out of their commission check, they can (gasp!) do their own job and manage their own paperwork, or they can use a TC and pass the fee on to their clients. Too many take the latter road.

From my corner, that pesky paperwork is not an unfortunate side effect of the real, important work we do as agents. Rather, it is arguably one of the most important things we do. Call me a control freak, but I want, even need, to know where every document is at each stage of the process. I should be the one scheduling the inspections that I will attend, I should be the one communicating with my clients and explaining each contract as it whops them upside the head, and I am ultimately responsible for making sure timeframes are met, obligations are fulfilled, contingencies are removed and schedules are kept.

Two of the last three companies we worked with required that new agents use the services of a TC, the argument being that is was a risk management measure. This is completely backwards. It is the broker’s job to review their files and make sure that the client’s interests are being protected, not some third-party’s. New agents are precisely the ones who should be learning the mechanics, the process and the laws. That aside, let’s assume your agent is experienced and uses a TC but only with proper involvement and oversight. If your experienced agent is showing a TC fee on your net sheet, question it. They are getting paid a fee for their services, and isn’t this one of those services?

I’ll step off of my soapbox after I have left you with two short examples of why I feel so strongly about the issue, the first dealing with the importance of all that stoopid paperwork and second demonstrating the travesty of the TC fee pass-through. Several years ago, during a less enlightened period, I was using the services of a TC on a transaction. All of our disclosures had been dutifully submitted on time for processing. Buyer contingencies had been removed on time and in writing. The day before escrow closed, she called to tell me that she had neglected to send my Agent Visual Inspection (another of those irritating little forms) to the buyers for signature. The problem is that a new disclosure reopens the buyer’s contingency rights – for another five days. At this point, the buyers could have delayed the close or even taken their money and gone home. I vowed never to delegate my duties again.

More recently, we were involved in the sale of one of our listings to a VA buyer. It was a true entry-level home, a one-bedroom condo with carport parking. As a refresher, VA loans require no down payment, and in our case, the seller was paying closing costs. The buyer had no money. Yet, the agent wrote into the contract that the buyer would be paying a $500 TC fee at closing. I reminded the agent that VA loans prohibit buyers from paying transaction coordination fees (good for them!), and I also told her that the seller would not be paying for someone to do her paperwork. When the estimated settlement statement came, two days before closing, there was that fee again, and it was being debited from the buyer’s side. Ultimately, she had to cough it up, but only for a government loan requirement. While $500 may not sound like a lot to some people, it was a whole bunch to these people, and their agent seemed to have no problem trying to take it.

There. I feel better now.

Kris Berg

Kris Berg is Owner and Designated Broker of San Diego Castles Realty. She has been serving San Diego buyers and sellers since 1997.

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  • nrloftus

    Love this! Thanks for the personal insight. We just had our realtor charge us this fee, which we had never seen before. We researched information online, questioned our realtor about it, and she then waived the fee, stating she would pay for it out of her commission. She also mentioned that we were the first to ever question her about it. While $400 is not something we couldn’t afford or worth breaking the deal over, it’s a matter of principle, and I’m frankly disappointed in my realtor.

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  • http://www.dougfrancis.com Doug Francis

    It is never fair to charge someone twice for a service. Like how mortgage lenders fueled the changes to the GFEs consumers now see.

    As long as it is disclosed up front and the client accepts it, then all is okay. In a competitive market it may be an advantage to show that the TC is already factored into the commission being charged. Break it all down because consumers want to understand what they are getting for their money.

  • http://sandiegohomeblog.com Kris Berg

    J- Thank you for the comment, even though it was marginally flaming. I’ll go back to my earlier comment. “Use a TC or don’t, but don’t delegate your responsibilities, and don’t charge the client.” That’s it in a nutshell. Making sure that all the “T’s” are crossed, as you put it, is not simply rote, mundane work beneath my pay grade, especially when we are talking about legally binding contracts related to a transaction of this magnitude. As a TC, you know this.

    Not everyone will share my philosophy on this, but I believe it is part of my job to know where every piece of paper is and where the missing pieces reside at any given time. It is part of what we do to coordinate the process for our clients and, more importantly, protect them. With so much of our files digital now (all of our files, in my case), it takes me no more time to manage the paper as I am managing the process than not, and it is NOT about saving a few hundred dollars.

    In short, I am not slamming TCs, although I find I can manage a brokerage, my own business and my own files quite handily. My beef is with passing the fee through to the clients.

  • jwass

    Use a TC or don’t, but I feel that as a TC I offer a great service to my agents, and they appreciate it. If you feel the need not to use one, than why do you feel the need to ridicule me for the great job that I do and offer… If you feel the need to chase all of that paperwork yourself and ensure that you are covered by all the ridiculous disclosure and that all are signed, dotted, T’s crossed then so be it.. but you all should really be using your time more wisely,by chasing down more clients, and servicing them more personally then by chasing paperwork.. If you are spending more time chasing down paperwork, then you are not truly servicing your clients the way that you should be.. so shame on you ALL!!! Take advantage of what is offered to you.. for God sakes.. its $350-$400 out of your commission which is way out of league anyhow.. you people make way too much money as it is.. and trust me… I used to be an agent and still agree with that fact. Get over yourselves.

  • http://www.transactioncoordinators.com Marti Scott

    Hi,
    Thought I would just mention that I have been a broker since 1990 and there are plenty of real estate agents that do not have any training or mentoring. Having a good TC on their side is a great way to keep your broker files in compliance. As a seasoned professional, I see “red flags” for the agent I am working for and for their client. I don’t give legal advice, however after closing hundreds an hundreds of files, I have a pretty good idea of what to look for.

    As far as passing on the fees, if the banks are chewing into agents commissions, but want the paperwork to flow smoothing, a TC fee is not unlike a loan processing fee.

    Definately worth the time and trouble!

    Thank you!

  • http://www.myelitetc.com Sterling

    I hear everyones opinions about transaction coordinators and the fees and how they are passed off to clients, although I do agree that passing off your fees to the client may be questionable TC’s truly serve a purpose for those who are the money makers in the industry. Agents(Top Producers) who spend more time and money marketing and being more productive are attracting more business into their front doors, these agents are the ones who do not have time to make phone calls and shuffle paper. Understand we are pushing towards 2009 who has time to sit and work on principalities because you want to physically touch and follow each transaction front to back. Its time to make money and i recognize that those who arent Top Producers have problems with paying the fees those who are Producers don’t complain. We have to remember although we are in this business to service our clients and to perform our fiduciary duties we are also in this to make money. These agents who are putting their time and efforts into shuffling paperwork are not using their full potential. So as a Business owner who is a third party TC company we pride ourselves in making sure your files meet DRE standards and we run a tight ship cause it is imparative that our customer and their clients are happy.

  • http://www.bawldguy.com BawldGuy

    Moving along — and thanks for not hurting me.

  • http://sandiegohomeblog.com Kris Berg

    Jeff (BawldGuy) – Fair enough. It’s hard to argue with reason, so I will amend my argument. Use a TC or don’t, but don’t delegate your responsibilities, and don’t charge the client. In doing so, aren’t you really charging them twice? (Rhetorical — Now move along to your other reading, mister. :) )

  • http://www.bawldguy.com BawldGuy

    First, many thanks for the morning’s laugh. Sorry to be so late to the party, but I’m so far behind in my reading, it’s pathetic.

    Since TC’s came into being, maybe 15 years ago, I’ve paid for maybe a handful of them, clients the remainder. They pay me for my expertise, not paper shuffling.

    Both your approach and mine are legit.

    We do business in several states, which necessitates the use of a TC more often than not. Our clients gladly pay, as we’re totally transparent about it. Of course, we still take ultimate responsibility for paperwork being correct and on time. Toward that end we demand close and constant feedback in real time from our various coordinators. I’ve had this policy before we left San Diego as a viable investment market — a decade before at least.

    Our question to clients is this:

    Do you want us spending time sweeping the sidewalk, or building your retirement? Take your time, no rush.

    In the last 15+ years in which the TC as been the rule, I’ve yet to have a paperwork problem that either couldn’t be dealt with quickly, or that wouldn’t have arisen if I’d been doing it myself.

    Frankly, I believe the real difference between us, is that I can delegate, where you prefer to retain control. Again, both approaches are legit from where I stand.

    Seems to me, my accountant shouldn’t factor in the bookkeeper he hired to do the lower pay work, so he could do the high level work I hired him to do in the first place. Or, how ’bout lawyers and their paralegals? The bottom line is, we all have our way of doing things, and the free market, without exception, will tell us what it thinks.

    Our clients use us for our expertise, and they view the TC fee as a cost of doing business. They also appreciate the countless annual hours it frees up for me to be spending time on what matters most to them.

    So there. :)

  • Bob Wilson

    TC? New one on me. We always track our own deals and keep due dates on target. I thought that was what my job is….. Seems to me too many agents think they are too important to work for their clients.

  • http://www.sandiegohomeblog.com Steve Berg

    Phil – Agreed. But even if an agent is using a TC, it is still incumbant upon them to manage the transaction. It remains our job to chase, understand and manage the disclosures, the inspections, the request for repairs, the title reports, the contingency removal, the status of the loan, etc. Too many agents are getting their clients signatures on the purchase contract and are rarely to be seen again, while the poor TC gets blamed for the inevitable screw-ups and delays that occur as a result of the agents lack of attention and participation.

  • http://www.BoiseBlog.com Phil Hoover

    I doubt that there are very many agents so busy in our current market that they lack the time to do their own paperwork and escrow coordination.
    It’s mostly a crutch for agents who lack the organizational skills to coordinate their own transactions.
    I agree with Steve ~ if you’re doing 100 deals/year, you need one.
    If you’re doing a dozen or two dozen deals a year (or less), you should be organized enough to set up your own files and coordinate your own paperwork.
    From a legal liability standpoint, it’s best for the agent to personally supervise the transaction vs. entrusting it to someone else.

  • http://www.sandiegohomeblog.com Steve Berg

    Josh – I completely agree with you. When I read this I sent Kris to her corner for a time out. Now that she has had time to think about it I believe she agrees with us and is remorseful. There is a solid place in the real estate process for TC’s. Many are excellent. We have made the decision to take care of these responsibilities ourselves primarily because we are Type A people. Of course, if we were handling 100 transactions a year I can guaranty we would have a TC. Having said that, we also agree that it’s a travesty that agents pass these fees through to the client. We’ve never done it and never will.

  • Josh Sparner

    What a crock… because you had the wrong TC you tend to pick on all in of us in general? There are those of us out there who are quite good, very responsible and well worthe the money for what we do. On another note: Agents should be paying the TC fee. Why anyone would pass this on to their seller or buyer is beyond me. Don’t the seller and buyer have enough costs to pay?

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  • http://60646blog.com Mark A.

    … anyone passing TC fees through to their clients should be forced to attend a Sarah Palin rally dressed as an Alaska State Trooper …

    :):):)
    That’s beautiful prose. I’m under the table right now, gasping for air. Thanks for the laughter (and that’s what the anti-spam secret password was, too).

Office Location

  • San Diego Castles Realty
  • 10636 Scripps Summit Court, Suite 153
  • San Diego, CA 92131
  • P: 858.530.2374
  • F: 858.876.1701
  • E: info (at) sandiegocastles.com
  • CA BRE# 01853496

Broker Information

  • Kris Berg, Broker
  • CA BRE #01241572