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.