Buying or Selling a Home? This is where you’ll get ripped off.
According to the recently released “Danger Report” from the National Association of Realtors (NAR), Americans pay the highest real estate commissions of any industrialized country in the world.
As if that isn’t bad enough, the industry is also famous for excessive junk fees and kickbacks on ancillary services. Negotiating for reduced or waived fees could save you thousands of dollars at the settlement table. Whether you’re buying or selling real estate here are the fees to watch out for.
Sellers should look out for:
The One-Time Marketing Fee
Many real estate brokers and agents will charge the seller add an additional marketing fee over and above the sales commission that can range as high as 6% or 7%. This money often times gets split between the agent and the broker and really doesn’t have anything to do with marketing your property. As long as your property is listed on the MLS, Zillow, Trulia & Realtor.com, you have all the exposure you need. If you have a house that shows well, you'll want as many photos as possible so that perspective buyers can get a good feel for the house. You should be able to get quality photos from a local professional for around $100. All of the other advertising has more to do with personal promotion than it does getting your house sold and would be a waste of your money.
By avoiding this fee, sellers will most likely save anywhere from $400 to $700.
The full 6% Commission Structure
Ask most real estate agents to discount the commission that you’re paying as a seller, even though they may be receiving a commission on both the buy and sell side, and you’re most likely going to hear the following objection… “Would you ask your doctor or attorney to work for less money?” And the answer of course is, yes! Although in most cases you don’t have to ask your doctor for a discount, your title insurance company already negotiated that for you.
In the world of corporate relocation, real estate brokers and agents are discounting their commissions every day, and tripping over one another to get the business. You see regardless of whether they’re representing the seller or the buyer, real estate agents and brokers pay a referral fee to the relocation company that sent them the business, anywhere from 35% to 50% of their commission.
So don’t be intimidated, and don’t let them throw in other fees to offset whatever discount you’re able to negotiate. A relocation company wouldn’t pay those either.
Knocking 2%-3% commission off of the sale of your $250,000 home can save you between $5,000 and 7,500 at the settlement table.
Both Buyers & Sellers should look out for:
Broker’s Services/ Conveyancing Fee
I always refer to this one as the “Granddaddy” of all junk fees. You’ve just found the perfect house and you’re ready to place an offer. Along with the agreement of sale your sales agent has a stack of documents for you to sign that really has nothing to do with your offer. One of them will be for your agreeing to pay them a conveyancing or broker’s services fee (over and above the commission that they’re being paid) to process your transaction. Many real estate brokers split this money with the agent as well, depending upon their commission split.
I once had a real estate agent get very upset with me for writing that this was a “junk fee” and that consumers shouldn’t pay it. She explained to me that she uses part of the money to buy her customers a “thank you” gift for working with her.
My advice… Don’t pay the fee and treat yourself to a gift with the money that you save.
FYI… If you hire a good independent title insurance/ settlement company, they’ll provide the same service and manage your transaction at no additional charge.
By avoiding this fee buyers can save anywhere from $395to $795 at the settlement table.
Fee For Lot Pins
If you’re purchasing new construction many builders will not only try to charge you a conveyancing fee, but they may try to throw in a fee for lot pins. When the builder hires an engineer to survey the building lots, they place a metal pin in each of the four corners of the lot to mark the boundary line. Many builders attempt to pass their cost of the lot pins on to the buyer as a separate line item in the agreement of sale. (Lot pins can cost as much as $400, which is negotiable as well and if you push hard enough the builder will wave it.)
By avoiding the conveyancing fee and the fee for lot pins, you can save yourself anywhere from $200 to $800 at the settlement table.
The “Use our in-house mortgage and title company, it’s much easier” Line
Look out for this “one stop shop,” that offers you convenience but no value. That stack of papers I mentioned earlier that has nothing to do with the offer itself…you’ll most likely be asked to sign a disclosure obligating you to use the in-house title company as well. Don’t sign it, at least not yet. Federal law gives consumers the right to shop for their own title and mortgage companies. By forfeiting these rights without looking around you could cost yourself thousands of dollars in both fees and higher interest rates.
When it comes to title insurance the sales pitch will be that “you might as well use our company because it costs the same everywhere.” No it doesn’t…although title premiums are regulated by the state, there are miscellaneous title fees that can add hundreds of dollars to your bottom-line that you can avoid. And what are the chances that the in-house title company will offer to process your transaction at no additional charge, eliminating the broker’s services fee? Zero.
The same goes for your mortgage, and here’s how it works.
When you use the in-house companies, the real estate broker and sometimes the agents get a piece of the profits from your transaction. For title insurance they might be pocketing up to 50% of the title premium that you pay at closing, and although it’s a little more complicated on the mortgage side think of it this way: The more people needing a kickback, the less likely it is that you’re getting the best deal.
If the lender, loan originator, real estate broker and real estate agent are all getting paid from your loan, what are the odds that you’ve received the best rate and fees available? Again, probably Zero.
By shopping around and hiring a lender and title insurance/ settlement services company that’s looking out for your interests, you may be able to save thousands of dollars at settlement and/or over the life of your loan.
When it comes to real estate fees there are a few standard fees. The lender's title insurance premium, appraisal fee and credit report fee to name a few. When it comes to commissions and miscellaneous fees charged by real estate brokers, lenders and/ or third party settlement service providers, it’s most likely negotiable. Understanding the process and refusing to pay unnecessary fees can save you thousands of dollars on your next home.