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The Next Real Estate Lawsuit: Are Administrative Fees the Industry's Next Target? · Dishin' Dirt with Gary Pickren

0:00
SPEAKER_01: Today we're going to talk about something that almost every real estate professional has seen on a closing statement, but very few have ever stopped to think about it or ask a question about it.
0:09
SPEAKER_01: What I'm talking about is administrative fees, transaction fees, compliance fees, brokerage fees, processing fees, technology fees, whatever your brokerage calls them, they're becoming more and more common.
0:20
SPEAKER_01: And in many markets, they're not just becoming common, they're becoming almost expected.
0:25
SPEAKER_01: Some of these fees are$295.
0:27
SPEAKER_01: I've seen some at$495.
0:29
SPEAKER_01: I've seen plenty now that are hitting$795, and even some that are approaching$1,000.
0:34
SPEAKER_01: So for years, these fees have simply been accepted as part of doing business.
0:38
SPEAKER_01: Buyers paid them, sellers paid them, agents somewhat explained them, closing attorneys just collected them, and everybody just moved on.
0:45
SPEAKER_01: But what if I told you that those fees may become one of the next major battlegrounds in real estate litigation?
0:52
SPEAKER_01: In fact, while preparing for today's show, a brand new lawsuit came out, caught my attention.
0:57
SPEAKER_01: Compass has been sued in Florida over transaction fees.
1:02
SPEAKER_01: Now, before anyone jumps to conclusions, let me make something very clear.
1:05
SPEAKER_01: This episode is not about whether COMPAS is right or wrong, or whether charging or collecting transaction fees or administrative fees is right or wrong.
1:13
SPEAKER_01: Compass has obviously denied any wrongdoing, and the lawsuit just begun.
1:17
SPEAKER_01: But every defendant is entitled to his day in court, and nothing I'm discussing today should be taken as conclusions about this litigation.
1:24
SPEAKER_01: Instead, what this lawsuit does is it raises questions that every brokerage in America should probably be asking itself, not just COMPAS, everyone.
1:33
SPEAKER_01: Today, I don't want to tell you whether administrative fees are legal or illegal because that's actually the wrong question.
1:39
SPEAKER_01: The better questions are these.
1:41
SPEAKER_01: What exactly is an administrative fee?
1:44
SPEAKER_01: And what is the consumer paying for?
1:46
SPEAKER_01: Is the name even accurate?
1:47
SPEAKER_01: Does it really cover administrative fees?
1:49
SPEAKER_01: And how should that be disclosed?
1:51
SPEAKER_01: Could a jury misunderstand what your fee is for?
1:54
SPEAKER_01: And could regulators begin looking at these fees differently?
1:57
SPEAKER_01: Those are the fascinating questions that we need to get answers to.
2:00
SPEAKER_01: And I think these questions are the questions that every broker, every manager, every agent, and frankly, every real estate attorney should begin to start thinking about.
2:08
SPEAKER_01: We're going to discuss that and a whole lot more on this episode.
2:13
SPEAKER_00: This is Dish and Dirt with Gary Pickering, South Carolina's only podcast dedicated to the real estate agent craft.
2:20
SPEAKER_00: And now the host of Dish and Dirt, Gary Pickering.
2:34
SPEAKER_01: This the first week of July 2026 and the happy 250th birthday week of the United States of America, which is the greatest country to ever exist in mankind.
2:45
SPEAKER_01: We're very lucky and very privileged to have the opportunity to live in the greatest country on the face of the earth.
2:50
SPEAKER_01: One thing I've tried to do on this podcast over the past two years is try to prepare people for where this industry is heading.
2:56
SPEAKER_01: Not where it's necessarily been, but where it's going to go.
2:58
SPEAKER_01: And I want to think about what we've disclosed recently and gone over on dish and dirt.
3:03
SPEAKER_01: We've talked about the Sitzer Burnett verdict for over two years now.
3:06
SPEAKER_01: We've talked about the ending of broker-to-broker compensation.
3:08
SPEAKER_01: We've talked about fiduciary duties over the last couple of weeks, including builder bonuses and whether you should accept those, commission steering and how that affects fair housing.
3:16
SPEAKER_01: And we've talked a lot about transparency.
3:18
SPEAKER_01: And I think that is the common thread, transparency.
3:21
SPEAKER_01: Our industry has entered into an entirely new era.
3:25
SPEAKER_01: Consumers are asking a lot more questions.
3:27
SPEAKER_01: Regulators are looking at a lot more questions, and plaintiffs' lawyers are also looking at these same questions, figuring out how they can get a piece of this real estate pie.
3:35
SPEAKER_01: And every dollar charged now during a real estate transaction is likely to receive a whole lot greater scrutiny than ever before.
3:43
SPEAKER_01: So if your brokerage is charging an additional fee to commission, someone is eventually going to ask, what exactly am I paying for?
3:50
SPEAKER_01: And I don't think that question is going to go away.
3:53
SPEAKER_01: Now, some of you listening probably work for brokerages that actually charge these fees.
3:57
SPEAKER_01: Almost everybody does now.
3:59
SPEAKER_01: There's a few that don't, but for the most part, almost every brokerage charge some level of transaction fees.
4:04
SPEAKER_01: This is not an attack on brokerage fees.
4:06
SPEAKER_01: I'm not telling you not to charge the fees.
4:08
SPEAKER_01: I'm not saying the fees are wrong.
4:09
SPEAKER_01: This is more about a discussion about risk management.
4:12
SPEAKER_01: Because one of my jobs as a real estate attorney is trying to identify tomorrow's lawsuits before they arrive.
4:19
SPEAKER_01: And sometimes we can see trends developing in this area for years.
4:22
SPEAKER_01: If you'll remember, I started talking about the issue of broker-to-broker compensation years before Sitzaburnett.
4:29
SPEAKER_01: And we were talking about builder bonuses for a long time.
4:32
SPEAKER_01: We've talked about how broker-to-broker compensation is going to lead to lawsuits.
4:36
SPEAKER_01: And we were talking about that long before SER decided to get rid of that from its documents.
4:40
SPEAKER_01: Sometimes you can simply see where the legal winds are blowing.
4:43
SPEAKER_01: And I think administrative fees may be one of those areas.
4:46
SPEAKER_01: In fact, over the years, I've received several phone calls from plaintiff's lawyers asking if I would consider reviewing and be an expert witness in cases where they believe that administrative fees are what they call quote unquote outrageous.
4:58
SPEAKER_01: And I've refused to do so because I don't necessarily think the fee is bad if done properly.
5:04
SPEAKER_01: Let's start with the news that came out on Monday, June 29th.
5:08
SPEAKER_01: Recently, a proposed class action lawsuit was filed in Florida against COMPAS, and the allegation centers around the transaction fees that COMPASS is charging its buyers in Florida.
5:18
SPEAKER_01: And again, let me emphasize this lawsuit's merely an allegation.
5:21
SPEAKER_01: Compass has every opportunity to defend itself.
5:24
SPEAKER_01: I'm not saying it did wrong.
5:25
SPEAKER_01: I'm not saying it did right.
5:26
SPEAKER_01: I haven't seen enough about this lawsuit.
5:28
SPEAKER_01: But the legal theory that is being presented by the plaintiffs in this case is very interesting and something that should be interesting to you as well.
5:35
SPEAKER_01: The plaintiffs aren't simply saying you charge me too much.
5:38
SPEAKER_01: What they're asking is something a lot more interesting.
5:41
SPEAKER_01: They're essentially asking, if I'm already paying a commission to compensate the brokerage, what exactly is this separate fee paying for?
5:49
SPEAKER_01: And that's a completely different question of how much you're being charged.
5:53
SPEAKER_01: They're questioning whether the description of the fee accurately reflects what the consumer is actually receiving.
5:59
SPEAKER_01: And that's where this whole question becomes relatively interesting because if plaintiff's lawyers succeed with their theory, this isn't just about one brokerage.
6:07
SPEAKER_01: Every brokerage charging separate transaction fees could essentially be asked similar questions.
6:13
SPEAKER_01: This could result in a massive class action lawsuit.
6:15
SPEAKER_01: And that's what these plaintiffs' attorneys are hoping for.
6:17
SPEAKER_01: They're looking for their Sits of Burnett payday, just like Ketchmark was.
6:22
SPEAKER_01: I haven't spent much time talking about the dollar amount so far because whether it's$295 or$795 or$995, that might not be the biggest issue.
6:31
SPEAKER_01: The issue really is the purpose.
6:34
SPEAKER_01: Imagine if you had two brokerages.
6:35
SPEAKER_01: Brokerage A says they charge 2.5% commission, but brokerage B charges 2.25% commission, but they also charge a 795 administrative fee.
6:44
SPEAKER_01: So which brokerage is actually charging more and which one is charging less?
6:48
SPEAKER_01: And you can't answer that question unless you know the actual sales price.
6:52
SPEAKER_01: Consumers often compare commission percentages, but they don't often compare total compensation.
6:58
SPEAKER_01: And this is one of the reasons why I think transparency matters.
7:01
SPEAKER_01: So throughout today's episode, I want you to keep coming back to this one simple question.
7:05
SPEAKER_01: What exactly is the consumer buying?
7:08
SPEAKER_01: If they understand that answer, wonderful.
7:11
SPEAKER_01: If they don't, then perhaps we might have a communication problem.
7:14
SPEAKER_01: And when you have communication problems, that's where you have lawsuits.
7:18
SPEAKER_01: When does this administrative fee stop being administrative?
7:22
SPEAKER_01: And this is where I think the discussion becomes very fascinating.
7:24
SPEAKER_01: So let's forget the law for just a minute.
7:26
SPEAKER_01: Let's actually apply some common sense, which in today's age seems very far and fleeting.
7:31
SPEAKER_01: Suppose I was to tell you that my law office charges a legal fee plus an administrative fee.
7:36
SPEAKER_01: What would you naturally assume?
7:37
SPEAKER_01: Most people would assume the legal fee pays for my legal service, the administrative fee probably reimburses the office for some type of administrative cost.
7:44
SPEAKER_01: That's a reasonable assumption.
7:46
SPEAKER_01: Now let's apply the same to real estate.
7:48
SPEAKER_01: If a brokerage charges commission plus administrative fees, most consumers naturally assume the commission pays the brokerage.
7:56
SPEAKER_01: The administrative fee reimburses administrative expenses.
7:59
SPEAKER_01: The name itself creates expectations, and that's where words begin to matter.
8:04
SPEAKER_01: I want you to think about some of the names of these fees we're seeing.
8:06
SPEAKER_01: We see processing fee, compliance fee, technology fee, brokerage fee, administrative fee.
8:11
SPEAKER_01: And every one of those descriptions tells the consumer something, whether it's intentional or not.
8:15
SPEAKER_01: And if you call something an administrative fee, the ordinary consumer assumes it relates to administration costs.
8:22
SPEAKER_01: That may seem obvious, but in litigation, obvious questions often are very important.
8:27
SPEAKER_01: So let me give you an example.
8:29
SPEAKER_01: Suppose your favorite steakhouse has a menu that says stake for$35.
8:32
SPEAKER_01: You think, fantastic.
8:33
SPEAKER_01: Then the bill arrives and it's a$35 steak.
8:36
SPEAKER_01: There's a$12 kitchen administration fee, a food preparation compliance fee of$8, and a restaurant technology fee of six.
8:42
SPEAKER_01: And you're probably going to ask the question, well, why wasn't the stake simply$51 in the beginning?
8:47
SPEAKER_01: Well, the total price might not bother you.
8:48
SPEAKER_01: Maybe$51 for a top quality steak is fine, but the separate fees are what's going to actually bother you.
8:55
SPEAKER_01: Not because you paid more, but because you're wondering what these fees actually represent and why you should be paying for these fees.
9:02
SPEAKER_01: That's exactly why regulators have become increasingly interested in these so-called junk fees across a lot of industry, airline industry, hotel industry, and so forth.
9:11
SPEAKER_01: And again, I'm not saying that brokerage administration fees are junk fees in and of themselves.
9:16
SPEAKER_01: I'm saying consumers increasingly ask the same question.
9:19
SPEAKER_01: What am I paying for?
9:21
SPEAKER_01: And if the answer isn't clear, then that's where your problems begin.
9:24
SPEAKER_01: Twenty years ago, I don't think anyone paid a whole lot of attention to any of these fees.
9:28
SPEAKER_01: Today they do.
9:30
SPEAKER_01: Consumers are a lot more sophisticated, information spreading instantly because of Instagram and ex class action lawyers love monitoring industries, looking for common practice business practices they can attack, particularly when someone's already been successful, like Ketchmark was.
9:43
SPEAKER_01: Government agencies increasingly focus on transparency issues.
9:47
SPEAKER_01: The environment's changed.
9:48
SPEAKER_01: It's become more litigious if that's even possible.
9:51
SPEAKER_01: And that's why I think this conversation matters.
9:54
SPEAKER_01: Let's talk about why brokerages started charging administrative fees in the first place.
9:58
SPEAKER_01: I want to be fair here.
10:00
SPEAKER_01: There are very legitimate reasons brokerages began charging these fees.
10:04
SPEAKER_01: Real estate attorneys have charged them as well.
10:06
SPEAKER_01: Our fees are only about$100, where I've seen some brokerage fees in the 900 range, which makes you ask how?
10:12
SPEAKER_01: But running a brokerage today is very expensive.
10:15
SPEAKER_01: You have technology costs, compliance costs, airs emissions insurance, cybersecurity, risk management, training, office staff, transaction coordinators on about every transaction now.
10:24
SPEAKER_01: You got software, CRMs, electronic signatures, MLS fees, cloud storage, state regulations, broker supervision, and the list just goes on and on.
10:32
SPEAKER_01: Nobody disputes that brokerages have massive overhead.
10:35
SPEAKER_01: Every business, however, has massive overhead.
10:37
SPEAKER_01: The question isn't whether overhead exists.
10:40
SPEAKER_01: The question is how should those costs be recovered?
10:43
SPEAKER_01: And generally speaking, brokerages can recover their costs one of two ways.
10:48
SPEAKER_01: Model one is everything is built into the commission.
10:51
SPEAKER_01: The commission covers it all.
10:52
SPEAKER_01: The consumers negotiate a commission.
10:54
SPEAKER_01: The brokerages use that revenue to pay its expenses and make profit.
10:58
SPEAKER_01: It's that simple.
10:59
SPEAKER_01: Model number two is the commission's lower, then you have separate fees that are added, whether it's technology fees, administrative fees, compliance fees, transaction fees, processing fees, and so on.
11:09
SPEAKER_01: Both models can produce exactly the same total revenue, but they could look very different to your consumers.
11:15
SPEAKER_01: Suppose a brokerage charges 2.5% commission plus a$795 administrative fee.
11:22
SPEAKER_01: Here's my question: why wasn't the commission simply adjusted up from two and a half?
11:27
SPEAKER_01: Why the separate fee?
11:28
SPEAKER_01: There may be a perfectly good business reason.
11:31
SPEAKER_01: Maybe consumers prefer seeing a lower commission percentage.
11:34
SPEAKER_01: Maybe the brokerage wants consistency.
11:36
SPEAKER_01: Maybe it's easily easier internally.
11:39
SPEAKER_01: Those are all possible scenarios or explanations.
11:43
SPEAKER_01: But if I'm representing a plaintiff, I'm asking a different question.
11:46
SPEAKER_01: Why the separate fee?
11:47
SPEAKER_01: Because once you separate it, you now have to explain it.
11:51
SPEAKER_01: And explanations are where litigation often begins.
11:54
SPEAKER_01: So imagine if your brokerage owner is sitting for a deposition and the lawyer asks, Who decided the administrative fee should be$795?
12:02
SPEAKER_01: Why wasn't it$600?
12:03
SPEAKER_01: Why wasn't it$900?
12:04
SPEAKER_01: Did you conduct a study of your administrative cost?
12:08
SPEAKER_01: What administrative costs equal exactly$795?
12:12
SPEAKER_01: Does every transaction generate exactly$795 in administrative fees?
12:18
SPEAKER_01: Is any portion of that fee profit?
12:20
SPEAKER_01: How is that fee reflected on your financial statements?
12:23
SPEAKER_01: Those aren't easy questions, but those are exactly the kind of questions lawyers ask, and those are the questions you better be able to respond to if you do get sued.
12:33
SPEAKER_01: And here's another interesting issue.
12:35
SPEAKER_01: How is the fee treated internally?
12:38
SPEAKER_01: If accounting treats it as ordinary brokerage revenue, does that change how consumers might view that description?
12:44
SPEAKER_01: I'm not saying it necessarily does.
12:46
SPEAKER_01: I'm saying that it simply calls into question something else that could arise that you've got to explain.
12:52
SPEAKER_01: Remember, juries don't like and don't typically understand accounting language.
12:57
SPEAKER_01: They hear ordinary English, administrative fee.
13:01
SPEAKER_01: But what would the average person think those words mean?
13:04
SPEAKER_01: And that's the question.
13:06
SPEAKER_01: And there's another interesting aspect.
13:08
SPEAKER_01: Behavioral economists have studied pricing for decades.
13:11
SPEAKER_01: Consumers often react differently to a single price versus several smaller prices.
13:16
SPEAKER_01: That's why airlines separate the baggage fees and the seat selection fees and everything else.
13:20
SPEAKER_01: A$50 airline ticket can all of a sudden be$300.
13:24
SPEAKER_01: Hotels like to separate that resort fee out from their regular fees.
13:28
SPEAKER_01: Ticket companies separate convenience fees.
13:30
SPEAKER_01: You know, you go to Ticketmaster and you see a ticket that's$100, and then when you go to check out, it all of a sudden is$175.
13:37
SPEAKER_01: Total price might be similar, but the presentation changes how consumers perceive it.
13:43
SPEAKER_01: That raises that interesting discussion for real estate professionals.
13:45
SPEAKER_01: Should brokerage price follow that same model or should the total cost simply been negotiated as one number?
13:52
SPEAKER_01: And that isn't just a legal question, that's an ethical and a business question.
13:55
SPEAKER_01: Now I want to discuss what I believe is the real issue here today.
13:58
SPEAKER_01: And it isn't the amount, it isn't whether the brokerage makes money on the fee.
14:03
SPEAKER_01: The issue is transparency.
14:04
SPEAKER_01: If you've listened to my podcast at all over the past year or two, you've heard me say time and time over again, the real estate industry has entered into an age of transparency.
14:14
SPEAKER_01: Everything is being questioned.
14:15
SPEAKER_01: Your commissions, how compensation was done on the multiple listing service, are bonuses legal?
14:20
SPEAKER_01: Should you be accepting bonuses?
14:22
SPEAKER_01: These are things we never thought of 15, 20, 30 years ago that there would ever be a day where we couldn't have compensation on the multiple listing service, where compensation couldn't be guaranteed to a buyer's agent, how bonuses shouldn't be just accepted on every single transaction, referral fees, whether they should be disclosed or not, commission steering, how that is actually a real problem in our industry.
14:43
SPEAKER_01: Is it legal and ethical to do private listings, exclusive listings, and so forth?
14:47
SPEAKER_01: Broker-to-broker compensation.
14:49
SPEAKER_01: Should we even be offering broker-to-broker compensation in an era where we don't have guaranteed compensation?
14:54
SPEAKER_01: Should anybody be accepting a builder incentive at this point?
14:57
SPEAKER_01: Everything, everything, everything is on the table.
15:00
SPEAKER_01: Administrative fees are squarely right in the middle of this discussion of things that are on the table to be looked at.
15:06
SPEAKER_01: Consumers don't think like lawyers, guys.
15:08
SPEAKER_01: You have to understand that.
15:09
SPEAKER_01: Lawyers analyze words, consumers don't.
15:12
SPEAKER_01: Consumers simply ask themselves, am I being treated fairly?
15:15
SPEAKER_01: But imagine you're a first-time home buyer, you saved for years, you paid earnest money, paid inspections, you paid appraisals, loan costs, insurance, taxes, all of that, and you get to closing, and there's that other fee, that administrative fee of$795 that you kind of forgot about that's now being charged to you.
15:31
SPEAKER_01: Now you say, what is this?
15:33
SPEAKER_01: Now think about that answer.
15:34
SPEAKER_01: If your explanation's vague, well, you you agree to that in the listing agreement or the biorepresentation agreement.
15:39
SPEAKER_01: Okay, well, what does that cover?
15:41
SPEAKER_01: Does it cover your overhead?
15:43
SPEAKER_01: Does it help with compliance?
15:44
SPEAKER_01: Does it help run the office?
15:45
SPEAKER_01: Does it help with technology?
15:46
SPEAKER_01: Is that profit to your company?
15:48
SPEAKER_01: You may have just created another question.
15:50
SPEAKER_01: Whether they're legally correct isn't really the point.
15:53
SPEAKER_01: That's what consumers are likely to ask.
15:55
SPEAKER_01: And if enough consumers start asking that same question, eventually lawyers are going to start asking that question as well, just like they're doing down in Florida.
16:02
SPEAKER_01: But one mistake professionals make is assuming that if something is legal, the consumers automatically understand it.
16:09
SPEAKER_01: And those are two completely different concepts.
16:12
SPEAKER_01: You may have every legal right to charge that administrative fee.
16:15
SPEAKER_01: That doesn't mean consumers understand it.
16:17
SPEAKER_01: Think about the airlines with the baggage fees.
16:20
SPEAKER_01: They're legal, but consumers hate it.
16:22
SPEAKER_01: Ticket convenience fees.
16:24
SPEAKER_01: Buy the ticket for$100, and next thing you know, that ticket's$175, and you're pissed off.
16:29
SPEAKER_01: The issue hasn't always been about the legality, the issue is about the consumer expectations, and real estate professionals need to start thinking the same way.
16:36
SPEAKER_01: Let's also talk about your fiduciary duty.
16:38
SPEAKER_01: One of the most misunder concepts in real estate, fiduciary duties must put the client's interests ahead of your own.
16:44
SPEAKER_01: Now, that doesn't mean you can't earn money, make money, of course you can.
16:47
SPEAKER_01: And it doesn't mean you have to work for free or that you can't charge reasonable fees.
16:51
SPEAKER_01: Certainly you can't.
16:52
SPEAKER_01: It simply means your financial interest must be fully disclosed and that your recommendations can't be driven by undisclosed personal gain.
16:59
SPEAKER_01: Let's start with asking an interesting question.
17:02
SPEAKER_01: Suppose brokerage A charges 2.5, brokerage B charges 2, plus a mandatory fee of$795.
17:09
SPEAKER_01: If consumers compare only commission percentages, are they really comparing total compensation?
17:14
SPEAKER_01: That's not a legal conclusion.
17:16
SPEAKER_01: It's simply an interesting question because transparency requires consumers to understand what they're actually paying for.
17:22
SPEAKER_01: And I don't think enough people appreciate what Sitzer Burnett changed as a result of this.
17:28
SPEAKER_01: It's probably the most important section of this podcast for you today.
17:31
SPEAKER_01: The biggest lesson in Sitzer Burnett was the transparency issue.
17:34
SPEAKER_01: The plaintiffs won$1.5 billion verdict because they convinced a jury that consumers didn't fully understand how compensation worked.
17:43
SPEAKER_01: Now, I think that's ludicrous that a consumer did not understand when they agreed to pay a listing agent a percentage commission, and half that percentage was going to the buyer's agent through the MLS cooperation agreement, that they didn't understand that.
17:57
SPEAKER_01: That's how houses were sold for four or five decades.
18:00
SPEAKER_01: Listing agent charged a commission, shared a portion of that commission with the buyer's agent.
18:04
SPEAKER_01: But Ketchmark was able to convince a jury made up almost exclusively of people who had never bought a house, and he was able to convince them that they didn't understand how the system worked.
18:15
SPEAKER_01: And whether you agree with this$1.5 billion verdict or not, it's not really the point.
18:19
SPEAKER_01: The point is future lawsuits are going to ask exactly the same question.
18:22
SPEAKER_01: Did consumers understand what they were paying for?
18:25
SPEAKER_01: Administrative fees, again, fits perfectly into that narrative of did you understand what you were paying for?
18:31
SPEAKER_01: I want to bring this home to South Carolina because South Carolina has very specific licensing laws, amongst other things.
18:36
SPEAKER_01: Licensees cannot make substantial misrepresentations and they cannot engage in false or misleading advertising.
18:41
SPEAKER_01: And let me be very careful here and very clear here.
18:44
SPEAKER_01: I'm not saying that charging an administrative fee violates South Carolina real estate law.
18:48
SPEAKER_01: I'm not saying that at all.
18:49
SPEAKER_01: But what I'm saying is if a broker chooses to call something an administrative fee, then it should carefully consider whether that description accurately reflects what the consumer's paying for.
18:59
SPEAKER_01: Because these words matter.
19:00
SPEAKER_01: If you call it an administrative fee, consumers expect administration.
19:05
SPEAKER_01: If you call it a brokerage fee, consumers may view it differently.
19:08
SPEAKER_01: That label itself is going to create expectations.
19:13
SPEAKER_01: So let's imagine two different closing disclosures.
19:16
SPEAKER_01: First one, administrative fee,$795.
19:18
SPEAKER_01: The second one says additional brokerage compensation,$795.
19:22
SPEAKER_01: Same amount, very different impressions.
19:24
SPEAKER_01: Would consumers react differently?
19:26
SPEAKER_01: Probably would a jury, maybe.
19:28
SPEAKER_01: That's where this language matters.
19:30
SPEAKER_01: If I was consulting with a broker today, I wouldn't start by asking, can you charge the fee?
19:34
SPEAKER_01: I'd ask a different series of questions.
19:36
SPEAKER_01: Why do you charge the fee?
19:38
SPEAKER_01: How was the amount of the fee determined?
19:41
SPEAKER_01: What exactly does it pay for?
19:43
SPEAKER_01: And how do you explain that to consumers?
19:45
SPEAKER_01: When do you disclose it?
19:46
SPEAKER_01: If you had to explain it to a jury, would they understand it?
19:49
SPEAKER_01: Because these are the questions that are going to reduce your litigation risk.
19:53
SPEAKER_01: A class action lawsuit starts because lawyers love uniform business practices.
19:58
SPEAKER_01: They like the same disclosure, same fee, same contract, same policy.
20:01
SPEAKER_01: They want it to apply to thousands of customers.
20:03
SPEAKER_01: Administrative fees fit that model rather well.
20:06
SPEAKER_01: If every consumer pays the same mandatory fee under the same policy, it's easy to understand why plaintiffs' attorneys would take interest.
20:13
SPEAKER_01: Again, that doesn't mean the claim succeeds.
20:16
SPEAKER_01: It simply explains why these practices receive all the attention they do.
20:19
SPEAKER_01: Most lawsuits are won and lost during the discovery, not in the courtroom.
20:24
SPEAKER_01: So discovery is where the emails get produced, your internal memorandums get produced, accounting records, training manuals, marketing materials, board meetings, budget spreadsheets, all the internal documents.
20:34
SPEAKER_01: Could you imagine one that says this administrative fee generated another$2.4 million in additional brokerage revenue this year?
20:41
SPEAKER_01: Would that comment matter to a jury?
20:43
SPEAKER_01: Maybe.
20:44
SPEAKER_01: Imagine another document saying this reimburses actual transaction coordination expenses.
20:49
SPEAKER_01: That paints a whole lot different picture, does it not?
20:51
SPEAKER_01: These facts matter.
20:53
SPEAKER_01: This documentation matters.
20:54
SPEAKER_01: Consistency is going to matter a lot on this.
20:56
SPEAKER_01: That's why good risk management is always a lot less expensive than good litigation lawyers.
21:01
SPEAKER_01: What should every broker be reviewing today?
21:04
SPEAKER_01: If I was advising a broker today, here's a checklist that I'd recommend.
21:07
SPEAKER_01: Number one, review your contracts.
21:09
SPEAKER_01: Where is the fee disclosed?
21:10
SPEAKER_01: Is it hidden in the fine print?
21:12
SPEAKER_01: Or is it easy for consumers to see and understand?
21:15
SPEAKER_01: Could someone honestly say, I never noticed it in there, or I forgot about it, or that was kind of really never explained to me?
21:21
SPEAKER_01: If so, you need to improve your disclosure up front.
21:24
SPEAKER_01: Number two, review your marketing.
21:26
SPEAKER_01: Suppose you have a website or somewhere on social media where you say you list homes for a certain percentage.
21:31
SPEAKER_01: Does that website also mention the mandatory administrative fee?
21:34
SPEAKER_01: If not, should it?
21:35
SPEAKER_01: I'm not giving legal advice for every state.
21:37
SPEAKER_01: I'm simply asking the transparency question.
21:39
SPEAKER_01: Should you be more transparent on that administrative fee?
21:42
SPEAKER_01: Number three, train your agents.
21:44
SPEAKER_01: Here's a problem that I see over and over again.
21:46
SPEAKER_01: You ask 10 agents to explain the administrative fee, you're gonna get 10 different answers.
21:50
SPEAKER_01: And that's very dangerous.
21:51
SPEAKER_01: Consumers deserve consistent explanations.
21:54
SPEAKER_01: If your own agents can't clearly explain the fee, how do you expect consumers to understand it?
22:00
SPEAKER_01: Number four, review the name of this fee.
22:02
SPEAKER_01: This one's fascinating.
22:03
SPEAKER_01: Ask yourself why you chose this particular name.
22:06
SPEAKER_01: Why do you call it administrative fee or compliance fee or technology or processing or brokerage fee or transaction fee?
22:11
SPEAKER_01: Each one communicates something entirely different.
22:14
SPEAKER_01: Choose those words very carefully because eventually someone's going to ask you to analyze those words.
22:20
SPEAKER_01: Number five, ask the hard question.
22:21
SPEAKER_01: Here's the hard question that all of you should be asking.
22:24
SPEAKER_01: If you were starting your brokerage today, would you create this fee?
22:27
SPEAKER_01: Or would you simply build everything into your commission?
22:29
SPEAKER_01: It's not a legal question, it's more of a business strategy question, but it's worth discussion.
22:32
SPEAKER_01: And I would actually add number six.
22:34
SPEAKER_01: Number six is can you explain why that fee amount and what makes up that fee?
22:38
SPEAKER_01: If you're going to charge$795, can you tell a jury what that$795 includes?
22:46
SPEAKER_01: If you can't, then guess what that is?
22:49
SPEAKER_01: Additional compensation.
22:51
SPEAKER_01: That's where you're going to start having the problems.
22:53
SPEAKER_01: I want to spend a few minutes today discussing where I think all this is going.
22:57
SPEAKER_01: I think that it is particularly important to remember administrative fees are not inherently unlawful.
23:03
SPEAKER_01: As I said, almost all the brokerages I see today are charging them.
23:07
SPEAKER_01: Many consumers knowingly agree to them.
23:09
SPEAKER_01: Most transactions close every day without anyone ever questioning that fee.
23:14
SPEAKER_01: But we're living in a very different environment posted to Burnett, a different world even five years ago post-COVID.
23:22
SPEAKER_01: The legal question is no longer simply can I charge the fee?
23:26
SPEAKER_01: The better question is how will this fee look under a microscope?
23:29
SPEAKER_01: Because if you ever in litigation, everything gets examined under a microscope.
23:34
SPEAKER_01: So here's my predictions.
23:35
SPEAKER_01: I think we're entering into what I would call an itemization era of real estate.
23:40
SPEAKER_01: For decades, consumers look primarily at that one number, that commission.
23:43
SPEAKER_01: Today, however, everything's getting broken down.
23:45
SPEAKER_01: Commissions, administrative fees, technology fees, brokerage fees, transaction coordination fees, marketing fees, compliance.
23:52
SPEAKER_01: Consumers now see every single line.
23:54
SPEAKER_01: And because they see every line, they're going to ask about every line.
23:59
SPEAKER_01: That's simply human nature.
24:00
SPEAKER_01: Today, administrative fees are receiving very little attention.
24:04
SPEAKER_01: I don't think that's going to last.
24:05
SPEAKER_01: I think this compass lawsuit is going to change that.
24:08
SPEAKER_01: I think we're entering into a period where every separately itemized fee in real estate transactions will be examined through one lens.
24:16
SPEAKER_01: That's the lens of transparency.
24:18
SPEAKER_01: Not because every fee is improper, but because consumers increasingly expect to understand every dollar that they're paying.
24:25
SPEAKER_01: So stepping back, I think this episode really is about something much bigger than administrative fees.
24:30
SPEAKER_01: I think it's about trust.
24:31
SPEAKER_01: Consumers don't expect real estate to be free.
24:35
SPEAKER_01: They expect professionals to be paid.
24:37
SPEAKER_01: In fact, they want good professionals to be paid.
24:40
SPEAKER_01: The problem isn't paying you, the problem is the surprises.
24:43
SPEAKER_01: People don't like the surprise fees.
24:44
SPEAKER_01: They don't like fees they don't understand, and they don't like fees that appear late in a transaction.
24:48
SPEAKER_01: And they especially don't like feeling they were given the, weren't given the whole picture in the beginning.
24:54
SPEAKER_01: Trust is built through transparency, not just because the law requires it, but because it's good business.
24:59
SPEAKER_01: Let me leave you with a challenge.
25:00
SPEAKER_01: Don't wait for another lawsuit.
25:02
SPEAKER_01: Don't wait for another regulatory investigation.
25:04
SPEAKER_01: Don't wait until your broker brokerage receives a demand letter.
25:07
SPEAKER_01: Review your practices today.
25:10
SPEAKER_01: Ask those difficult questions.
25:12
SPEAKER_01: Invite outside opinions.
25:14
SPEAKER_01: Have your attorney review your disclosures, have your agents explain the fee to someone outside the industry and ask if it makes sense.
25:21
SPEAKER_01: Sometimes the best way to reduce litigation risk is simply to ask if I were a consumer, would this make sense to me?
25:27
SPEAKER_01: One of the things that I've learned from practice in law for more than three decades is that lawsuits rarely begin with bad people.
25:34
SPEAKER_01: Most lawsuits begin with misunderstandings.
25:36
SPEAKER_01: One side thought one thing, the other side thought something else.
25:39
SPEAKER_01: And somewhere along the way, communication broke down.
25:41
SPEAKER_01: This entire episode comes down to that one word, clarity.
25:44
SPEAKER_01: Is your pricing clear?
25:46
SPEAKER_01: Is your disclosures clear?
25:48
SPEAKER_01: Is your explanation clear?
25:50
SPEAKER_01: If your consumers understand exactly what they're paying for and why, you've already eliminated a tremendous amount of risk.
25:56
SPEAKER_01: But transparency isn't just good law, it's good business, and it's good ethics.
26:00
SPEAKER_01: So whether your brokerage charges an administrative fee or not, I hope today's episode encourages you to take a fresh look at your pricing, your disclosures, and your conversation with your consumer.
26:09
SPEAKER_01: The next major lawsuit in real estate may not involve commissions, it may involve a line item that everyone's looked for a lot of you.
26:17
SPEAKER_01: That's all the time we have for our show today.
26:18
SPEAKER_01: Hope everybody enjoyed it.
26:19
SPEAKER_01: Please like us, share it, and subscribe to it.
26:21
SPEAKER_01: And don't forget, every week a new episode comes out every Thursday morning around 5 a.m.
26:26
SPEAKER_01: You can subscribe on YouTube or you can subscribe on any podcast platform, and it will alert you when new episodes are dropping.
26:35
SPEAKER_01: All right, hope y'all have a wonderful and safe 4th of July, and we'll see you back here after the holiday.
26:39
SPEAKER_01: Y'all take care.
26:40
SPEAKER_01: Have a great week.