‘Junk’ brokerage fees cost consumers $2B annually, report says 

A month after Compass was sued over its transaction fees, a consumer advocacy group has issued a new report arguing that administrative fees are increasingly common, regressive, and cost homebuyers and sellers an estimated $2 billion each year.

The report, titled "'Junk' Fees Charged to Both Home Sellers and Buyers," was released today by researchers with the Consumer Policy Center (CPC), a watchdog group that covers a variety of consumer issues.

The authors — CPC Senior Fellow Stephen Brobeck and Fellow Wendy Gilch — acknowledged that the report is based largely on anecdotal evidence, citing a "paucity of collective data" about brokerage fee practices. Their sources included agent and broker interviews — some of whom spoke on condition of anonymity, "fearing retaliation from others" — as well as social media comments and previous reporting by trade publications. Taken together, the researchers argue that the findings demonstrate a consistent pattern. 

How fees are characterized and what consumers are charged

"Junk" fees, according to the July 28 report, are most commonly listed as administrative fees but can go by many other names, including transaction, service, processing or regulatory compliance fees — or simply "other expenses."

Based on the researchers' conversations with real estate professionals, the fee may appear in a buyer agreement alongside the commission rate, or it might not be disclosed until the buyer reaches the closing table. One industry source interviewed for the report said "a large percentage of agents add it long after the transaction is underway. … The brokerage I was with allowed modification to buyer's agency documents sometimes hours before closing." 

According to the report, it's not just buyers paying the fees. Some agents said their firms charged both the buyer and seller the same fee, while another estimated that "30 percent of listing agents and 60-75 percent of buyer agents charge a fee."

From the information gathered by Brobeck and Gilch, administrative fees can run from $200 to more than $2,000, but they typically fall in the $400 to $600 range. The total consumer impact, they estimate, amounts to roughly $2 billion annually.

An increasingly common charge?

Despite the lack of quantitative data, the authors surmised that most home sales include some sort of administrative fee. "We found a large number of agent comments indicating that fees were common in their area, and no comments that the fees were rare," they wrote. 

They suggested that the 2008-2009 financial crisis was a catalyst for the increased frequency of admin fees, citing a three-part series published by Inman in 2009 that stated such fees had become "standard practice" in that era despite consumer and agent pushback. More recently, some brokerages have increased commissions splits in an effort to recruit and retain agents, offsetting that cost by adding or increasing administrative fees, the report stated. 

A 2023 Business Insider article referenced in the report concluded that "all signs indicate that brokerages large and small have increasingly embraced the admin fee in recent years," noting that "experienced agents across the country told me that they'd seen the fee grow more common — and costly."

Agent resistance and consumer impacts

Not all brokerages charge these fees, and not all agents pass them on to the consumer, choosing to cover the cost themselves rather than charge their client, the report found.

In interviews and online comments collected by the authors, many agents openly criticized the fees, saying they didn't feel they could explain or justify them to clients. Some agents even reported leaving their brokerage because they objected to such fees. 

One comment included in the report was from a Compass agent calling the issue "a huge point of frustration" and claiming that "the majority of us are eating the cost vs passing them on to the client."

The authors calculated that added fees can effectively increase the commission paid by half a percent or more. Buyers at the lower end of the economic spectrum are hit the hardest by these "regressive" fees, they said, because they "represent a higher percentage of the sale price of low-priced than high-priced homes." Fees in excess of a few hundred dollars, they added, "can impose a significant financial burden on new home purchasers with low-to-moderate incomes."

In a one-paragraph statement on its website, the National Association of Realtors acknowledges that many brokerages "charge a transaction or administrative fee of varying amounts," recommending only that "brokers tie the fees to actual services rendered and costs incurred, and to disclose that to sellers and buyers."

Fuel for a new wave of consumer lawsuits?

While Compass has said charging admin fees "has been standard practice in major markets for years, and is done by many other brands in the industry," the legality of this standard is now being tested in court. 

In June, the brokerage was sued by Florida homeowners alleging that Compass engaged in "unfair and deceptive business practices" for uniformly charging "an undisclosed flat-fee to all Florida purchasing clients." 

The plaintiffs said they paid a $475 fee at closing even though their Compass agent told them the sellers were covering the commission costs, and they claimed their purchase contract had been illegally amended to include "additional terms" — specifically the admin fee.

"When junk fees are not disclosed on initial agreements but added later, brokers are especially likely to be sued," the CPC report stated, adding that the Florida case "could be influential in part because the imposition of a fee on all Compass clients in the state provides grounds for a class action."