Transaction Coordinator: For The Agent's Benefit, Not The Consumers

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The last few years, real estate agents and brokerages have begun charging a transaction coordination fee in addition to whatever their share of the sales commission was. The purpose of this is to pay a transaction coordinator, so your agent doesn't have to do work you've already paid them to do, and can go earn more in commissions.

Is this a racket or what? Imagine if you paid an appliance repair service, and they did part of the job, then hired someone to come and do the rest. Someone who isn't a qualified appliance repair person, who doesn't necessarily understand the repairs that went into the job. Suppose the repair service billed you a "service fee" on top of their ordinary rates to pay for this other worker. Would that make you all warm and fuzzy inside? But real estate agents and brokerages get away with it because they bury it inside the accounting of one of the most complicated transactions most people will ever do.

The work that a transaction coordinator does is all included in the work required by a standard listing contract or buyer's agency agreement. That work doesn't get done, the agency or brokerage hasn't really earned that commission check. So they peel off the agent and substitute the transaction coordinator. So far, all is well and good - assuming the transaction coordinator knows at least as much as they need to. But if the agent wants you to pay for the transaction coordinator on top of their fee, which includes agreeing to do the work the transaction coordinator does, I think you should refuse.

In my opinion, it's better to find an agency where the agent doesn't vanish as soon as there is a purchase contract (and in some cases, before). The company may required me to use a transaction coordinator to ensure compliance, but I make it plain that coordinator is not permitted to contact my clients. They need something from my clients, they ask me. This (among other steps) keeps me involved in the full transaction, whether I'm doing the loan or not. It also encourages repeat and referral business. The clients keep talking to me, not some office worker they don't know or call center employee three states away who may be completely clueless about California. There is no doubt in the client's mind that I'm still in control of the transaction. There is no specter of doubt that maybe the transaction isn't important, that maybe I don't really care. And because it's all work that the contract requires me to do anyway, I never charge a client a transaction coordinator fee.

Agent disengagement is also another way in which perfectly good transactions get screwed up - because transaction coordinators who don't know any better do something that messes it up. I've worked with some transaction coordinators who were a lot sharper than the agents, and saved the theoretically more qualified agent from incredible screw-ups. But I've also worked with ones who were, to be charitable, completely adrift upon the sea of regulation and what obligations there were in the contract and the law for that agent and their principal. I don't mean missing a required signature on a document - that happens to everyone, is easily fixable, and is no big deal in most cases unless clueless people make it into one. Stuff like that is something transaction coordinators are good for. I mean basic obligations, like safety and habitability and things that were agreed to in the contract, and little details like whether the laws are adhered to.

Transaction coordinators are to relieve the agent of some of the routine work of the transaction - so that agent can go out and make more money. How is it not a violation of good business ethics to charge a consumer again for what we've already agreed to do, so that we can go out and earn more commission money and charge another transaction coordinator fee? The only justification I can see for charging a transaction coordinator fee is pure unbridled greed, and a client who doesn't know any better. Except that's not a justification - it's a rationalization. An "I can get away with it!", not "It's the right thing to do." It isn't the right thing to do.

Transaction coordinator fees are relatively small on the scale of agent commissions - $450 is about the cheapest I've seen recently, and I've seen them as high as $750 of late, but that's a fraction of the agency commission on even a cheap condo around here. Sometimes it's used it to give a nice bonus to someone who works for the brokerage, sometimes to pay a third party fee for the service, and sometimes they just use it to pay the transaction coordinator's regular hourly wages. Whichever it is, I have no objection to that person earning that money. But it shouldn't be a separate charge to the consumer - it needs to be paid out of what the agents and brokerages make. It's work we're required to do, that we have agreed to do in the contract, be it listing or buyer's agency. How is it good business to make clients pay again for the same work we've already agreed to do, for the money they've agreed to pay us?

For consumers, a transaction coordination fee is probably not the difference between being able to afford the property and not. If you end up paying it, however, you are effectively paying twice for the same service, and generally less competently performed and with more chances of a screw up, either because of communication issues or because the transaction coordinator may not understand everything the agent did. Most so-called "junk" fees aren't, but paying for a transaction coordinator is a junk fee. There isn't a good reason why consumers should pay for the same thing twice. So ask prospective agents right up front whether they charge a separate transaction coordination fee or not. A good agent who doesn't won't have any problems saying that they don't, and even putting it in writing that their agency commission is the gross amount their company makes, and any fees to a transaction coordinator come out of what they're already being paid. And ask, also, if the agent is always going to be involved in the transaction or not, and what steps to insure their involvement they take. If they're planning to disappear as soon as there's a fully negotiated purchase contract, they're not really going to be involved in the whole transaction, are they? And you'd be amazed how often things go preventably wrong in the later stages of a sale or purchase, because the agent who should understand the entire contract from start to finish doesn't, or they disappeared with the work they agreed to do unfinished, leaving it to a transaction coordinator who has no choice but to do exactly the same thing every time, because that's what they've been instructed to do.

Caveat Emptor

Article UPDATED here


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Marti Scott said:

it really is in the best interet for an agent, especially one that that is brand new in real estate or someone with a license (like a lender?) who has never done paperwork to get in touch and establish a good relationship with a seasoned Transaction Coordinator.

It's well known that brokerages do not train agents very well, and it would take years and years to get the experience a TC offers in the way of identifying red flags in transactions, keeping the buyer and seller's paperwork straight.

yes, it is the responsibility of the agent to know all this, but let's face it, it takes less hours to get a real estate license then it does to become a hair dresser.

For instance my experience, I have been involved in thousands of rransactions over the years and no one agent could come close to the "how would you handle this issue".

I am not a lawyer and always refer situations to a licensed attorney when red flags come up, but I sure have been around the horn (so to speak) when it comes to just about every situation that could ever happen in a transaction.

Thank you!

Marti Scott

Dan Melson Author Profile Page said:

Actually, until I changed brokerages this last time and they required me to use a TC, I never used one.

You say it's a problem that it doesn't require a whole lot of training to get a real estate license, and I agree. I also agree that most brokerages don't train agents nearly enough, or in the right ways, to make up for this lack. However, it requires absolutely no training whatsoever to become a transaction coordinator. A transaction coordinator is making sure all of the paperwork is done, not that it's correct, and not checking for problems disclosed in that paperwork. I don't use TCs given a choice, but I have worked with dozens on the other side of a transaction, and they do not have the knowledge or the authority to do anything substantive, and the one who tries is going to get fired as well as messing things up completely. Oh, they're great at auditing paperwork, but most of them have no idea what any of it really means, and those who are exceptions are usually wrong about too much to ignore. Quite often, listing agents try to use a TC as a "talk to the hand" routine to get buyers to do everything exactly their way precisely because of this, and it has an ugly habit of backfiring.

A TC is nothing more than real estate's version of an administrative assistant, and I've seen TCs ruin more than one transaction, and agents who use TC's poorly and incorrectly cause others to never get off the ground, or to self-destruct. The one I use now is a good one, because she knows what she doesn't know and follows my instructions with regards to paperwork, and knows enough that she never tries to do the agent's job. Yes, she's done ten times more transactions than I have, but she's smart enough to know what expertise that does and does not give her.

Don said:

While it isnt imperitive to appoint a Transaction Coordinator - it doesn't mean that using one is a scam - Why would you say that!!.

I run a processing company and included is transaction coordination. Not all agents pass the cost onto the buyer/seller - Many of my clients pay for the service from their own commission.
We also have clients that close multiple deals per month (in some cases over 10) and in order for them to provide the service the customer has been offered - They need to have a professional TC manage the transaction. This isnt to say they wont be involved (why put everyone in the same pot) but it actually becomes more efficient to have a team working on your behalf.
Furthermore - We train our TC's to review contracts and disclosure and it is not uncommon for them to point out mistakes or ommissions that need to be corrected.
Granted - In some LARGE brokerages the role of a TC is diluted into nothing more than paper pushers - but again... lets not cast the same mold for everyone.
I think its wrong to belittle the role of a transaction coordinator into the same as a shady salesman - When in reality the majority of them have the highest integrity and are working hard to satisfy their clients (both brokers & end users).
Finally - I grant you that its important for the TC to know their role and authority. The agent always has the final say and must take the lead in the relationship - and ironically, it's the ones who have not been prepared to do this that we have had most problems with - and ultimately parted company with as well.

Dan Melson Author Profile Page said:

First off, read what is written Neither I nor anyone else has called using a TC a 'scam' or in any way denigrated the role. TC's can be as valuable as any other administrator - but the agent or brokerage needs to pay for them out of their ordinary revenue, not as a separate charge.

My only real quarrel with the concept of a TC is using them as insulation between the agent and the rest of the world. Agents who pay the TC out of their commission and use them as they should be used get no criticism from me (at least not on that score). It's just that comparatively few do.

This website's primary purpose is consumer education. If you read the article, you'll find it as evenhanded an article as you could wish for.

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This page contains a single entry by Dan Melson published on February 11, 2009 7:00 AM.

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