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.

Properly used, a transaction coordinator is of some benefit to the consumer. Another set of eyes watching the paperwork. Many agents do not use them correctly. They essentially hand the keys of the transaction to that coordinator, and expect the coordinator to bring them a paycheck without the agent being involved any longer. Sometimes, it's as soon as they've got a listing contract, as if that listing contract is what the agent is being paid for! I've also seen Transaction Coordinators quite commonly used to facilitate steering and other violations of the law by the simple expedient of saying "I am not allowed to contact the agent and their instructions are to do this" The simple way to frustrate that is to point out that RESPA prohibits steering, so there will be a complaint against their license if they persist. They're also likely to lose the transaction if they won't negotiate even the items that aren't actual legal violations, because the reason my clients asked for whatever they asked for is because it's important to them.

Many agencies and brokerages treat the agent job as pure sales, so once the listing contract or purchase contract is in place, the agent vanishes to be replaced by the transaction coordinator. This is the sign of a bad agent and a crappy broker allegedly supervising them. When a good agent signs a contract, listing or buyer's agency, they provide the service and work that the contract calls for. If they don't, any claim to be a good agent who can do the job faster, better or anything else is so much advertising hype, and if they were honest they would replace their name on all that advertising with the transaction coordinator's name. Before you sign a contract (listing or buyer's agency) ask to talk to an existing or former client. Ask that client how involved the agent stayed throughout the transaction. Did they talk to the agent about issues that popped up, or to someone else? If the answer is "someone else" that's a red flag to take your business elsewhere.

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 require 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

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About this Entry

This page contains a single entry by Dan Melson published on August 1, 2021 7:00 AM.

Investment Property and Loan Qualification was the previous entry in this blog.

Incorrect Legal Descriptions on a Trust Deed is the next entry in this blog.

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