What Is a Transaction Fee and Who Pays It?
Of the many fees associated with buying a house, one that’s often overlooked is the transaction fee. While it’s not as pricey as the commission, the transaction fee is a notable chunk of change that must be paid by either the buyer or the seller to offset the costs of processing paperwork.
What is a transaction fee?
Also known as “broker service fees” or “administrative fees,” transaction fees are costs associated with closing a real estate deal, says Mike Higgins, an agent with the Caleb Hayes Real Estate Group in Green Bay, WI.
This fee covers the cost of things like document storage and management.
“A transaction fee is an amount that a brokerage will charge to each transaction regardless of who pays it,” Higgins explains. “It is up to the agent themselves to charge that on to their customers.”
If they don’t, they’ll have to pay it themselves, and it will likely be taken out of the commission they’ve negotiated with a client.
In other words, the seller’s agent pays her broker the transaction fee, says Paul Margerie, a real estate attorney from Elm Grove, WI. But that’s rarely the end of it. The seller’s agent will typically bill the seller in order to recoup the costs, meaning the seller ultimately pays that fee. And the fee can be significant—anywhere from $295 to $625, depending on where you live.
It’s simple enough, right? Well, there are other fees with similar names that might be paid by either party, and both sellers and buyers need to be aware of them.
What are other transaction fees?
There can also be transaction fees that have nothing to do with the money a broker takes home. They tend to involve escrow, title, homeowners association, and city and county transfer taxes. Whoever pays transaction fees tends to come down to the city in which you’re selling your home.
“For example, in San Francisco it’s typical for a buyer to pay for the escrow, title, and any homeowners association move-in fees involved in a transaction,” says Matthew Morgus, a Realtor® with Compass in San Francisco. “At the same time, the seller will be responsible for city and county transfer taxes and HOA move-out fees.”
However, Morgus says, in Los Angeles it’s common for the buyer and seller to both pay escrow fees, while the seller usually pays for any title and all HOA transfer fees along with the city and county transfer taxes.
What are other compliance fees?
You might also encounter fees associated with bringing your home into compliance with local city, county, or state codes, Morgus says.
“The compliance fees will be different from state to state, county to county, and city to city—this all depends on what is in need of compliance in each area,” he explains. “For example in Los Angeles, where there is a major drought and earthquakes, homes, condos, and multifamily units will need to have smoke and carbon [monoxide] detectors, low-flush toilets, water-efficient shower heads, gas shut-off valves installed prior to the closing.”
Typically a seller will pay for the compliance inspection (which can be anywhere from $75 to $100); however, a seller would pay for all of the work to be completed.