Can Real Estate Agents Charge a Retainer? Don’t ask the National Association of Realtors!

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cash1.jpgEarlier today I read a discussion about someone in New York City who was looking for a real estate buyers agent to help them find a co-op. In their search, they found a realtor who agreed to help them, but required $495 up front to work with him. I, like many other people I asked about this, was up in arms about the down payment request, and decided to do some homework to find out if this was indeed,”kosher”.

My first thought was to contact the local board of realtors and got in touch with the Manhattan Board of Realtors. No one there was able to tell me if this was indeed legal, but recommended I contact the National Association of Realtors (NAR). I called up the NAR and asked a few people about this situation. Again, not one person there was able to help me out. Astonished, I asked who might know what the law/rules were in this situation, and was told to contact the State board. Like a busy little bee, I called the New York State Board Of Realtors and posed the same inquiry after telling them of my misadventures calling the other boards and getting nowhere. What did I find out?

NOTHING!

“Unfortunately, there is no one here who can answer your question,” I was told. The person who knew the answer wouldn’t be in until Monday, but I could try his email and maybe he could help me out in the remote chance he checks it.

Essentially, I found out that there is one person in the entire New York/National Association of Realtors system who knows if it is okay to charge a retainer fee. Is it only me, or is that just really hard to understand? The National Association of Realtors is a huge monster; it lobbies the US Government, has a massive marketing budget, and is a powerhouse in the world of business and real estate, yet one man holds the key to their secret information!

I experienced the wrath of being a Realtor first-hand for a few years while in California. In order to reap the (in my opinion) sole benefit of joining this group, access to the MLS, I had to jump through hoops, spend a small fortune, and join multiple local boards of realtors. It was an extremly frustrating process!

I stand baffled by the situation, and wonder how it is that there isn’t but one sole in the organization who can answer this mystery.

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Joshua Dorkin (@jrdorkin, Google+) is the founder and CEO of BiggerPockets.

16 Comments

  1. It doesn’t sound illegal at all. Why would it be?

    However… the little I read on the discussion board seemed like something stunk. $495 up front plus 3.5% buyer agent fee… doesn’t sound illegal, just like a really sucky deal.

    Plenty of buyer agents get the run around. Money up front sounds pretty damn good to be honest.

  2. It has been going on for years. My ex partner has done if for years here in California. However, it gets dicey and causes issues that many agents would shy away from. Mike was lucky enough to have a sister who was council for the California Assoc. of Realtors. She was a great resource to lean on as he was not liked by many agents or Board members. Getting fined was a way of life after awhile.I do believe that your hurdles will vary state to state.

  3. Why in the world would this be illegal? This is not a relationship that anyone is forced to enter into, there are more than enough REALTORS in the country to go out and find another one if you have a problem with this. In my experience, you normally get what you pay for, and that REALTOR might be a better negotiator than others and might be able to get you a better deal on a house. Or they might not, use your best judgement. Merle Haggard said it best “If you dont love it, leave it” If it bothers you that much, just dont do business with them, you wont win going up against the NAR trust me, your just spinnin your tires.

  4. It’s you. :)
    Really, it’s just a pricing problem. Whether it’s a commission or a fee, it’s just a price. As for who can answer the question, any competent real estate attorney could, as could the New York agency that regulates the real estate business.

  5. Everything in real estate is negotiable and we have a bazillion business models to prove that. When I first heard of an agent here in Michigan who was using a retainer I thought it was absurd. Now I think it is brilliant.

  6. I recently was at a seminar that focused on Realtors in my area. The speaker gave some ideas for seller and buyer’s agents to help them stand out from the competition.

    One thing he stated, was that the buyer’s agent should charge an upfront fee. He felt that it helps eliminate the buyer from having many realtors working for them at the same time, and only 1 of them possibly being paid. If the buyer’s agent found a house to purchase, then this fee would later come out of their final commission.

    The ideas was split among the Realtors at this seminar, some felt they could never ask for it or get it, others said they already do get it and don’t have too many people saying no to them.

    I don’t know if it’s right or wrong, but wanted to add some input.

  7. I can certainly see the benefit of charging a retainer, but even if I were able to (back when I was an agent), there is no chance I would have asked for one. Personally, I think it is obnoxious. Buyers/sellers are already handing away so much money to a full service agent. Charging a retainer on top of that (or even having to come up with more cash upfront) to satisfy a realtor’s fears about getting paid is just too much in my book.

    If you don’t want to deal with flaky buyers become a seller’s agent.

  8. A retainer is an advance fee for services. Many types of professional service providors (fee for service) collect part or all of their fees in advance.

    The guidelines for NAR would be the Code of Ethics.

    “You don’t ask – you don’t get!” – a quote from my grandmother….

    It is neither illegal, nor a violation of the Code of Ethics for a real estate professional to ask for and receive an advance payment. The issue is “in exchange for what”. There must be a relationship established and an agreement regarding the “fee for service”.

    AND of coure the realtor can only be paid from his/her broker – so payment must be to the broker.

    So – agents out there – do you have the stones to ask for and are you you a strong enough salesperson – to ask for and receive an advance?

  9. I might not ask my brother for one! Then again, I tend to shy away from working with family. I do agree with Dennis, it is not in voilation of the Code of Ethics. It is just business deal between a broker and the client.

    • Christine Logan on

      Hi,
      Here in MD, some agents have been charging a retainer for years and others are beginning to include it in their services. I don’t think it’s illegal but it will let you know who is serious about purchasing or renting. I charge a retainer for rentals of ($100), but it includes their credit report fee. In MD the buyer isn’t responsible for paying the commission to the agent, the seller is. So in my opinion the buyer really shouldn’t have much to argue because $500 is worth having a good Realtor to help you through the transaction.

  10. I recently hired a realtor to short sale my house. I am used to them charging a commission for this service, but not a commission AND front retainer fees to short sale my house along with an additional $944 at closing. This realtor was requesting 10% from my lender although she said the lenders usually don’t pay the realtors that much. I was able to negotiate my $4,300 out-of-pocket retainer fee to $1,200 and the realtor will request the $944 closing cost from my lender. I couldn’t find anything that said it was illegal. It was just odd since I was only $4,800 in arrears in payments; if I had the funds, I’d have paid my lender to prevent the short sale in the first place.

    • Ameryst Spivey on

      Now that IS outrageous, and they were definitely high rolling the lender because I can bet they only ended up with about 5%. That is the highest I’ve seen a lender pay for a short sale…and even to get that # the Realtor had to get them pretty close to payoff.

  11. Ameryst Spivey on

    It’s absolutely legal! As a matter of fact, there is a spot for it on the Buyers Representation Agreement used by Realtors. After getting burned by “flaky” buyers, I also have began to charge an upfront retainer. It’s less than $495, but I absolutely charge one….but I also have my closing attorneys credit it to the buyers on the HUD at closing (by taking it out of my at closing commission). If the buyer’s flake out and walk away from a deal, they lose $350 (which is most people’s motivation to do what they are required to do). It’s that simple. This is my JOB, not volunteer work. If you are a serious buyer and plan on actually complying with lenders’ request in order to achieve your dream of home ownership, you don’t have a problem. It’s pretty common here where I live…there are REO agents that charge upwards of $600 retainers. Ironically they have the highest gross closings. You attract the type of clients you market to…It’s really that simple.

  12. I enjoyed reading this. I’m a Realtor(r) in the Atlanta, GA area and I was Googling to find out what people’s thoughts are on retainer fees in the industry as I was contemplating modifying the way I conduct my business to include these. The rules will definitely vary from state to state; but I can tell you definitively that in GA and many other states it is definitely 100% legal and, in fact, in GA our standard boiler plate agency agreements have a fill in the blank space for the amount of retainer fee. In practice, very few agents utilize this as of now though I suspect that will be on the rise as more including myself learn how to better survive the current market conditions by working smarter. I have also read that in some states, it is actually law that a retainer fee must be collected. I believe Texas was the example I recall seeing.

  13. You can do retainers in Colorado as well. Section 7.2.3 on the Colorado Real Estate Commission Approved Exclusive Right-To-Buy Listing Contract for working with buyers is for entering the amount for a retainer.

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