'Junk' real estate fees cost consumers $2 billion a year, study says — or around $500 when you buy or sell a home. Here's how to spot them

In late July, the Washington, D.C.-based Consumer Policy Center released a report noting that so-called “junk fees” are rampant in real estate markets. In total, real estate junk fees cost American consumers about $2 billion annually — or between $400 to $2,500 for buyers and sellers alike. Worse yet, these fees are sometimes sprung on unsuspecting buyers and sellers during closing or shortly before contracts hit the table.

“It is difficult for brokers to justify charging a buyer or seller an admin fee when they are also charging them a 3% commission,” noted Stephen Brobeck, a CPC senior fellow, in a statement.

And not everyone is equally impacted, Brobeck goes on to note. “Because the fees are regressive, sometimes effectively increasing the commission rate by over half a percentage point, they hit first-time homebuyers especially hard.”

Even real estate agents are pushing back now

By and large, junk fees can be split into two piles: title, appraisal, recording, and HOA transfer are real third-party costs with a vendor behind each one.

“The fee people mean when they say ‘junk’ is the brokerage’s own admin or transaction or compliance charge, usually a few hundred dollars, that doesn’t buy the client anything they can point to,” Justin Black, a real estate advisor with LIV Sotheby’s International Realty in Breckenridge, Col., told Moneywise. “Keep the two piles separate and the whole question gets clearer.”

Part of the accountability for disclosing these fees comes down to the professionals consumers are working with, says the CPC. Finding out too late about these fees puts pressure on the consumer to forge ahead with the sale regardless.

“It appears that in the early stages of the sale, a number of agents are not informing, either verbally or in writing, the imposition of these junk fees,” said Wendy Gilch, a CPC fellow, in a statement. “When a consumer learns about the junk fee at a closing, they are under great pressure to approve it,” she added.

But even real estate professionals are unhappy with the number of these fees consumers are facing. And increasingly, they’re fighting back, with one “failure to disclose” lawsuit recently filed in Florida against Compass Realty, where two homebuyers sued over an undisclosed $475 flat transaction fee charged at closing.

“It annoys me when real estate brokerages charge surprise junk fees,” Daniel Amodeo, president of Boston-based Amo Realty, told Moneywise.

If a brokerage clearly discloses every fee upfront, that’s one thing, Amodeo noted. “What bothers me is when buyers or sellers first discover an administrative or transaction fee on the settlement statement after they’re already committed to the purchase,” he said.

“Consumers deserve to know every cost before they make one of the biggest financial decisions of their lives.”

How to push back on junk fees yourself

Learning what fees are legitimate and what ones are not can help bolster your argument.

“Some fees are legitimate, where the third-party costs are real, and buyers should expect them. “The flat brokerage admin fee is the one worth questioning,” Black said. “If nobody at the brokerage can tell you what service it pays for, that is your answer. It is a revenue line, and the client got nothing for it.”