Long & Foster Real Estate Inc., the largest real estate firm in Maryland, has begun charging its buyers in the Baltimore metropolitan area a $149 documentation fee.
The buyer fee comes at a time when the company has enjoyed some of its most productive months in its history.
Last week, Long & Foster reported that its August sales volume was up 14 percent over the previous August, and its year-to-date sales are running 11 percent ahead of 1999.
Sellers for the past two years have been paying a similar fee in addition to the traditional 6 percent or 7 percent commission charged by brokers based on the purchase price of the home.
Long & Foster instituted the buyer fee in the Washington area last month and started writing it into Baltimore-area buyer brokerage contracts this month.
Company President P. Wesley Foster Jr. defended the action.
"It is something that real estate firms all over the country are doing," Foster said. "We are far from the first. We felt like we needed to do it if we could.
"We know that we have had a good year, but it is very difficult to make a profit. We are doing OK now, but when things slow up, that document fee covers all the problems that we have in documenting everything for the local and federal governments. ... It just helps, or will help us, maintain some profitability when things slow down."
Real Trends, an industry newsletter that ranks the nation's largest brokerages, said Long & Foster was the fourth-largest in the country last year with 64,189 transactions in which it represented the buyer or the seller.
Using that as a basis, documentation fees to buyers and sellers would generate about $9.5 million in revenue.
John Evans, president of O'Conor, Piper & Flynn ERA, the Baltimore area's largest realty firm, said his company does not have a buyer fee.
"We talk about our charges to the consumer in light of all the services we provide, and which is the best way and the fairest way to charge the consumer, but we have not addressed initiating a buyer's fee at this point," Evans said.
Coldwell Banker Stevens Realty Inc., a Virginia-based company that is making headway in the Baltimore market, charges an "administration" fee of $195 to its buyers.
"It is being done around the country, but I'm not sure how prevalent it is," said Laurie Moore-Moore, editor of Real Trends.
When the major real estate brokerages began charging a seller-documentation fee two years ago, they used a stagnant housing market as one of the reasons for the additional charge.
Since then, the Baltimore real estate market has rebounded with record-breaking sales and significant home ap- preciation.
The average sale price of a home in the Baltimore metropolitan area in August 1998 was $152,912. Last month it was $164,464.
Using a 7 percent commission rate, a home purchased last month would have generated an additional $809 in commissions for agent and broker.
Multiply that by the thousands of homes sold and that translates into hundreds of thousands of dollars in additional revenue for the companies.
Foster said that has not meant higher profits for his company.
"Right now, we pay out an average of 72 cents on the dollar to the agents, and having 28 cents left to pay for everything is awfully difficult," Foster said.
'Not a greedy person'
"I'm not a greedy person," he added. "I don't want to make huge amounts of money. But I do want to stay in business. And I will tell you that in 1993 and 1994, we netted, before taxes, less than $50 a house in the real estate business. That is truly scary. We have never not made money, but that was getting very close."
Evans also noted ever-growing costs associated with new technologies.
"The technology services that we provide on top of everything else is a huge cost, and the benefit ultimately back to the consumer is very, very large," he said. "Of course, we have all the compounding effects of all the governmental regulations that have been coming out over the last bunch of years that are impacting our costs. ... Today we have contracts that can be spread out over 20 and 30 pages, and much of that is the result of legislative enactments in order to protect the consumer."
Little backlash in D.C. area
When the company instituted the fee in the Washington area, Foster said, there was little backlash from buyers, who normally are not responsible for paying any fees to a brokerage.
"The thing of us doing it now, [is] if we do it later when the market is off, I think we'd have a bigger backlash than we will now," Foster said. "So we felt like we need to move on with it and do it when the market is a little better, because we know we are going to need it.
"Just how much the good times will last, I don't know. The good times have gone on longer than I would have thought. We're having three straight good years."
A year of having the fee
One area company that has had a buyer fee in place for more than a year is Re/Max Columbia in Howard County, which charges $150.
Donnell Spivey, an agent with Re/Max Columbia, recalled a "reluctance" among agents to go forth with the fee when it was introduced.
"How am I going to justify this fee to the buyer?" Spivey said of his initial reaction. "It was easier to justify it to the seller, but it was harder initially for me to justify it. But once I started doing it and went into it with the right attitude, it wasn't a problem. ... If you perceive it as being part of the service the buyer is receiving, then it is not a tough sale."
Fees annoy some agents
"The real estate agents are obviously not happy about some of these fees," Moore-Moore said. "Lots of times the consumer is going to look at them and say, 'No, I don't want to pay that fee.' So the agents may feel like they have to pick up that slack and pay that fee in the event the consumer doesn't want to. But on the other hand, the real estate brokerage company has to be sure that it can continue to exist."
She said brokers nationwide are grappling with how to increase profitability.
"What has happened is that you have a brokerage industry that has a business model that doesn't work. It is pretty obvious that it doesn't work," Moore-Moore said. "There is a whole lot of innovation and experimentation going on out there in the industry as people try to reinvent the basic business model."
Patrick J. Kane, senior vice president of Coldwell Banker Stevens, said that if a broker is able to give the customer what he wants, then the fee will be less of an issue.
"The fees to buyers and sellers are all dependent on the service that the broker and agent are prepared to give them," Kane said. "Any fee is worth it as long as you get what you need and are happy."