Flat Fees, Retainers, and Advance Fees - California Department of Real Estate – October 1999

In light of the recent NAR Proposed Settlement in the antitrust class action litigation, this article from the California Department of Real Estate is once again relevant.

?Check your state real estate laws before creating new, innovative ways to charge for services which require a real estate license.

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The Department has seen a recent proliferation of real estate brokers offering "flat fee" or "fee for service" type programs.? Under such programs, a broker usually offers certain services in exchange for an up front flat fee or charges a separate up front fee for each service offered.? Typical of the services offered are: inputting a property into the MLS; advertising property on the Internet; providing signs; supplying forms; providing a market analysis; holding an open house; preparing flyers; and placing ads in the newspaper or other print medium.? Some brokers offer a reduced commission -in exchange for advance payment for these services.? Also, some buyer brokers collect up front "retainer" fees for time and money spent seeking property for their clients.? Typically, if a prop" is found and purchased, the broker credits the retainer against the commission.? While these programs may offer benefits to consumers, they can, if not properly structured, lead to problems for a broker including license discipline.

?A fee collected up front for services, such as those listed above promoting the sale or locating of real property, is an advance fee as defined in Business and Professions Code Section 10026.? Before collecting an advance fee, a broker must, pursuant to Business and Professions Code Section 10085, obtain the Department's approval of the agreement and other advance fee materials.? Each broker collecting an advance fee must obtain approval of agreement, which he/she intends to use.? The Department cannot issue a "blanket approval" of an advance fee agreement, as services to be provided and circumstances do vary.? Therefore, there are no venders of bona fide "pre-approved" agreements.? We have seen brokers use preprinted contracts with "retainer" clauses or other advance fee provisions, only to discover that those provisions violated the Real Estate Law.? Generally, these brokers obtained the contracts from out-of-state venders, stationery stores or even from some well-known interstate forms providers.

?Before consideration can be given to approving an advance fee contract, the agreement must be submitted by the broker who intends to collect the advance fee and must contain the following essential elements:

?a) Be in contract form, with spaces for dating and execution by broker and principal

b) Be set in not less than 10-point type

c) Obligate the principal to pay, at a specified time, a specified advance fee;

d) Obligate broker to deposit the advance fee into a trust account and provide the principal with the verified accountings required by Business and Professions Code Section 10146;

e) Obligate broker to use the advance fee to fund specified services for the principal's benefit;

f) Allocate estimated portions of the advance fee to each of the services the broker agrees to provide; and Obligate the broker to complete the advance fee services by a specified date.

?This article is not intended to be an all-inclusive treatment of the subject of advance fees.? The advance fee definition covers more than just up front fees collected for services to be rendered to promote the sale or locating of real property.? A broker who is considering collecting advance fees should review Business and Professions Code Sections 10026,10027,10085 and 10146 as well as Regulations 2970 and 2972.? Licensees may also call the advance fee contract review desk at (916) 227-0770 with questions regarding advance fees.

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